Arbitration vs. Mediation vs. Litigation in a Post-COVID World

Arbitration Archives | Ritter Spencer

On the two-year anniversary of when the world shut down, I found myself reflecting on how my life as a commercial litigator has changed. COVID-19 has disrupted the entire judicial system as we once knew it, forcing courts with already congested dockets to shutter and quickly embrace modern technological advances to enable remote proceedings. With rare exception, Zoom hearings have now become the default, as have years-long delays and undesirable uncertainty—all of which lead to increased costs. While as counsel we have always been faced with the dilemma of how to most effectively and efficiently resolve contentious business disputes consistent with our clients’ objectives, with the COVID-related backlogs courts across the country are facing, arbitration and mediation offer desired alternatives.

Arbitration and mediation are confidential proceedings, whereas litigation is not. Court proceedings are open to the public and copies of nearly all filings are accessible to anyone. Thus, particularly in high-stakes disputes, many businesses prefer the opaque nature of alternative dispute resolution.

What are the primary differences between arbitration and litigation?

• Generally speaking, arbitration is more flexible, less formal, less expensive, simpler, and quicker than a trial.
• Arbitration affords flexibility in the selection of panelists, whereas judge assignments are purely random and, for defendants, depend entirely on where the plaintiff files the case. With arbitration, the parties can select arbitrators with a specific expertise or background in the relevant industry or subject matter of the dispute.
• With arbitration, parties have greater flexibility and control over deadlines and the discovery process. Among other things, parties can limit the types of discovery exchanged as well as the number of depositions.
• Arbitration promotes finality. When the arbitration panel renders a decision, this terminates the dispute (subject to a court’s confirmation of the award, or any of the very limited grounds for challenging an award), whereas the appeal of a court decision can prolong the proceedings for years to come.

What are the primary differences between arbitration and mediation?

• In arbitration, a neutral third-party acts as the judge, hears evidence, and makes a binding decision.
• In mediation, a neutral third-party offers non-binding recommendations and negotiates with the parties to assist them in reaching a resolution. However, unless all parties agree to specific deal points and terms of a resolution, the process is non-binding.
• Parties can agree to mediate a dispute at any point, whereas with arbitration, the hearing typically happens only after motion practice, discovery, and pre-hearing briefing.

The best method of dispute resolution depends on the particular facts and circumstances of your case. Bearing in mind that some disputes are contractually required to be resolved via mediation and then arbitration, having counsel experienced in business disputes is critical to evaluating the risks and benefits of each option. If you would like to discuss these or similar issues in more detail, please contact Katherine A. Grosh at (312) 368-0100 or kgrosh@lgattorneys.com.

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How Do You Know If Your Insurer Has Acted in Bad Faith?

Insurance Bad Faith Litigation - The Patterson Law Firm, LLC

Individuals and businesses procure insurance to protect against a variety of potential losses. For example, individuals insure their homes in case of property damage, and businesses insure for certain potential economic losses. When a loss occurs, often times the claim process seems simple: the insured submits a claim and the insurer pays the claim. However, things are not always so simple. The insurer may take the position that it is only required to pay some of the loss, or it may deny the claim altogether by contesting either the existence or the scope of coverage.

Contesting the scope of coverage or denying coverage outright is not necessarily bad faith. Bad faith is defined under Illinois law as conduct by an insurer that is “vexatious and unreasonable.” In an insurer is found to have committed bad faith, Section 155 of the Insurance Code allows the prevailing insured to recover reasonable attorneys’ fees, costs, and significant penalties.

Section 154.6 of the Illinois Insurance Code delineates certain improper claims practices that could constitute bad faith depending on the circumstances. Some examples include:

• Knowingly misrepresenting to claimants and insureds relevant facts or policy provisions relating to coverages at issue.
• Failing to acknowledge with reasonable promptness pertinent communications with respect to claims arising under the insurer’s policies.
• Failing to adopt and implement reasonable standards for the prompt investigations and settlement of claims arising under its policies.
• Compelling policyholders to institute suits to recover amounts due under its policies by offering substantially less than the amounts ultimately recovered in suits brought by them.
• Refusing to pay claims without conducting a reasonable investigation based on all available information.
• Failing to affirm or deny coverage of claims within a reasonable time after poof of loss statements have been completed.

While an insurance company who commits an improper claims practice under Section 154.6 of the Insurance Code is not per se engaged in bad faith, courts will review the totality of the circumstances in determining whether the insurer’s conduct was “vexatious and unreasonable” under Section 155. Such a finding would entitle the insured to recover fees and penalties.

Having an experienced attorney evaluate your individual or business insurance claims is critical for swift and effective resolution. For more information regarding these or similar issues, please contact Roenan Patt at rpatt@lgattorneys.com or (312) 368-0100.

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Selling Your Business?

John Smith owned a small manufacturing business.  One day he received a call from one of his competitors who said he was interested in buying John’s business.  John was now 75 and this seemed like the perfect opportunity for him to retire and have that “nest egg” for him live comfortably in retirement.

John met with the buyer and they discussed, in general, John’s business.  After the meeting, the buyer presented a letter of intent to John, which proposed a purchase price of $10,000,000, subject to the buyer’s due diligence investigation of John’s business.  John felt pleased with the letter of intent and signed and returned it to the buyer.

During a long and protracted (and quite thorough) due diligence, the buyer and his accountants and lawyers examined the business and its books and records.  Based upon their examination, they advised the buyer of various legal and financial risks that John’s business was exposed to and which could become issues that the buyer would have to face.

John could not produce all of his current contracts with his customers.  The contracts which he had contained provisions which could cause the contracts to be terminated upon a sale of the business or a transfer of the ownership of the business.  Their key employees had no employment agreements and could compete with the business once they terminated employment.  The leases for the business’s facilities could not be assigned.

Despite the issues with the business, the buyer was still interested in purchasing the business.  The bad news was that the revised purchase price was to be $8,500,000 with a significant portion to be held in escrow pending resolution of various legal issues.

The above scenario is very common with small business owners.  Bigger companies who regularly acquire smaller companies are “professionals” in the acquisition business.  They know exactly what to look for and they know how to “string the seller along” until they present a reduced offer which most sellers feel they have to accept.

If you are thinking of selling your business, make sure that your business is ready to be sold and that you have copies of all contracts and leases and that you understand what they provide and how they will be affected upon a sale.  Have written employment agreements with all your “key employees.”  Pay attention to your inventory, your accounts receivable and other assets which “drive the sales price.”  Protect your intellectual property by obtaining patents, to the extent applicable, and trademarks.

If you are considering selling your business and would like a “legal check-up,” please do not hesitate to contact:

Morris Saunders at:
msaunders@lgattorneys.com or 312-368-0100.

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