Category: Dispute Resolution

ARBITRATION VS. LITIGATION

By , November 7, 2017 9:44 am

A key issue in negotiating and drafting any LLC operating agreement for multi-member LLCs is whether the dispute resolution provision in the agreement should provide for arbitration or for litigation.  For many years, I’ve leaned toward arbitration, since it is private and informal and often faster than litigation and sometimes less costly.  Thus, arbitration, not litigation, is the default dispute resolution method in the model operating agreements for multi-member LLCs in my LLC book.  However, recent experience has led me to reexamine this issue, and I am now inclined to think that for many multi-member LLCs—perhaps even for most—the best method is litigation, not arbitration, because (1) if you get a bad decision in arbitration, it is very hard to get that decision reversed in litigation under the federal arbitration act; and (2) the benefits of clarity and objectivity that court civil procedure and discovery rules provide are likely to outweigh the disadvantages of these rules.  It’s true that the parties can agree to comply with these rules in their arbitration, but it may be important to have a judge in court rather than an arbitrator in arbitration interpret and apply them.

ARBITRATION VS. LITIGATION

By , October 4, 2017 11:49 am

Under the link below is an interesting post about the complicated task of choosing between litigation and arbitration for dispute resolution.

Here’s the link:  http://www.corpcounsel.com/id=1202795458469/ATT-GC-Says-Choosing-ADR-Over-Court-Has-Become-Overriding-Philosophy?kw=AT%26T%20GC%20Says%20Choosing%20ADR%20Over%20Court%20Has%20Become%20%27Overriding%20Philosophy%27&et=editorial&bu=Corporate%20Counsel&cn=20170816&src=EMC-Email&pt=Daily%20Alert&slreturn=20170716073328

ARBITRATION

By , September 7, 2017 9:13 am

An important issue in drafting operating agreements for multi-member LLCs is whether these agreements should provide for dispute resolution among the members and managers by litigation or by arbitration.  The post under the link below is a brief but excellent overview about arbitration.

http://www.lexology.com/library/detail.aspx?g=1a018130-aa5f-4a74-89b7-d5acbe9efa69&utm_source=Lexology+Daily+Newsfeed&utm_medium=HTML+email+-+Body+-+General+section&utm_campaign=Lexology+subscriber+daily+feed&utm_content=Lexology+Daily+Newsfeed+2017-08-03&utm_term=

ARBITRATION VENUE

By , August 8, 2017 9:06 am

LLC operating agreements often do and should provide for the resolution of disputes among members and managers by arbitration.  However, arbitration clauses have to address many key issues, including the issue of venue.  Failure to properly address the issue of venue can have grave negative results, as shown in the post under the following link:

http://www.lexology.com/library/detail.aspx?g=135b9668-092e-4f50-9240-53673a3da806&utm_source=Lexology+Daily+Newsfeed&utm_medium=HTML+email+-+Body+-+General+section&utm_campaign=Lexology+subscriber+daily+feed&utm_content=Lexology+Daily+Newsfeed+2017-07-12&utm_term=

ARBITRATION

By , March 29, 2017 9:30 am

It is often appropriate to include arbitration clauses in the operating agreements of multi-member LLCs, and these clauses should often provide “delegation clauses” providing that all issues under the agreement, including even issues about the arbitration clauses themselves, must be addressed by the arbitrator. The link below addresses a 10th circuit case on the issue whether these delegation clauses are valid. If you are engaged in LLC formation practice in the 10th circuit, you need to know about this case.

Here is the link: http://arbitrationnation.com/10th-circuit-resolves-one-arbitrability-circuit-split-but-creates-another/

ARBITRATION

By , March 7, 2017 10:03 am

Arbitration provisions are important in the operating agreements of many multi-member LLCs.  In my experience, trial lawyers usually don’t like these provisions.  The article under the link below, entitled Businesses and Law Firms: What Not to Believe about Arbitration, provides an interesting discussion of what the authors believe and what they think is untrue about arbitration.  But do consider the source of the article:  The American Arbitration Association. . .

Here’s the link:  http://leadsight.insidecounsel.com/files/b/b5/b51185ae40fc6141abeea7b3e3e806b3.pdf

THE FEDERAL ARBITRATION ACT AND LLCS

By , January 18, 2017 12:51 pm

Many multi-member LLC  operating agreements contain arbitration provisions that are rooted in the Federal Arbitration Act (the “FAA”).  The decision summarized in the post under the link below is by the Nebraska Supreme Court, but it is relevant in all states.  In essence, it holds that the FAA applies even if the dispute in issue does not directly involve interstate commerce.

Here’s the link:  http://arbitrationnation.com/nebraska-real-estate-and-nebraska-borrowers-but-federal-arbitration-act-applies/

ARBITRATION

By , November 30, 2016 11:39 am

Arbitration provisions are indispensable in most multi-member LLC operating agreements.  The new blog post under the link below addresses the issue of which is better in an arbitration:  a single arbitrator or a three-arbitrator panel.  For most multi-member LLCs, a single arbitrator is the answer, but we should all be aware of arguments to the contrary.

Here’s the link:

http://www.corpcounsel.com/home/native-ad?mvi=1c297f3f629e4143b89a6ed6f8a7a897&cn=20160929&pt=Daily%20Alert&src=EMC-Email&et=editorial&bu=Corporate%20Counsel&slreturn=20160829074252#!/?

POSTS ABOUT LITIGATION VS. ARBITRATION

By , August 30, 2016 10:07 am

Every LLC operating agreement should contain an appropriate dispute resolution provision.  A key issue in planning and drafting these provisions is whether the client will be better served by arbitration or by litigation.  The link below is to a blog post about cost issues in making the above choice.  The post provides a link to an earlier article about litigation vs. arbitration.  However, to read either post, you have to subscribe as indicated in the link.

Here is the link:  http://www.insidecounsel.com/2012/12/06/which-costs-less-arbitration-or-litigation?&slreturn=1469107523

“TIE-BREAKER” CASE

By , August 22, 2016 12:25 pm

Tie-breaker provisions in LLC operating agreements can serve many valuable functions for your LLC formation clients—and can also, for some LLC members, have shocking results, as shown by Peter Mahler in his discussion of a recent New York case under the link below.  The case involves a New York corporation, but it is equally applicable to LLCs.

Here’s the link:

http://www.nybusinessdivorce.com/2016/07/articles/buyout/tie-breaker-shareholders-agreement-defeats-deadlock-dissolution-petition/