Every week as SmallBizLady, I conduct interviews with experts on my Twitter talk show #SmallBizChat. The show takes place every Wednesday on Twitter from 8-9 pm ET. This is excerpted from my interview with @ArbiClaims. Stephen Kane is a start up and small business attorney who got tired of getting calls from people he couldn’t help, i.e. they have a $3,500 claim against someone (unpaid invoice or security deposit matter) and it doesn’t make sense for them to pay me to help but they also don’t want to go through the hassle of small claims court. For more info, visit ArbiClaims.com
SmallBizLady: What do I do if I have a dispute with someone?
Stephen Kane: If you have a dispute with someone and don’t feel you can work it out with them directly, you may want to hire an attorney if the stakes and damages are high enough. However, attorneys can of course be costly. So you may want to consider other more affordable dispute resolution options, especially for lower dollar amounts and it’s not a total make it or break it situation. Namely – small claims court, mediation and arbitration.
SmallBizLady: When is small claims court a good idea?
Stephen Kane: Small claims court can be an effective dispute resolution tool if the amount of money in question is relatively small (i.e. someone owes you $2,500). Every state has a different limit for small claims court, AKA the highest dollar dispute you can argue in small claims court. But it’s typically less than $15,000 or lower. The filing fees are typically around $50 depending on the amount in dispute, and you can argue your case yourself without hiring an attorney. In fact, in some states, you are not allowed to have an attorney argue your case in small claims court. In those states, you can hire an attorney to get advice before going into small claims court. But that attorney cannot represent you in front of the court.
SmallBizLady: What is mediation?
Stephen Kane: Some small claims courts offer free mediation services using volunteer law students for example. Whether in small claims court or not, mediation is a process in which an independent third party helps two disputing parties discuss their issue in an attempt to negotiate an agreeable settlement. Mediation is not binding so either party can typically walk away at any time and there is no requirement that the parties settle. It’s more of an opportunity to air differences and find out if everything can be worked out for both sides.
SmallBizLady: What is arbitration?
Stephen Kane: Arbitration is an agreement between two parties to allow a third party (the arbitrator) to evaluate and make a decision regarding a dispute between the two parties, much like a judge & jury in court. There is federal and state regulation regarding arbitration. It’s considered an alternative dispute resolution mechanism same as mediation, as in it’s an alternative to court. Arbitration can be binding, in which case the arbitrator’s decision is final and court-enforceable. Or it can be non-binding, in which case the arbitrator’s decision is more of a trusted, objective resolution recommendation but not final or enforceable. ArbiClaims, for example, uses binding arbitration to help parties resolve small claims disputes online.
SmallBizLady: What’s the difference between mediation and arbitration?
Stephen Kane: The difference between mediation and arbitration can be somewhat confusing, especially when we’re talking about non-binding arbitration. Mediation is more like a negotiation between two parties whereas arbitration lets a third party (the arbitrator) review evidence, interview witnesses, consider facts and make a decision regarding a dispute, i.e. who owes whom money and how much. Some arbitration is final and court-enforceable (binding) and some are not (non-binding).
SmallBizLady: How do I actually collect my judgment?
Stephen Kane: It can be difficult to collect a judgment from a defendant, even when it comes to suing someone in court. The same goes for small claims court, arbitration and even mediation. In the case of small claims court, you get an official court judgment that you can take to local law enforcement to garnish wages and/or levy bank accounts for you to recover your judgment if the defendant doesn’t pay you on time. In the case of binding arbitration, you can do the same once you confirm your arbitration award, which happens in most cases, unless something goes awry. In the case of mediation, you typically get a written agreement that parties often adhere to because they took part in the process. But if parties don’t keep up their end of the bargain after out of court mediation, you can go to court to enforce that agreement like you would enforce a contract.
SmallBizLady: What do I do if I want to go to arbitration?
Stephen Kane: You invite the other party to agree to arbitration. There are a variety of arbitration services including JAMS and AAA (which tend to focus on high stakes matters), local independent arbitrators who are often retired judges or practicing lawyers, or a service like ArbiClaims which focuses on small claims disputes. You can also put an arbitration clause in any future contract, which says you, and the other party must to go to arbitration in case there’s ever a dispute between the two of you. JAMS, AAA and ArbiClaims offer sample clauses for inclusion in your contracts.
SmallBizLady: What do I do if I want to go to mediation?
Stephen Kane: Similar to arbitration, there are services that provide mediation. JAMS, for example, provides mediation in addition to arbitration. There are also independent mediators who are often former judges or practicing attorneys. You may want to take a look at mediate.com if you’re looking for one.
SmallBizLady: What can small businesses do to avoid disputes in the first place?
Stephen Kane: Get everything in writing. And make sure that the written document clearly spells out the rights, responsibilities, duties, liabilities, warranties, etc. of each party. Disputes are often more likely to happen when there’s confusion or ambiguity about things, versus when things are clear and you can show the other party that they committed to x y or z. A little investment upfront can spare you a lot of heartache down the road. And, if you do get into a disagreement even once you have something in writing, you’ll have that much easier a time resolving it whether that be in court, small claims court, mediation or arbitration.
SmallBizLady: How much does arbitration and mediation cost?
Stephen Kane: That can range quite a bit depending on the service, particular arbitrator or mediator, and amount in dispute. There are some free or low cost services which may be provided by the court, local bar association or some other local legal services or non-profit. So I recommend you consider and look into those options. JAMS and AAA can be quite costly since you often need to pay for a room rental, a minimum fee of close to $1,000 even for small matters, and an hourly fee to the arbitrator or mediator. ArbiClaims is a lower cost solution since it’s designed specifically for small claims matters and there’s no room rental rate since it’s all done online.
SmallBizLady: What’s wrong with just going to court?
Stephen Kane: Nothing. Especially if the dollar amount at issue is high enough to justify hiring and paying an attorney and/or it’s hugely impactful on your business. But, it can otherwise be too big of a distraction and expense to be worth it. Especially with small disputes, we operate under a legal system that’s too expensive and inefficient at resolving those small issues. That’s partly why we started ArbiClaims – to provide a cost effective alternative for smaller matters – and because we want to generally inspire people to work out their differences in a quicker, more efficient, more effective manner.
SmallBizLady: Why is arbitration good in general?
Stephen Kane: In the case of ArbiClaims, it’s more efficient. But in general it tends be faster, cheaper and more flexible than litigation. That’s why so many contracts include arbitration clauses that require parties to the contract to resolve disputes using arbitration. It depends on your particular situation but it’s certainly at least worth considering.
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