Phillips Nizer LLP Articles

Litigation Alternatives

Arbitration and mediation are timely and cost-effective means for reconciling disputes among textile mills, manufacturers and retailers

The mere mention of litigation is usually enough to send a cold shiver up the corporate spine of most businesses, including the apparel industry. As a result, arbitration and mediation are gaining widespread acceptance as alternative forms of dispute resolution.

Disagreements in the apparel industry are comprised mostly of contract disputes between manufacturers and retailers, but also include disputes between manufacturers and mills on quality of goods or timeliness of delivery. Arbitration and mediation are mechanisms for resolving these business disputes more quickly and efficiently. And, they can get money into the victor's hands sooner.

With arbitration, the parties in a dispute submit their differences to an impartial person or group, which renders a decision based on evidence supplied by both parties. This group can be mutually appointed, or can be in existence by statutory provision.

Mediation is a similar, yet faster alternative that is not as structured as arbitration. Mediation usually incorporates one impartial person who works with both parties, separately and jointly, to come to an agreement. I

Arbitration offers distinct advantages over traditional commercial litigation (a traditional court case). While litigation is complicated and can take years to settle, arbitration proceedings are easy to start and take relatively little time for a decision. The most widely known and respected forum for dispute arbitration is the American Arbitration Association (AAA), which handles more than 60,000 cases annually through 35 regional offices.

AAA's standardized rules and procedures allow disputes uniformity, privacy and professional administration. AAA procedures provide knowledgeable panels of arbitrators; and cases involving less than $25,000 are expedited.

To request arbitration, a party files a statement that briefly explains the nature of the dispute and the relief sought. For example, a manufacturer may be stuck with inventory that a retailer refused to accept because of quality or late delivery. A manufacturer that believes the retailer is in breach of contract can file a statement with the regional AAA office. These statements customarily are delivered to the other party by mail.

Because of its simplified process, mandatory arbitration clauses in sales contracts, licensing agreement, sales representation agreements, shareholder agreements and joint venture undertakings have been standard in the apparel and textile industry for years. These processes also can be used if deliveries are not on time or inspected properly before shipping.

Arbitration clauses also can be drafted to meet specific objectives, such as limiting the types of disputes or the amount of compensation awarded. And, parties may still submit existing disputes to an arbitration representative.

The process. AAA arbitration procedures offer pre-hearing conferences to work out problems, clarify issues or limit pre-trial discovery. In commercial litigation, the matters often prolong the pre-trial state.

After the pre-hearing conferences, the AAA submits lists of arbitrators to the parties for consideration. Each side should study the background information, which is furnished for each arbitrator, to ensure the best selection.

The selected arbitrators generally have specialized knowledge and years of experience in their fields.

AAA's mediation option can save time, and may help prevent actual arbitration. This no-risk, nonbinding process is not limited to any particular kind or size of dispute.

Mediation encourages new ideas, and assesses conflicting positions without fear that flexibility will be taken as a sign of weakness. Unless authorized to do so, mediators will not disclose facts revealed or positions taken in private by each side, but will use the information to help bring the parties closer to resolution. Case administrators also attempt to prevent mediation efforts from delaying the arbitration process if mediation fails.

Rules more relaxed. The arbitration hearing provides the apparel manufacturer with a less formal atmosphere than a courtroom, while allowing the parties to be involved in the outcome. Rules for submitting evidence are relaxed and testimony is often given in narrative form. Parties are given ample opportunity to tell their side of the story.

After all the evidence is presented, arbitrators are required to render a decision within five to 30 days, depending on the applicable rules. Not only does this usually yield a decision far quicker than most litigated cases, but the arbitrators have great flexibility in shaping the relief awarded. This also can allow an apparel manufacturer to get goods out the door faster, or be compensated for unacceptable materials and a resulting lost order.

Arbitrators may develop any form of compensation they deem just within the scope of the agreement between the parties. This may involved creative business solutions, such as verbal modifica-tions to a written contract between a retailer and an apparel manufacturer.

The streamlined, informal procedures also contribute to another important benefit of arbitration: reduced costs, both in attorneys' fees and in relieving key personnel from time-consuming and distracting legal proceedings.

"Taken from Apparel Industry Magazine © 1991 http://www.svi-atl.com."