Perhaps I shouldn’t be telling you this (you’ll see why in a moment), but I think you ought to know. 

Many start-ups, professional practices, and other small businesses lack line-items in their budgets for legal representation.  But they place themselves (and their owners) in considerable peril when they forego having solid written business agreements.  Owners of businesses and professional practices often assume that they have workable understandings with their vendors, associates, and partners.   These assumptions often are misguided, because even the process of negotiating an agreement reveals possible future pitfalls and misconceptions that should be addressed now, before they become mortal issues.  Lack of a written agreement often means there hasn’t been a true meeting of the minds. 

Absent a well-written agreement, all too often something goes very wrong, and then there’s hell to pay in terms of cost, disruption, risk, and other adverse consequences (such as court litigation) of failing to have solid written agreements in place.  Having the right business agreements in place is not an absolute guarantee that you’ll be able to avoid misunderstandings, but it helps protect you and your business or professional practice.

Here’s part of the problem: When faced with legal issues, many try the DIY (do-it-yourself) route, figuring that they’re smart, experienced business people, and therefore should be able to modify old contract forms, and/or find sample contractual provisions online, and cobble them together into a workable agreement.  Some of the pitfalls with this approach, however, include that many aspects of the law aren’t intuitive, many words have legal meanings different from their common meanings, various contractual provisions interact differently in different circumstances, and the education and experience of lawyers trained in the area of drafting contracts should not be lightly ignored.  DIY-ers usually find themselves in a situation akin to steering a rudderless ship, or trying to fix electric wiring or plumbing without the right knowledge or tools.  The results (misdirection, shock, and flood) are the same, and the hapless business owner ultimately pays a far greater price down the road in terms of liability, disruption, business risk, and yes, eventual expenditure of legal fees. 

I can speak neutrally (and I hope informatively and compellingly) on this because I’m not the lawyer who drafts the agreements for the professional practices and other businesses, so I have no self-interest here.  Instead, I’m either the lawyer who represents one side or the other in litigation or arbitration, after something goes wrong and there’s a disagreement that’s not governed by a customized written contract (employment agreement, shareholders agreement, LLC operating agreement, vendor-vendee agreement, services agreement, etc.); or I’m the one who serves as impartial neutral arbitrator or mediator of the dispute. 

I all-too-often litigate the results of the parties’ failure to have well-conceived and well-drafted business contracts.  So, to help avoid having to consult with me, hire the lawyers who can help craft a solid written business agreement for you.  It’s good preventive legal medicine. 

The author is a Business Litigator, Arbitrator, and Mediator in Uniondale, Long Island, NY. He can be reached through his website here or at 516-229-2360. 

© 2011 David J. Abeshouse

[Editor's Note:  This post was originally published in the Basso on Business Blog and is reproduced with permission here.  For more information about the author, read "Introducing Guest Blogger David J. Abeshouse," here.]  

David’s legal and alternative dispute resolution (“ADR”) practice focuses on litigations, arbitrations and mediations involving small and medium-sized businesses and professional practices.  Because he serves not only as an advocate, but also as a neutral decision maker and settlement facilitator, he has a broad-based, well-rounded perspective on — and unique insights about —  commercial disputes.  You can read more about David’s practice and background here.

David and I share many of the same views on key issues pertinent to B-2-B ADR and litigation.  We both believe that the parties are architects of their own dispute resolution destiny, and, if they wish to take advantage of the many benefits that B-2-B arbitration and mediation can offer, then it is incumbent upon them to take a proactive role in structuring the process in a manner that advances their business interests.  That is true whether the party is a large global insurer or reinsurer, a medium-sized financial service company or retail concern, or a small closely-held company or professional practice doing mostly local business.  Most large companies, and many medium-sized ones, know this and their sophisticated, in-house legal departments often devote substantial time and money into educating themselves about ADR and ensuring that their business contracts, including their ADR-related ones, are as carefully designed and well drafted. 

Smaller companies do not always have in-house the resources to prepare for and deal with disputes, even though disputes are one of the unfortunate realities of doing business.  And while the frequency and number of disputes small companies must handle is generally low, their severity can be quite high — even fatal. 

Dispute resolution and prevention is thus at least as important to smaller businesses as it is to large, multi-national companies.  Yet many smaller business devote few or no resources to dispute management.  

Sometimes this disparity in resource and risk allocation is a simple fact of economic life, including the law of large (and small) numbers.  In others it may evidence a conscious or unconscious decision to assume more risk than necessary or appropriate.  

Both David and I are experienced litigators who have seen firsthand the negative consequences that large, medium and small businesses can suffer as a result of poorly drafted contracts, including ADR-related contracts.  With the benefit of 20-20 hindsight we frequently wonder how it came to be that two business have found themselves in costly litigation or arbitration proceedings concerning a problem which might have been avoided had the parties more carefully drafted the contract or structured the transaction differently.  

This theme underscores David’s guest post, “Don’t Be Penny Wise and Pound Foolish with Contract Law,” which he originally published in the Basso on Business Blog.  Consider it recommended reading for those who own or work for small businesses. 

David has written two other, related articles that we will feature in the not-too-distant future, so stay tuned.

Earlier this morning the Disputing blog published the first installment of a multi-part guest post we are writing, entitled “AT&T Mobility v. Concepcion:  Can Discover Bank Withstand Stolt-Nielsen Scrutiny?”  (Read it here.)  Our focus in that post will be how Stolt-Nielsen bears on the Federal Arbitration Act preemption questions before the Court, and in particular, what (if anything) we can glean from the upcoming oral argument about those questions.  

The first installment briefly describes the preemption issues and comments on the uncertainty surrounding implied preemption because of Associate Justice Clarence Thomas’ rejection of that doctrine in his Wyeth v. Levine, 555 U.S. ___, 129 S. Ct. 1187 (2009), concurring opinion, see 129 S. Ct. at 1205 (Thomas, J., concurring), and the deference he accords state law in Federal Arbitration Act cases which (unlike AT&T Mobility) are brought in state court.  See, e.g., Buckeye Check Cashing, Inc. v. Cardegna, 546 US 440 (2006) (Thomas, J., dissenting) (“[I]n state-court proceedings, the FAA cannot be the basis for displacing a state law that prohibits enforcement of an arbitration clause contained in a contract that is unenforceable under state law.”).

The first installment also poses some examples of the types of Stolt-Nielsen-related questions Justices might ask the Concepcions’ counsel at the argument.  It will be interesting to see whether the Court asks questions of this type, and, if so, what the Concepcions have to say in response.     

The number of future installments will depend on what transpires at the argument.  We suspect that there will be at least two.  

We would like to thank Karl Bayer and Beth Graham of the Disputing blog for featuring us as an AT&T Mobility  guest blogger.

Jay debunks the media hype surrounding the United States Supreme Court’s recent decision in Rent-A-Center v. Jackson, ___ U.S. ___, slip op. (June 21, 2010), and argues (persuasively) that the case is a reasonable, natural and modest interpretation of the Court’s prior Federal Arbitration Act jurisprudence.  With one minor caveat we agree wholeheartedly with his insightful and pragmatic view of the case.

Our view of the decision may differ very slightly in that we believe that its scope is broader than the holding might suggest.  Jay is absolutely correct when he says that the decision permits parties to challenge delegation agreements (agreements to arbitrate arbitrability) on unconscionability grounds.  He says that there may be “dozens” of grounds on which to make such a challenge, and we think he is right about that, too. 

But we think that it will be very difficult to mount a successful challenge specifically directed at a delegation agreement.  And if we are right about that, then the practical effect of the decision will be that delegation agreements will usually be enforced, enabling arbitrators to decide most unconscionability challenges.  The scope of the decision is, in our view, therefore quite broad. 

We nevertheless agree with Jay that the decision makes perfect sense in light of the Court’s prior Federal Arbitration Act jurisprudence, and apart from our caveat about the decision’s scope, we are otherwise on the same page as Jay.  Of course, it may turn out that challenges to delegation agreements prove more successful than we think they will.

Jay is an American-Arbitration-Association certified arbitrator and mediator, and serves on the AAA’s Large Complex Case Panel.  He is a Fellow of the College of Commercial Arbitrators and a Distinguished Fellow of the International Academy of Mediators.   He offers arbitrator and mediator services through Judicate West and Professional Mediation Associates. 

Jay also serves as an adjunct professor of arbitration law at Pepperdine Law School, the University of Missouri-Kansas City Law School and the Werner Institute of Creighton Law School.  An AV-rated attorney, he is a member of the California bar and is admitted to practice before the United States Supreme Court.  He is listed in “Best Lawyers in America” for ADR, and in “Southern California Super Lawyers,” also for ADR.  You can visit his website here.

We hope you enjoy Jay’s article.

As readers may know, Don is an arbitrator, mediator, negotiator, AV-rated attorney, and business consultant, whose website is here.  He is an experienced commercial litigator, and was general counsel and president of hundred-million dollar plus communications- and technology-related companies.   He is listed in The Best Lawyers in America (Alternative Dispute Resolution; Woodward/White 2007, 2008).  In addition to his other work Don frequently writes and speaks on topics pertinent to ADR, and is an adjunct professor at Pepperdine University Law School’s prestigious Straus Institute for Dispute Resolution.  He serves as a co-manager of LinkedIn’s Commercial and Industry Arbitration and Mediation Group (here), and tweets about ADR-related topics on Twitter (follow Don here).   Don can be contacted here.  

Don was kind enough to send us a post on one of his favorite topics: brain science and its relevance to negotiation.  His post briefly describes a seminar on this subject, which he attended the weekend before last, and which he found particularly compelling.   Read about it here.

Psychology has informed negotiation theory for years. (See here.)  As a result, we know that all negotiators:

1. Are overconfident – we all live in Lake Wobegon where the grass is greener and everyone is above-average;
2. Reactively devalue offers coming from an adverse party – even if they happen to be in our interest (“it can’t be good for us if it came from them”); and
3. Have different risk tolerances – and react differently to the same offer.

But faster magnetic resonance imaging (“MRI”) machines have allowed brain scientists to monitor a subject’s reactions to different stimuli in real time.  That has accelerated the pace of discovery and expanded research frontiers.  Vanderbilt Law School, for instance, has received grants to investigate how insights of brain research affect the legal system.  (See here.)  When used in an effort to prove guilt or innocence, there is inevitable controversy.  But learning how the human brain often functions can be good training for negotiators and the mediators that often assist them.

I have long been interested in the ways economics and psychology can broaden the typical legal analysis in mediation.  The ABA recently published “How Brain Science can Make You a Better Lawyer” (here), a broad survey, but not particularly insightful negotiation theory.  So I took a course titled, “Neuro-Collaboration: How New Perspectives from the Neurosciences Can Enhance Your Collaborative Conflict Resolution Skills” (here) the weekend before last in beautiful Woodstock, Vermont (yes, the leaves were still changing). 

Because it was offered by the Straus Institute for Dispute Resolution at Pepperdine Law School (here) (the number one program in dispute resolution for at least five-years running), I had high expectations.  I had heard that the psychiatrist who co-taught the course – a clinical professor from UC San Francisco whom the Washington Post described as “a rare example of the fusing of scientific rigor with literary eloquence” – could make the concepts accessible to those not trained as physicians.  And he did. 

With the help of acclaimed legal trainer Pauline Tesler, Tom Lewis dispelled many of the common assumptions we make about how other people view a problem, and then constructed a framework of reference to help us understand and accommodate those hardwired responses in our work.  He covered how metaphorical processes can help us manage conflict and facilitate resolution.  I was riveted as he addressed what we could learn from neuroeconomics about “getting to the deal” and how the incumbent emotions and other non-rational factors could help us support constructive conflict resolution.

Tom deconstructs the human brain into its pieces.  The “reptile brain” near the stem that coordinates life functions and responds to rewards – money, power, position, etc.  He then stacks the moderating function of the limbic arc on top of that primitive but very useful core.  The limbic area makes us social mammals – seeking community and often moderating the go-it-alone impulses of the reptile brain.  Then he gets to the cortex that defines us as humans.  There we become ultra-social and collaborate to the point that we dominate and, at the same time, can use the products of those collaborative efforts to destroy ourselves.  Functional magnetic resonance imaging (“fMRI”) measures the responses in each of these areas to a variety of stimuli – like competitive or collaborative negotiating strategies – to track patterns under different conditions.

It is as intense as it sounds, but Tom works in clever video clips to keep his audience from glazing over.  Pauline sparked a lot of discussion from the class, most of whom knew the subject at some depth from their varied professional experiences in the mediation ring.  It was another step toward appreciating why people do what they do in negotiations, and in my own quest to be better able to anticipate and respond to those often predictable moves.

I will continue to be a student of this area and I hope to take other courses from Tom as it continues to expand at an accelerating pace.

Today, Disputing published Part IVB of our guest post (here) in which we consider how the Supreme Court might rule on the merits of the question.  We believe that at least five Justices will rule that the arbitrators should not, in the face of the agreements’ silence, have imposed class arbitration where, as here, there is no basis in the Federal Arbitration Act, New York state law or federal maritime law for implying consent to class arbitration.    

The Supreme Court’s decision in Stolt-Nielsen may have some important ramifications for both commercial and consumer arbitration.  So for advance coverage, tune into Disputing….

Today Disputing published Part IVA (here), in which we consider the first issue:  Who decides whether class arbitration can be imposed on the parties when their arbitration agreements are silent on that point?  Put differently, is the question one of arbitrability for the court or one of procedural arbitrability or contract interpretation for the arbitrators?    

Resolution of the question defines the standard of review.  Questions of arbitrability are reviewed de novo on the law and for clear error on the facts.  But if the question is one of procedural arbitrability or contract interpretation, the standard is the deferential one provided by Federal Arbitration Act Section 10, the one applied by both the District Court and the United States Court of Appeals for the Second Circuit. 

The arbitrators in Stolt-Nielsen decided that class arbitration was authorized by the parties’ arbitration agreements even though the agreements said nothing about class arbitration.  We believe that at least five Justices will conclude that this question was one of arbitrability for the Court to decide, and will either decide the issue de novo or remand it to the lower courts to decide. 

The Supreme Court’s decision in Stolt-Nielsen may have some important ramifications for both commercial and consumer arbitration.  So for advance coverage, tune into Disputing….

The Supreme Court’s decision in Stolt-Nielsen may have some important ramifications for both commercial and consumer arbitration.  And soon-to-be Justice Sotomayor may provide the swing vote in the case.  So for advance coverage, tune into Disputing….

I met Peter through the LinkedIn Commercial and Industry Arbitration Group (learn about the group here).   He’s a Visiting Assistant Professor at the University of Detroit Mercy Law School, where he teaches Contracts and Core Concepts.  He also teaches U.S. Contract Law at the University of Windsor and the Universiteit van Amsterdam.  He is currently on leave from the Case Western University School of Law, where he has been on the faculty since January 1996.  He’s a very smart, creative guy who is devoted to the law, critical analysis of important legal issues, and, even more importantly, legal education.    

Prior to entering the academic world, Peter spent eleven years immersed in the practice of commercial litigation in New York City, most recently as a partner in the New York City office of Akin Gump Strauss Hauer & Feld LLP.  He graduated with his J.D. from the University of Michigan Law School in 1984 and his A.B. in Ancient Greek and Latin from Brown University in 1981.

Since August 2008, Peter has written a blog, Ruling Imagination: Law and Creativity, that explores the ways law affects creative endeavors and the ways creativity informs the practice of law.  Prior to Ruling Imagination, he authored What is Fair Use?, a blog he wrote in connection with an assignment in one of his legal writing classes in which his students drafted cross-motions for summary judgment for a copyright infringement lawsuit.  Just this month Peter has also begun a blog, 1L Contracts, in which he intends to explore issues connected with the law of contracts as they arise through the coming academic year in his Contracts class at Detroit Mercy.

Peter recently wrote a two-part guest post for Disputing concerning class action waivers and mandatory arbitration agreements in consumer, online arbitration agreements, and whether courts should enforce such agreements.  (Available here and here)  That guest post discussed, among other things, the Massachussets Supreme Judicial Court’s decision in Feeney v. Dell Inc., ___ Mass. ___, slip op. (July 2, 2009),  which we had covered in two earlier posts, here and here.   

To make a long story short, Peter took the liberty of critiquing our critical analysis of Feeney in a detailed comment, complete with citations.  (Here)  I promptly contacted him and suggested that he turn his comment into a guest-blog post to which we would respond.  He graciously agreed to do that. 

So today we offer Peter’s guest-post, “The Argument for Judicial Power to Void Mandatory Arbitration Agreements and Class Action Waivers on State Public Policy Grounds,” which shall be followed in the not too distant future by our response, “The Argument Against Judicial Power to Void Mandatory Arbitration Agreements and Class Action Waivers on State Public Policy Grounds.”   Wherever you might come out on this controversial issue, we hope that you enjoy both posts.