Dan
Welcome to sound business insights. I’m Dan Watkins. This episode is about resolving business disputes. This podcast is not intended to provide legal advice.

Neil
Dan. One of the most common types of cases we work with is a business dispute. The Watkins firm takes a unique approach to resolving these disputes and it’s built on the four strategies. Would you summarize the four strategies we use to resolve disputes?

Dan
Well, if you’re going to be in a dispute, you should know what is the future for you? And the future for you is hopefully negotiation and resolution. Then if that doesn’t work, you may be in some sort of arbitration or trial, but before you get to an arbitration date or a trial, you’re likely going to be end up in a mediation or a settlement conference, meaning you’re going to have to go talk to a judge or a learned attorney about your dispute and have them try to help you resolve it.

Neil
So of the types of business disputes, we manage one of the most commonest disputes between partners, members, shareholders, investors, the owners of the company, right?

Dan
Correct. Shareholder disputes happen all the time. The better your agreement, at least likely you’ll be in a dispute, but a lot of times people get together because they know each other, they trust each other and they might not put down all the, what ifs in the future that might happen. And they end up in a fight.

Neil
What are some of the most common things that might lead to a dispute between members of an LLC or shareholders?

Dan
Well, there’s a lot of things. They are going to be in disagreement over and very widely. But one universal thing we found after 35 years of doing it is once the company starts making money, people will naturally rationalize their position to allow them to make a larger share of that money. Right? Once it starts making money it’s worth fighting over.

Neil
And what are some of the specific things like theft or commingling that can come between business partners?

Dan
We handle this from both sides, from the, uh, drafting of the agreements to the, uh, actual disputes. And one thing we’ve talked about is power and leverage. So if you don’t have a strong agreement and it’s just you and somebody else with a bland agreement, then the party with more power, more resources, the ability to fight can turn around and argue that the agreements you may have give them more rights and power. For example, you are just a shareholder investor and you don’t have that much money and you don’t have a strong agreement person in charge can say, well, I’m an officer now. And I award myself a million dollar a year salary, because I’m that great? And it’s what do you do? You didn’t cover that early and you need a good lawyer to cover that later because it’s going to be a fight.

Neil
So Dan, if they suspect a business partner of theft, is this something they should try to handle on their own? Or is this when they should come and talk to us,

Dan
Talk to a good lawyer right away. Who’s done this. For example, we had a case a long time ago, nine or 10 doctors were working together in our medical practice. And our two or three doctors were worried about something. They came to us and over that weekend, the managing members of the medical corporation took the entire practice, moved. It changed its phone number, location, changed it, mailing address and took all the money and assets and bank accounts. Wow. Didn’t even tell where the other partners, where they were going. They showed up for work on Monday and there was no more work. They had disappeared overnight down the street to a different facility with instructions to keep them out. Unbelievable. So knowing something might be going on is the time to come to your lawyer so that we can do things to a discover, whether there’s really something going on and B there are remedies in the law that can stop that.

Neil
And there are things we can recommend accidents. We can take to either gain additional evidence of that or to put a stop to what’s going on.

Dan
Yes, yes. We have experts that we use that can look at financial records better than a regular CPA. They’re called forensic CPAs. They can do a spot audit if we find something’s off five bucks, it’s the same as if it’s off 5 million, right. Numbers should match to the penny. Yep. If they don’t, it’s not hard to go find a reason why not usually it’s just a human error, you know, a accounting error. But if it’s not, sometimes we find it leads to real large theft.

Neil
And perhaps the biggest category of disputes is a contract dispute.

Dan
Sure.

Neil
And while there’s a limitless number of ways to get into a contract dispute, what’s really the essence of these disputes.

Dan
Everybody writes their contracts differently and there’s laws on every type of contract in the state of California, as far as how to interpret that. And sometimes people write contracts that are contract on the law. Some of the clauses may be unenforceable and even some judges may read them differently. so, and it never matters really unless there’s a lot of money at stake, right? That’s when everybody goes back, when they get that big contract, where all of a sudden your company’s going to be making triple what it did, then they go back and look at their partnership agreements. So if something like that happens, go see an experienced business lawyer who won’t just say, you need to follow a lawsuit who can try to negotiate some kind of resolution and see if you’re getting the benefit of the bargain and try to work it out.

Neil
Another common form of dispute lately is these PAGA disputes, the employee related actions. Tell us a little bit about these issues. Employers become enmeshed in

Dan
While PAGA has just been evolving and evolving the last five years. First, it went, there was no PAGA. Really. It means private attorney general act, and those were rare and only in different types of situations. But now, uh, PAGA is a small form of class action where you can grab one employee and then presume to represent all of the employees in the company. So now there’s PAGA defense strategies that we employ . So when your company gets sued, you want to let someone like us know immediately so that we can use our strategies and the law and the facts of your case to head this thing off before it gets running crazy

Neil
And PAGA disputes can become a phishing expedition, right?

Dan
Right. PAGA disputes will be, uh, one employee, one pay card, one paid stub, and a smart lawyer supposing that this little bit of evidence means there’s massive violations all over the company. There’s time limits on PAGA time limits that benefit the employer. If you act immediately, when you get any type of notice, those time limits are running on you. And if you act quickly enough, you can head off that PAGA. Great. But if you wait past the deadlines, then you lose a lot of rights and the plaintiff’s lawyer will do much better with his case against you.

Neil
You mentioned our unique approach to business disputes, starting when negotiation followed by mediation and if necessary arbitration or trial, let’s start with negotiation. A client comes into us and says, Dan, I’ve got a problem. And the first thing you’re going to talk about is negotiation. How can we help prepare the client to resolve it most quickly?

Dan
Well, as I told you, before, we want to get the facts down and we want the evidence they have in chronological order, because that’s the best way to communicate to a, the other party to a third party, to anyone is in chronological order. That’s how we think. Then I want to help our clients analyze the damages. Whether you are feeling like they owe you something, they’re not complying with the agreement or vice versa. So I want to want something more from you analyze the damages, analyze what it’s going to cost to fight. And also look at the future business. Whether we can salvage this relationship, all of those important things should come into play, give good advice. Sometimes we’ll even advise our clients how we would think about it and then let them go talk to their partner or whoever they’re dealing with on their own armed with our knowledge and our negotiation technique.

Neil
So you might actually coach them a little bit. So they’re ready for the conversation.

Dan
They are married to the dispute. So they’re married to every little fact. And if they have any kind of good business skills, we can coach them give them the law in layman’s terms so that when they negotiate, they’re negotiating with the knowledge of what we would say and even more facts. So they can actually be better than us. I have an example of a client. I told them, you’re never going to get a better least negotiation than this. It’s not possible. And, uh, so we had long discussions about it. I gave him all the law strategies what’s going to happen if this happens. So what happens if that happens? And he went and talked to the other side and got twice the deal I ha could have ever gotten. And to this day, we just joke. I go, I wish you were a lawyer. I’d hire you in a minute. Because you’re the best negotiator I’ve ever seen.

Neil
So while negotiation is a tactic, we can use to get the attention of other parties who are trying to avoid us, leveraged negotiation is what really gets their attention. Can you tell us the difference between a negotiation between the parties and what you consider to be leveraged negotiation?

Dan
Well, negotiations between two people are difficult because there’s personal matters. And when you talk with somebody like your wife, like anyone, anyone you’ve had any kind of relationship with just because you believe what you’re saying is correct. Doesn’t they mean that there’s not emotion involved there, right? And you have to understand that. So person to person negotiations can only go so far. And then when you have somebody speaking representative to representative, well, the two representatives aren’t going to have hurt feelings. We’re going to be able to work past hurt feelings and look at the bottom dollar line. And also look at the bottom line with business going forward, seeing if there’s a way to heal it, or if there’s nothing to heal, giving our client good advice.

Neil
Dan you’ve often told me that negotiations and in fact, resolving business disputes is all about a mastery of the facts.

Dan
That’s right. Knowing the facts, the damages, the law of the damages key, because that gives you the ability to, and your lawyer to predict what would happen if you went to trial tomorrow and you won, what would you win? That’s it, that’s the number. Cause in civil court, we’re only looking about dollar amounts now getting there and understanding human nature. That’s another thing, right? Preparation for my clients has to go with damages, the law and damages the facts, getting all the facts down so that we have things to say and then informing my client. We cannot just go in there. And here’s the saddest part and say, here’s the right number. Here’s what I’ll settle for. I’m done talking that doesn’t work. It should. Okay. We believe we’re, we’re all intelligent people. And if we all are intelligent people, we should be able to look at the facts. If we agree on the facts, apply law and come up with the exact same number. Like it’s an accounting problem, but it doesn’t work that way. People are not wired that way.

Neil
You always call it the dance.

Dan
Yes it is. It’s a dance. The university of Irvine has a law school program that teaches judges how to help people negotiate settlements. They have a long seminar and it talks about perception. And so I’m not a judge, so I didn’t get to go there. But I’ve spoken to many, many judges over the last 35 years and they’ve discussed about how they’re trained. And then they discussed about how many different moves it has to take for both parties to feel that they did as good as they possibly they could have done. And it won’t happen in one offer. I’ve never had it happen. 35 years. Never had someone say I’ll do it for this amount. And the other person says, sounds fair to me. They wouldn’t be coming to a lawyer. right. So you go through the dance move you’re right down. The settlement offers you come up with factual things to say legally things to say in between those offers. And then at the end of the day with an experienced judge or settlement conference referee you’ll end up with a settlement. That’ll be the number, the right number where both parties are a little upset, both parties, a little happy and everybody saved attorney’s fees and anguish and time in court.

Neil
So Dan, with business disputes in your experience, what portion of the cases are clear? Cut. One of the parties is obviously at fault versus situations where each one of the parties contributed a little bit to the issue at hand.

Dan
The, in a business dispute usually its really clear who broke the agreement. However, businesses operate on a longitudinal graph of time. So if you just analyze this person broke this agreement with me today and don’t analyze what the value of the overall investment is, right then you’re not really doing yourself anything good. You’re just being too focused on one little breach. When you could focus on that breach, balanced against how much profit I made over the years, balanced against my total investment balanced against, you know, do I want to continue on all those factors, which believe it or not we have experts for, they can put it in a number if we have to go to trial, but we can also talk intelligently with our clients about, okay, let’s put some numbers and value on this. And so that we’re not thinking too narrowly in a small box, we’re thinking outside the box and we know what we’re talking about. And what’s good for us as a business decision and as a legal decision.

Neil
So when negotiations are successful, what’s usually the outcome.

Dan
The outcome is we either have a real simple resolution and they go their own ways or we have a complex resolution or they agree on some kind of compensation and they agree on what to do going forward. Because they’re usually tied together almost like a marriage. And so you just can’t say it’s over because you didn’t pay me that $5,000 you owed me because there’s all these other entitlements and agreements and considerations you have to think about when moving forward.

Neil
So is there a document that kind of completes this process and wraps it up?

Dan
Yes. There’s a settlement agreement at the end of a dispute between two parties that are in business together is much different than two separate parties who had one contract.

Neil
Yeah. That makes sense.

Dan
They’re completely different. If you’re going to stay in business with each other, then you’re going to want additional clauses and assurances that this thing won’t happen again, you’re going to want to give some kind of compensation or power, change the structure, do something to improve the situation. Those things we can handle because we have a transaction team here too. We do. So when we acquire business, we’re already putting those kinds of clauses in. So you might be in a business dispute with a partner because you didn’t have those types of clauses in your agreement to begin with. And perhaps the resolution of your lawsuit will be having proper paperwork to go forward.

Neil
So most good relationships have disagreements along the way. And what you’re saying is even in business, a dispute can arise, which leads to growth that can lead to a change. And then you have to document these changes, evolve and move forward. Is that right?

Dan
That’s right.

Neil
So if negotiation isn’t successful, what’s the next step.

Dan
You’re going to go to either arbitration or trial. And as they say, that’s when the hammer comes down, that’s when you tell the other side, I’m not bluffing. If we don’t resolve this, I’m going to take everything. The law gives me in the form of damages or vice versa. I’m not going to give you anything because I’m going to use the law to deny you all your rights either way. That’s when people put their grievances on paper in legal form and get it into some kind of court or arbitrator’s office, then you have a year and a half to wait or two and a half years to wait while you beat each other up on who’s telling the truth and who’s not telling the truth. Wow.

Neil
And what’s the difference between arbitration and trial?

Dan
Well, arbitration and trial, before we go there mm-hmm before we actually get to arbitration yeah. Or trial, we have to file these papers, that place people on notice. We’re a notice pleading state. So you first place people on notice. Then you fight over the discovery, fight over the evidence. And that at some point in time, 90% of the time you are going to be in something called a mediation or settlement conference, which is different than just negotiating with a, your lawyer. This is where you’re going to sit in front of a, non-biased really intelligent settlement conference, judge or mediator. And he’s going to twist both your arms and hopefully slap you around to wake up to the facts. And he’s going to tell you good stories of the hundreds of trials he’s presided over and how they came out. Okay? And sometimes that wakes you up when you can have some judge, you know, doesn’t favor once out of the other, say, look, I tried 25 cases like yours. And the biggest fear was this, this and this or the other flip side of that. They say, you know, you’re going to win, but what is it going to cost you to get there? And how much is it going to hurt your business? What are you going to do to win this trial? You’re going to damage your entire company to win this case, or you going to do something reasonable, move on and carry on with your life. So those kind of things backed up with good old stories are very effective in solving cases.

Neil
So what are you looking for when you’re choosing a mediator

Dan
In trial? When you file your court case in the civil court, they have a list of, uh, of settlement conference judges. You can use. There’s also different companies that have good settlement judges with good reputations. You have to understand before you get to trial, the court system is designed to make it so that 95% of cases settle mm-hmm . So if 95% of cases are going to settle, you better have a good settlement conference strategy, or you’re only playing for the last 5%. That’s not real good, you know, strategy when it comes to litigation.

Neil
So are you looking for a mediator that has experience with this type of case?

Dan
Absolutely. There are mediators construction, defect, mediators, complex litigation, mediators, shareholder, dispute, mediators who have had more experience in that area. It’s also reputation of the mediator as, uh, the right type of disposition. Yes. Now, if you’re a client is not the kind of person who wants to have, you know, someone put them in a chokehold maybe you don’t go to that aggressive mediator, but every attorney in our office has experience with lots of mediators in town. There are lots of good ones. We really like the former judges, those, you know, experienced men and women from the bench turn out to be wonderful mediators that get problems solved in difficult situations.

Neil
And what are the advantages of settlement conferences and mediation, as opposed to waiting for arbitration or trial,

Dan
The cost, the cost of going to court, the risk of losing the risk of catching a judge or a jury in a bad mood that day or an arbitrator who just doesn’t get your kind of business or your kind of dispute. I mean, there’s a risk there. I had a trial once, uh, for my own parents back in the nineties where the judge was completing his last trial on the bench. It was a bench trial and he literally fell asleep much of the time during the three week trial. You’re kidding me. And it took us six months to get a verdict back from him where a law clerk had to go read the transcript and help him finish his last trial. He was in his early eighties and luckily we won or the one parents would’ve probably thrown me out, but yeah, this is a risk. Whoever thinks it’s not crazy.

Neil
So Dan there’s also the benefits of privacy and confidentiality associated with mediation or a settlement conference that doesn’t apply to a case in court.

Dan
Yes. If you go to mediation or settlement conference, for the most part, absolutely cannot use it against you. They can’t reference it. Civil code checks in 1152 also covers uh, known and unknown claims. When you finally settle the case, there’s been some new law on what can, and can’t be said, you can’t go crazy and say certain things in a mediation that could be admitted, but I would say 99.9% of the time, anything you say in a mediation or arbitration is completely confidential, keeps people talking.

Neil
Right. But it also keeps it out of the public record.

Dan
Yes.

Neil
So if you want to keep your business issues, private mediation is a good venue for that, isn’t it?

Dan
Yes. It’s effective. And it’s a good venue.

Neil
So how does the process of mediation actually work? Dan, are they sitting in the same room with the mediator or are they in different rooms and the mediators going back and forth? What’s it like

Dan
Mediation has evolved over the last 35 years. in the beginning, one of my practice, they would put all the parties in a room and have them speak to each other across the table about their feelings and everything else. And literally just have an accusation session. And I guess some smart psychologists thought to advise our community that was stupid. So now you are put in two different rooms, you usually don’t see each other. And the knowledgeable experience judge goes back and forth and says, tell me about your case. You’ve already submitted mediation brief. I understand your lawyer’s point of view. They’ll talk right to your client and say, what are your feelings on this? And that judge will get a feeling for the case. And then he’ll go into the next room for 30 to 40 minutes and get a real personal feeling for the case. And then they’ll start talking about, well, what do you think we can resolve it with? So they, you’re never going to be put in a situation where you’ve got to sit there and point fingers at somebody. The judge doesn’t want that. He just wants everyone to calm down and get to the real meat of the fight.

Neil
Hmm. And then help them to find solutions to the matter at hand

Dan
Yeah. Solutions that probably no one, but this third party judge thought of because that’s what he or she does every week of the year has a mediator coming up with really nice and intuitive, uh, solutions to a problem.

Neil
Custom solutions.

Dan
Yeah. Always.

Neil
And so what’s the outcome of a successful mediation in your eyes? Dan

Dan
Nobody’s fighting anymore. No, one’s paying $400 an hour in attorney’s fees. that? There’s a, uh, settlement agreement. There’s a document that outlines how they’re going to move forward. What they’re going to do, who’s going to pay what, and when they’re going to pay it. And who’s going to be prohibited from doing certain things. You know, the court and a mediator can outline provisional remedies. So it’s just not dollar signs coming down. They can outline, you know, orders of stay away. Orders. Don’t do this orders. They can outline almost anything you can think of in an agreement with enforcement tools inside of it. In fact, some of the judges I’ve had settlement conference with retain jurisdiction, right? That’s a wonderful thing. They’ll say, well, I’m going to retain jurisdiction while you perform this settlement conference. Mm-hmm that really makes people want to do what they say they’re going to do because they’ve got to go in front of the same judge. Those judges are not nice when they get lied to does

Neil
The fact that the parties in a mediation have skin in the game that they’ve participated in the resolution, does that in your mind increase the likelihood that they’re going to follow through and do what they’ve agreed to do?

Dan
Yeah. They’ve gotten a dose of fee therapy, attorney fee therapy. They’ve had to pay some greedy lawyer, a bunch of money to help them resolve their fight. and so, yeah, it’s sad to say, but it costs a lot of money to go to trial. There’s only so many judges and so many trials, a judge can’t have more than 40 trials a year. Right. Usually, and they’ve been given 1500 cases to resolve. So do your own math. Yeah. They’re going to have you encouraged to really research the facts of your case, really research the law of your case to the point where you’ve had a mediation and two intelligent people. Who’ve had the facts and the law cram down their throat for two and a half years should be able to see the right on the wall, how this case is going to go.

Neil
One can hope

Dan
So they could settle.

Neil
Thank you, Dan.

Dan
Sure. You can learn more about the Watkins firm at Watkins, confirm.com or caller office at (858) 535-1511.