Dispute Resolution Clauses 

Contract Teardown

All long standing business relationships eventually have conflicts and disagreements. Dispute resolution clauses are designed to bring the parties back together, if possible, and avoid the expense, time, and business damage of fighting it out publicly in court. Florida attorney Lisa Renee Wilcox tears down the dispute resolutions section of a trademark and license agreement. She shows how proper contract drafting of this clause is beneficial for both sides and can often help bring the parties back together.

Questions in this Episode:

  1. How does dispute resolution avoid court?
  2. What if negotiating fails?
  3. Can a company owner represent their company in mediation?
  4. Can you choose US law in a foreign dispute resolution?
  5. Why do public companies favor arbitration?

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Dispute Resolution Avoids the Court Battle

Dispute resolution methods of negotiating, mediation, and arbitration are a method that helps company owners and executives work out issues without spending all their time dragging their employees and companies through the court system.

“This [dispute resolution] makes them step up to the plate early on and gives each other notice of what the problem is.” Lisa Renee Wilcox

We are tearing down the Trademark Assignment and Licensing Agreement between R. R. Donnelley & Sons and LSC Communications US, LLC, and focusing on the drafting language in Article VI Dispute Resolution. The four main focus areas are Negotiation, Mediation, Arbitration, and how the rules of evidence and other court issues treat these forums.

Negotiation – The First Step

This contract lists the clauses of negotiation, mediation, and arbitration in the natural sequence they occur in the legal world. If you can resolve the issues by negotiating, there is no need for mediation, arbitration, or court. If negotiation doesn’t work, but mediation does, you still avoid the time and expense of arbitration and court. And if arbitration works, you have gone through negotiation and mediation, but at least you have avoided the public court battle.

Section 6.1 Negotiation is well written but gives the parties too much time. One of the reasons for dispute resolution is to speed up the process of resolving issues. Here, after receiving written notice, the parties have 45 days to try and resolve this by negotiating. If the first step of dispute resolution takes a month and a half, this is the beginning of a lengthy process. And every day these issues are not solved is a day of conflict for the two businesses with a previously harmonious business relationship.

“I do like that they have to give each other written notice and set a time to figure out if they can resolve it.”  Lisa Renee Wilcox

But, negotiation is a preemptive way of resolving conflicts. And since the written Dispute Notice must include a brief written description of the issue, both sides can focus on the exact problem early in the process.

But, most businesses will hire a lawyer to write the notice and be involved in any dispute resolution. And this raises the question of possibly creating a resolution process that may avoid court but creates more costs. 

Mediation

If the parties can’t resolve the issues within 45 days through negotiations, they agree to mediation. Unfortunately, since the agreement is still talking about entities, both parties must hire attorneys. They cannot personally represent their corporations without violating the unlicensed practice of law regulations for representing their own companies. It may seem odd that you can represent yourself in court, but you can not represent your corporation even if you are the sole owner. However, that is the rule in most jurisdictions in the US. But even with the attorneys on board, mediation still saves certain court costs, including filing fees and more.

After living with and working during the pandemic, one helpful point the contract drafter might add to the Mediation clause is the option of doing the mediation through Zoom, Skype, or similar platforms. That way, clients can save travel time and expense and be anywhere in the world as they work with the mediators and the attorney of their choice. 

There are some background rules, and the parties agree to comply with the Commercial Mediation Rules of the American Arbitration Association. But this clause uses an undefined term and states that the parties agree to “participate in good faith” in the mediation and negotiations.

But what is good faith in a mediation? Good faith can mean you presented your side of the argument and hopefully kept it confidential. A more thorough contract drafter might add necessary details and definitions to the meaning of “good faith.”

This clause also adds more days to the timeline. The parties have 45 days for negotiation and another 30 days for mediation. The parties might spend two and a half months before they get to arbitration. And 30 days is just the initial mediation period. The agreement allows a more extended mediation period if both parties agree.

Arbitration

The arbitration section adds more complexity and time to the dispute resolution process. The agreement specifically calls for a panel of three arbitrators.

“You are having to pay for three arbitrators to be present. And I think that is where it starts to get a little more expensive versus just having them maybe agree on one arbitrator."  Lisa Renee Wilcox

Three arbitrators seem unnecessary and a bit of an overkill. But, the agreement explicitly states, “There shall be three arbitrators.” Each party picks one arbitrator, and then those two arbitrators have an additional 20 days to select a third arbitrator.

Ironically, this adds a lot of process to a dispute resolution, which is supposed to be reducing the legal process. And the Arbitration section is dragging out the timeline much further.

The parties spent two and one-half months just to get to arbitration. But, Section 6.4 Arbitration Period gives them six more months to arbitrate.

Kraft Language by Comparison

Some contracts have better dispute resolution language. By comparison, Kraft Foods has dispute resolution language in their contracts, making the process quicker and simpler. For example, they give an initial 15 days for the representatives to try and settle the dispute versus the 45 day negotiation period with RR Donnelly’s agreement.

And Kraft does not force the parties to go through dispute resolution if they want to litigate. They can choose arbitration. Or they can go straight to court if they believe arbitration would be unproductive and speed up the process by months.

Also, since many companies do international business, Kraft does not limit dispute resolution to the US. 

I like that it is under the International Centre for Dispute Resolutions. -Lisa Renee Wilcox on Kraft's contract language #ContractTeardown Click To Tweet

It makes sense to consider an international dispute resolution forum with ever-increasing international trade. But Kraft kept the choice of law as New York State. By doing this, US companies can avail themselves of international arbitration while still having the comfort and knowledge of the New York statutes and case law.

Court Rules on the Treatment of Negotiation, Mediation, and Arbitration

While the parties agree to keep everything confidential in the dispute resolution proceedings, how will the court treat these dispute resolution processes?

Section 6.5 explains that the negotiation, mediation, conference, arbitration, discussion, or arbitration award under this agreement “shall be treated as compromise and settlement negotiations for purposes of Rule 408 of the Federal Rules of Evidence and comparable state rules.”

"It's useful, especially when you are talking to the CFOs and COOs of these companies and trying to get them onboard in understanding what they are trying to get resolved." Lisa Renee Wilcox 

This section is comprehensive, so your client does not have to guess about the rules during these procedures. And this clarity is helpful when explaining the case to the client.

The Biggest Advantage to Dispute Resolution

Are dispute resolution clauses helpful, or are the more detailed ones creating more process, more expense, and more delay for clients?

Much of the answer depends upon the relationship of the parties. If they had a friendly, productive, and long-standing business relationship, dispute resolution helps resolve their differences and gets them back on track. And it does so faster and with less cost.

But what about less ideal client situations? Today, even the less elegant and efficient dispute resolution clauses are better alternatives than going straight to court.

"Unfortunately, because the court system is so slowed down (and it is getting worse with the Coronavirus and everything else), this helps at the very least to move things along a little faster." Lisa Renee Wilcox

Due to the pandemic and the backed-up system, just getting a court hearing can be difficult. At least with dispute resolutions, the parties are working together, trying to come up with a written solution. And if that doesn’t work, they still have the option of litigating.

But no matter how efficient, or sometimes cumbersome, dispute resolutions are, they have one enormous advantage over litigating in court.

Dispute resolutions are private. They are not public and do not become part of the public record. For publicly traded companies, this can be extremely important. And even smaller businesses want to avoid the reputational fallout of an open court battle.

The privacy feature alone may be enough of a benefit for companies to accept the not-yet-streamlined dispute resolutions process.

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Show Notes

THE CONTRACT: Trademark Assignment and License Agreement

THE GUEST: After graduating from Stetson Law, Lisa Renee became a legal entrepreneur by helping herself and other students curb their student loans. Finally, she took on the biggest fight of her life by taking down a subsidiary of Enron. Lisa Renee has now expanded her practice by training new lawyers and case managers in her same winning techniques. She can be reached at lisa@3andrews.com or found on her website wilcoxlawpa.com.

THE HOST: Mike Whelan is the author of Lawyer Forward: Finding Your Place in the Future of Law and host of the Lawyer Forward community. Learn more about his work for attorneys at www.lawyerforward.com.

If you are interested in being a guest on Contract Teardown, please email us at community@lawinsider.com.

Interview Transcript

Mike Whelan [00:00:49] Hey, everybody, welcome back to the contractor down show from Law Insider. I’m Mike Whelen. The purpose in the show is exactly what it sounds like. We take contracts, we beat them up. We’re mean occasionally nice, but mostly mean because it’s funnier. I hang out with smart people like my friend Lisa Renee Wilcox, Lisa Renee, how are you today?

Lisa Renee Wilcox [00:01:06] I’m doing well. Thank you. I appreciate it.

Mike Whelan [00:01:09] We are glad to have you here. We’re talking about a subject that is of interest, especially as we talk about this sort of more holistic lawyering, which is this document. Let me show you guys. This comes from an agreement with assignments and licenses, and we’re going to compare to others. But specifically, we’re going to talk about this dispute resolution section. Lisa Renee before we dig in, what is this section? When are we going to see it? Why are we talking about this?

Lisa Renee Wilcox [00:01:34] So we’re talking about this to try to resolve, particularly like two different individual companies working together to resolve something prior to litigation that hopefully they can get it resolved with the CEO and CFOs so that they don’t have to spend all that time dragging it through the courts. And so this makes them step up to the plate early on and give each other notice of what the problem is.

Mike Whelan [00:02:01] Got it. Got it. So any time you have any kind of a relationship, we can talk about my marriage later if you want to. There will be, you know, the more you have contact with people, as my anthropology professor used to say, the more, you know, opportunities for harm. And so these are ongoing business relationships. There are opportunities for harm. They don’t have to lead to a divorce. Exactly. So we’re going to find ways to solve that. But before we dig into it, what about you? Lisa Renee, what is your background? What brings you to documents like this?

Lisa Renee Wilcox [00:02:30] So but before law school, I owned a bar and nightclub in Florida. And so when so you

Mike Whelan [00:02:36] know about, you know, about both disputes and divorce? Go ahead.

Lisa Renee Wilcox [00:02:41] Exactly. And and part of that, when I got the bar was the first property that I was leasing the eminent domain for many people in Tampa. So I had to experience that and dealing then with the landlord. Also, it would’ve been nice to have been able to negotiate ahead of time and not drag it through the courts. And so that, you know, I learned really early on before law school how much that can cost. So that was a big thing. After I sold the bar was maybe I should go to law school now. So that was a big reason.

Mike Whelan [00:03:17] Gosh, I thought all of us did because we all have history degrees and don’t know what to do next. But I like your more noble reasons. All right. Well, we’re going to dig into this mystery.

Lisa Renee Wilcox [00:03:25] Too graphic, too. Yeah, right?

Mike Whelan [00:03:27] So bar background and no, maybe the bar was helpful. We’ll get to that. But we’re going to dig into this thing before we do. Just briefly, tell me, Lisa Renee about this document. So we’re looking at this agreement, this assignment, trademark assignment and license agreement. Just give us quick context. What is this document before we dig into the dispute resolution session?

Lisa Renee Wilcox [00:03:46] So it’s basically it’s between these two companies are Donnelley Sons and LSC Communications and and the LSC has tons of trademarks that they’ve filed. So what they are doing is licensing the rights to this other company to use them. And and part of that is then making sure if the company that’s using the trademarks doesn’t do something right. They can resolve it. Pre lawsuit. Got it. It spells out then where and what laws would apply, which is big in the world and especially starting to get more international law for companies and with trademarks and across the world now with Amazon and everything else. So. Got it.

Mike Whelan [00:04:30] So in Article six of this document, under the heading dispute resolution, they give a bunch of different options for alternative dispute resolution and ways that you know you’re you’re dealing with these issues before they go to court. So let’s let’s just go down then what I’m going to do. Lisa Rene’s leads you through each of them. We’ll start with six one negotiation section. I’m assuming that this is like an order of preference that they’ll list each of these because this is the order they want to go in. So let’s start with negotiation. Tell me about this section. Do you like it? Do you like the way it’s written?

Lisa Renee Wilcox [00:04:59] I like the way it is written. I do think that they give a little too many, too much time with like forty five days with the notices, and I think they dragged it out a little bit too much. But otherwise I do like the fact that they they have to give each other written notice and set a time to really sit and try to figure out if they can resolve it, dragging it through attorneys, going through your mediation and arbitration and all that. So, you know, so this is a preemptive way of trying to resolve something, if they can. And that?

Mike Whelan [00:05:33] Yeah, I’m curious, and maybe we could talk about this with the other stages. Like would a business owner in this situation not hire a lawyer to send? This letter, right, like in a way where avoiding court, but we’re creating costs, I assume with each of these processes because you would get a lawyer to come and tell you how to do these things anyway. I mean, similarly, I might move you down to six two in the mediation. I mean, I’ve dealt with mediators. I’ve never gone to a mediation without having a lawyer with me. What do you think about six two? Is it accomplishing the ends of avoiding court like processes?

Lisa Renee Wilcox [00:06:08] I I think that it can help, unfortunately, to your staff. You’re still talking about entities and so they can’t represent themselves without potentially violating the unlicensed practice of law. So that’s why this is helpful for the companies to maybe save some money on filing fees for the litigation and everything else in the meantime. And now that with the coronavirus and everything too, I’m thinking what I would have added now into these agreements, especially with the mediation, is doing it via Zoom meeting and so that they could be anywhere in the world at that point, working with the mediator?

Mike Whelan [00:06:47] Yeah. I mean, they do agree. They agree to comply to the commercial mediation rules of the American Arbitration Association. So there’s some, some background rules that presumably somebody could look at. But I was interested in this sentence. It said the parties agreed to participate in good faith in the mediations and negotiations related thereto for a period of 30 days. Do we have any idea what good faith means in this context or what that requirement is?

Lisa Renee Wilcox [00:07:10] Well, that’s an issue. I think that should be laid out a little bit better. But no, I mean, good faith, meaning they actually presented their side of the argument or something at that point. But, you know, and then hopefully keep it confidential. But you know, that still could be an issue if they don’t. And that’s why I’m thinking even getting past the negotiation stage, which was to, you know, 45 days, I’m thinking, get on to mediation if you can get it resolved 45 days a long time in the scheme of the world.

Mike Whelan [00:07:44] So am I right that it was 45 days for negotiation, 30 days for mediation?

Lisa Renee Wilcox [00:07:50] Yeah.

Mike Whelan [00:07:52] Then if that doesn’t work, we jump down to six three four arbitration again. Some background rules, some some references to agreements outside this. What do you think of this arbitration section?

Lisa Renee Wilcox [00:08:05] I think it’s I think it’s pretty good. I mean, unfortunately, now then you’re having to pay for three arbitrators to then be present for it. So that’s where I think you starts to get a little more expensive versus, you know, just maybe having them just agree on one arbitrator versus having a panel of three. I don’t think it’s necessary in the scheme of things, but that’s where I think it can start to be more expensive.

Mike Whelan [00:08:33] Yeah, the language just to underline and says there shall be three arbitrators. Each party shall appoint one arbitrator within 20 calendar days of receipt by respondent of a copy of the demand for arbitration, the two party appointed arbitrators, et cetera, et cetera. Then we’re going to add a third person by drawing straws or something. You know, there’s a talk about strikes like being able to strike people’s arbitrary. I mean, this is a lot of process for a process that’s supposed to remove a bunch of the process.

Lisa Renee Wilcox [00:09:03] Right, exactly. So that’s one of the reasons I found that I didn’t really necessarily like this clause because it makes it so much more of a process that it probably needed to be to try to get it resolved. And then they could still go to litigation if they wanted after that. Even so, you know, that’s it. So that’s the one issue. I don’t see it. And it just it seems like it also just continues to drag out this dispute because of the number of days now you’re after the 60 and the forty five days and now this. Yeah. So yeah, what time is this agreement?

Mike Whelan [00:09:46] Sixty four is called the arbitration period, and what it says on there is any arbitration proceeding shall be concluded in a maximum of six months from the commencement of the arbitration, so we are dragging on and on. Did you see I know that you had looked at some other agreements on Law Insider and before we jump down to some of these other background rules. Did you see in any of the other agreements that you saw maybe better language or some learnings from other documents that you might be able to create better processes than this either?

Lisa Renee Wilcox [00:10:18] Well, what on this and the other agreement that I had, the Kraft Foods, I like the fact that they it’s a much quicker, you know, they have a 15 days for the initial representatives to try to get settled versus this, you know, longer time periods that this has in the licensing agreement and the Kraft one. It just seems that at. It helps move things along a little faster and and it also allows you to arbitrate or litigate. So, you know, if you do find that you just need to go ahead and file a lawsuit, this allows you at that point after at least attempted to settle the case, then you could just go ahead and litigate it at that point versus dragging it out in this three person arbitration and having to pay for all those arbitrators and everything else. You could just go ahead and move it into the court at that point with that one, which and then I also like that. Well, I like that it is under the International Center for Dispute Resolution. So that way now, if you’re dealing with companies, it seems now most companies have things going on all over the world. And so, yeah, especially with Amazon and those different companies where people are now exporting impertinence. So that’s what I’m thinking. It makes sense to be able to use the international scope versus just narrowing it down to the to the U.S. arbitration. And so, yeah, yeah, I do like that. It also allows them still to use New York law to emit, but, you know, as opposed to. So at least you know what laws are dealing with. You’re not trying to negotiate that part of it. But you know, it helps, I think, to have the international arbitration

Mike Whelan [00:12:11] right to clear that up early. Well, getting back to the lengthy the agreement it does in six five. Talk about some background rules. And so you mentioned before the requirement to keep things confidential. There’s other stuff in there about making sure people know this is negotiations for the purpose of federal rule, for weight of evidence and these background rules. It’s a long paragraph. Do you do you think this suffices? Do you do you like 06:05 and the way they talk about the background rules in any of the, you know, whether you choose negotiation, mediation or arbitration?

Lisa Renee Wilcox [00:12:44] I do like that because it lays out everything so you know exactly what you’re going to be dealing with, at the very least, not having to guess about the rules and what what’s going to be happening during this procedure so that at least I think it’s useful, especially when you know you’re talking to the CFO and CEOs of these companies and trying to get them on board and understanding what they’re trying to get resolved. I think it’s useful.

Mike Whelan [00:13:08] Right? Well, as I’m thinking about this as I sort of step back from the particulars of this agreement and the Kraft agreement and, you know, other agreement, we’ll make sure that you guys have access to over at LawInsider.com/resources to these particular agreements. But as I think big picture, I mean, I know that what you’re dealing with is these businesses that are trying to avoid too much process with the idea that, you know, process, I’m assuming, is more expensive. It takes longer. It makes it more likely that a given dispute is going to become a divorce, that they’re just not going to be able to work together anymore.

Lisa Renee Wilcox [00:13:45] Exactly.

Mike Whelan [00:13:45] I guess my question on the drafting side on the on, when a drafting lawyer steps into this exercise, drafting lawyers by nature are trying to predict all the bad outcomes. Isn’t there a risk when you write this kind of these kinds of that, you’re basically going to create a process that is expensive and time consuming and more likely to lead to a divorce. How do you, in the drafting exercise, make sure that you’re not creating a new crappy court system, basically.

Lisa Renee Wilcox [00:14:14] Well, unfortunately, I think because the court system is just so slow down now and it’s getting worse and worse, just the coronavirus and everything else that I think this only helps the very least to try to at least move. Things are a little bit faster than it would in, say, the court in a court hearing and trying to even just get a hearing scheduled. These days, it’s been difficult to so that at the very least, you know, the parties themselves are working together to try to get something resolved and heard, you know, and put in something in writing. And so I do like that. It’s to a certain degree I I haven’t ever seen. So when I start digging into these agreements and seeing it more spelled out, I started thinking, Well, that does make sense for then. Everybody knows what they’re supposed to be doing. So there’s no no dispute there. And then if they don’t do it, then they do still have a back, you know, they could go and litigate it at that point, essentially, if they didn’t do it, follow the rules. So that’s one nice thing is that they don’t all the rules and they still got yeah to go back and litigate.

Mike Whelan [00:15:24] But I’ve got to say, at least I’m maybe I’m just a pessimistic person, but I, you know, I’m looking at situations like this and what I would deal with divorces, for example, when I practice, you know, being able to determine the difference between what’s a legal problem and what’s not right and for when people come to lawyers in a divorce like they’re bringing the whole bundle of problems. But some of them just aren’t legal problems. And I wonder if in a situation like this, if the exercise of trying to come up with all these rules is itself creating, the more you create, the more ground for conflict you’re creating. Whereas if you know, if we said, look, these are not legal, you know, go figure them out, go get a business negotiator or whatever to come. And then once you guys come to an agreement, will turn it into legal documentation. I don’t know. To a degree, I feel like that’s what they’re trying to do with mediation. But in agreement like this, I I feel like you’re really creating a lot of ground for fights. I don’t know. What’s your experience with that? Am I? Is my fear off base?

Lisa Renee Wilcox [00:16:24] It depends on how good of a relationship the business, is it right? I mean, so if they had a decent one to start out with, then typically they want to try to get it resolved and between each other and not have it all part of the public record. That’s the other thing too, especially about these companies that are publicly traded. They’re trying to keep it under wraps as best they can. So that’s one of the reasons I thought it’s good that it’s not just part of the public record immediately following that lawsuit, but at least to try to resolve it without having the whole world know about it at that point.

Mike Whelan [00:16:57] Yeah, it’s a really good. That’s a really good point. Like even the idea that maybe this creates a bunch of process, but what we know is that process is confidential. Maybe that’s a good enough of a trade off. I mean, that’s an interesting point. Well, I think it’s an interesting context in these these companies trying to find ways to preserve relationships. Well, make sure, like I said, that these documents are available over at LawInsider.com/resources but Lisa Renee, for people who want to reach out to you? Learn more about your practice and how you help businesses with these kinds of conflicts. What’s the best way to reach out to?

Lisa Renee Wilcox [00:17:30] My email, typically at lisa@3Andrews.com, perfectly happy to discuss it. Yes. And my my version of these clauses was a lot smaller back in the day. So that’s why I found it’s kind of interesting, though, to see the difference, you know, with the bigger companies because I represent a lot of smaller companies and they wanted it to be a lot shorter. I found something.

Mike Whelan [00:17:56] And yet, no matter the size, you’re still dealing with the same goals. Well, I appreciate that’s interesting. Like I said, everybody go to lawinsider.com/resources. Also, if you want to be a guest on the Contract Teardown show and beat up contracts like we did today, just email us. We are at Community@LawInsider.Com. We’ll see you guys next time. Lisa Renee, thank you again for hanging out with us. All have a good day. Thank you.

Contributors

Mike Whelan
Mike Whelan
CEO @Lawyer Forward

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