Litigation and Alternative Dispute Resolution

In a perfect world, there are no disputes involved in your business and you always get paid the proper amount in a timely manner.  However, in this world, that is not the case.  Disputes happen and they can oftentimes turn into lawsuits.  You have options on how the dispute can be resolved.  There is litigation, which means having your matter heard through the courts by trial or settlement prior to trial.  There is alternative dispute resolution, which can include mediation, arbitration, neutral evaluation, and settlement conferences - oftentimes; it is even a combination of both litigation and alternative dispute resolution. 

 

Let's take a look at litigation first.  On the surface, it does not seem as if there are as many choices with litigation.  However, depending on the type of case, there are variations on how and where the litigation would be handled.  The court systems available in California are federal, state and even tribal.  The most commonly used would be the state courts.

 

California state courts are comprised of the Superior Courts and the Appellate Courts, which includes the Courts of Appeal and the California Supreme Court.  Each county in California has its own Superior Court system wherein a judge or jury will hear the testimony and evidence and then decide the case by applying the current law to the facts of the case presented.  These Superior Courts handle all civil matters (family law, probate, etc.), criminal cases, small claims cases, appeals of infractions (i.e. traffic ticket), and appeals of civil cases under $25,000.  Civil appeals over $25,000 are handled by the Courts of Appeal.  The Courts of Appeal do not handle a new trial but review the record of the trial court case to determine if a legal mistake was made and if that mistake affects the outcome.  If the parties still do not agree on the outcome of a case after the Court of Appeal, the last step is the California Supreme Court. 

 

Federally speaking, the court system is similar to California's, but is for federal matters.  There are the trial courts, called the U.S. District Courts, the appellate courts, called the U.S. Courts of Appeals, and the U.S. Supreme Court.  Bankruptcy matters are also heard in the U.S. Bankruptcy Court.  Federal cases consist of matters that have to do with the U.S. government, the U.S. Constitution, or federal laws.  The federal courts will also handle matters when there is diversity in jurisdiction (i.e., people from different states or countries).

 

Lastly, California courts also have Administrative Hearings, which are heard through the Office of Administrative Hearings.  As a contractor, if you are ever served with an Accusation or Citation from the Contractors' State License Board, rather than determining the matter in the superior courts, it would be done through the Office of Administrative Hearings. 

 

The most common forms of alternative dispute resolution ("ADR"), as mentioned above, are mediation, arbitration, neutral evaluation, and settlement conferences.  Oftentimes, litigation can begin before the case even goes to ADR.  The reason behind this is that ADR is usually less expensive, less time-consuming, and less formal than a trial.  Many agreements will have clauses in them that require one of the various methods of ADR.

 

Mediation is where the parties come together in front of an impartial person, the mediator, in order to reach a mutually acceptable resolution to the dispute.  The mediator is not there to decide the dispute but to help the parties communicate and settle the dispute themselves.

 

With Arbitration, there is also a neutral or impartial person called an arbitrator.  The arbitrator hears arguments and evidence from each party and then decides the outcome of the dispute.  Arbitration can be either binding or nonbinding. Binding arbitration means the parties waive their right to a trial and agree to accept the arbitrator's decision as final with generally, no right to an appeal. Nonbinding arbitration means that the parties can request a trial if they do not accept the arbitrator's decision.

 

In neutral evaluation, the parties present their case to a neutral person called an evaluator.  The evaluator then gives their opinion on the strength and weaknesses of each party's evidence and arguments on the dispute in question.  The evaluator's opinion is not binding but the parties use it as a basis to negotiate a resolution of the dispute. 

 

A settlement conference is a proceeding before a judge or neutral person that acts as a settlement officer in order to discuss settlement of the dispute.  The judge/settlement officer does not make any decision but helps the parties evaluate the strengths and weaknesses of their cases with the purpose of settling the dispute.  A settlement conference can be required by the court, called a mandatory settlement conference, and is usually close to the date of trial.  The parties can also choose to do it on their own, making it a voluntary settlement conference.  

 

As a businessperson, it is important to be aware of what your options are when you have a dispute.  Hopefully this will help let you know what is out there.  And do not forget to check clauses on any agreements so that you know what you are agreeing to!