Tuesday, October 27, 2009
Get It In Writing
A lawyer’s secrets to better contracts
Anticipate That Some Disputes May Not Be Resolved
As anyone who has been in business for any length of time no doubt realizes, disputes are bound to arise in even the best of relationships. The best time to try to resolve those disputes is while the relationship is good (usually at the beginning of the relationship).
Sometimes, however, seemingly insoluble problems arise in even the best relationships. When such problems arise, a well-drafted agreement will help guide the parties to a resolution, even if that means the parties will take their dispute to court or to arbitration.
Arbitration, a form of alternative dispute resolution (ADR), is an alternative to traditional litigation. In arbitration, disputes are submitted to one or more arbitrators who ultimately render a final decision or “award.” It’s similar to traditional litigation in that the process generally is governed by a set of procedural rules; however, arbitration proceedings usually are less formal than those in court. Unlike the typical court process, which generally is open to the public, disputes in arbitration can be resolved without publicly airing the dispute.
One of the benefits of arbitration is that the parties can agree to tailor how disputes will be handled. In doing so, the parties can agree to waive the right to a jury trial, or to discovery, in an effort to prevent disputes from being dragged out or becoming insanely expensive as the lawyers on each side turn even minor issues into their own mini-trial (what some laypeople might refer to as over-lawyering). However, this ability to tailor how disputes will be resolved comes at a price, and arbitration tends to be more expensive than typical court costs if for no other reason than the parties to an arbitration pay the arbitrator’s hourly fee; even when the arbitrator’s fee is split equally between the parties to a dispute, that fee alone can come to many thousands of dollars (although the parties also can agree in advance that the party who prevails at arbitration is entitled to recover these costs). In contrast, parties to litigation in the courts generally don’t pay, at least not directly, the judge’s salary.
Most states and even federal law recognize arbitration as a valid alternative to court process, even to the point of forcing parties who agree to arbitrate their disputes to proceed with arbitration. However, there’s one key requirement to ensure that a dispute will be arbitrated: The parties must agree to arbitrate their dispute. Absent an agreement—which generally is done well in advance of an actual dispute arising—disagreeing parties generally are left with no alternative but to submit their unresolved disputes to the court system.
There are pros and cons to each approach. For example, many states require corporations to be represented by a lawyer in court proceedings. For Schaumburg, Illinois-based photographer Howard Kier, the fact that he could represent his company without a lawyer in arbitration was reason enough to include an arbitration clause in his agreements. “While arbitration might not be right for everybody, I feel it’s right for me,” says Kier.
Not all photographers share Kier’s viewpoint. According to New York-based photographer Jack Reznicki, arbitration clauses are “one of the first things I try to cross out in any PO or contract. Arbitration can end up costing more than a court, and I may end up in front of an arbitrator who does not understand copyright law or something similar. I’d rather go to court.”
Reznicki’s concerns regarding the arbitrator’s knowledge of specific areas of law aren’t entirely justified. One of the benefits of arbitration is that it allows the parties to establish criteria for an appropriate arbitrator. On the other hand, there’s no guarantee that the judge assigned to a particular case in the court system will be knowledgeable in specialized areas of law such as copyright. Thus, if the parties want someone who specializes in a certain area of law presiding over their dispute and can agree upon those attributes in advance, arbitration may provide a distinct advantage.
Ultimately, each party has to weigh the pros and cons, and decide, well in advance of any disputes arising, how they want their disputes to be resolved.
Consider Your Contracts Works In Progress
Philosopher George Santayana, in The Life of Reason or the Phases of Human Progress, wrote, “Progress, far from consisting in change, depends on retentiveness. When change is absolute there remains no being to improve and no direction is set for possible improvement: and when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it.” Santayana’s thoughts regarding human progress are equally applicable to contracts.
A good contract should be considered a work in progress. One of the great mistakes that anyone using contracts on a regular basis can make is to consider the contracts complete, for a static contract is incapable of addressing any of the problems that can and will arise. At the same time, a certain amount of consistency should be maintained to ensure that the contract continues to address problems previously addressed. Thus, one of the secrets to using contracts effectively is to review and update the contract periodically while maintaining as much of the existing structure as possible.
It may take some time to achieve the right balance, resulting in a contract that you and your clients will be happy to sign. If it’s any consolation, there are some lawyers who will go the span of their careers without achieving such a result. However, with these concepts in mind, you should be able to work closely with your lawyer to ensure that your contract becomes something that protects you and that your clients will be happy to sign.
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