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Resolving a Partnership Dispute Through Mediation or Arbitration

When business partners reach an impasse, it will often (though not always) be in everyone’s best interests to find a way to come to terms. Not only will this help to minimize the costs of dispute resolution, but, in many cases, it will also help to maximize the chances of the partnership remaining viable as a going concern. Mediation and arbitration can both be effective tools for resolving disputes among business partners, and engaging an experienced Miami partnership dispute attorney promptly can help keep the lines of communication open—providing an opportunity to pursue alternative dispute resolution (ADR) before the dispute leads to litigation.

Is Mediation or Arbitration Required?

When facing a partnership dispute, one of the first steps to take is to review the partnership agreement’s dispute resolution provisions. This will provide the answer to an important question: Is mediation or arbitration required?

Partnership agreements frequently include provisions for mandatory mediation or arbitration. These provisions are generally enforceable; so, unless disputing partners agree otherwise, they will need to adhere to the terms to which they previously agreed.

If a partnership agreement does not require mediation or arbitration, then disputing partners will need to make a decision about how to proceed. Litigation is always on the table, but it takes a mutual agreement to pursue mediation or arbitration. While disputing partners may agree on very little, they may at least be able to agree to pursue mediation or arbitration—as both of these options are typically much faster and much more cost-effective than litigating a dispute in court.

What Are the Benefits of Mediating a Partnership Dispute?

Mediation can be a highly effective tool for resolving partnership disputes, particularly when partners pursue mediation relatively soon after their dispute arises. In mediation, the partners work with a neutral mediator who helps keep their negotiations on track, but they retain full control over the outcome of their dispute.

This is an important distinction between mediation and arbitration, as we discuss in greater detail below. A mediator is a facilitator, not a decision-maker. The mediator’s role is to help prevent the partners’ negotiations from devolving beyond any hope of reconciliation, and to suggest possible solutions that the partners haven’t thought of on their own.

Thus, when it comes to dispute resolution, mediation provides both maximum flexibility and maximum control. The potential downside is that a resolution is not guaranteed. While mediation typically works well when both partners are willing to negotiate in good faith and have a shared interest in resolving their dispute as efficiently as possible, neither partner is required to agree to anything through the mediation process.

As a result, when partnership agreements require mediation, they will typically require that disputing partners participate in good faith, and they will typically require that the disputing partners participate in mediation for a minimum number of hours or days (unless they reach an agreement sooner). In the end, both partners must accept that failing to reach an agreement means spending additional money on their dispute and having someone else (either a judge or arbitrator) render a decision for them, and these factors can be powerful motivators for working to find a mutually agreeable path forward.

What Are the Benefits of Arbitrating a Partnership Dispute?

Despite the fact that mediation and arbitration often get lumped together, they are very different. While mediation is effectively a form of guided negotiation, arbitration is more akin to an abridged version of litigation. Instead of working to find a way to come to terms, the parties take discovery, prepare their arguments and evidence, and then present their case to the arbitrator (or arbitration panel). The arbitrator (or arbitration panel) then renders a binding decision that is only subject to appeal on limited grounds.

This has both pros and cons for disputing partners. On the one hand, they are guaranteed a final resolution. On the other, the terms of this resolution are ultimately out of their control. Additionally, while mediation ends with an agreement (when it is successful), arbitration is much more likely to spell the end of the partners’ business relationship.

With that said, arbitration is an effective means of dispute resolution; and, when going through the arbitration process, disputing partners remain free to settle at any time. Just as many lawsuits settle before trial, many arbitration cases settle before the parties’ hearing date arrives.

When Might it Not Be in a Partner’s Best Interests to Pursue Mediation or Arbitration?

While pursuing mediation or arbitration will make sense in many cases, these are not always the best options for resolving a partnership dispute. Many partnership agreements include exceptions to their mandatory mediation and arbitration clauses that allow the partners to seek injunctions and remedies in court when immediate relief is necessary. For example, mediation or arbitration may not provide sufficient relief in cases involving:

  • Usurping a business opportunity for a competing business or for personal gain
  • Misuse or improper disclosure of the partnership’s trade secrets or confidential information
  • Other breaches of a partner’s fiduciary duty or duty of loyalty

In these types of scenarios, going through the mediation or arbitration process can lead to additional—and potentially irreversible—losses. As a result, going to court may be the first step instead of a means of last resort. Once appropriate emergency or temporary relief has been obtained, however, mediation or arbitration could still be an effective (and perhaps necessary) tool for obtaining a final resolution that either keeps the partnership together or allows the partners to go their separate ways.

Discuss Your Options with a Miami Partnership Dispute Attorney at Edelboim Lieberman

If you are facing a partnership dispute and have questions about the options you have available, we invite you to get in touch. We represent partners in mediation, arbitration and litigation throughout South Florida. To schedule a complimentary initial consultation with a Miami partnership dispute attorney at Edelboim Lieberman, give us a call at 305-768-9909 or contact us confidentially online today.

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