JBA Committee Spotlight: Mediating a ‘business divorce’

It can be intellectually challenging and emotionally draining, but it is never boring.

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  • | 12:00 a.m. March 11, 2024
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Steven Gard, JBA Alternative Dispute Resolution Practitioners Committee chair

As a mediator, you may be called upon to mediate a dispute between business partners or business co-owners. I call these disputes a “business divorce” because of the relationship between the parties and the emotions that are often involved.

As a litigator, I have represented the owners of technology companies who wanted to end their business relationship, as well as physicians, dentists and lawyers whose partnerships ended.

Each of these cases was settled through mediation. I have also mediated business divorces involving both professionals and nonprofessionals.

There can be many causes of these disputes, including differences between majority and minority owners, family pressures, client preferences, management issues, corporate governance issues, breaches of contract or fiduciary duty, founders’ egos, creative differences and physical or mental impairment of an owner or partner.

Business divorces may occur even among successful businesses.

The Beatles were wildly successful, but were only together for eight years. Meanwhile, the Rolling Stones are still rolling along after almost 60 years.

There are many advantages to settling a business divorce through mediation over litigating such disputes. Those advantages include factors that are common to mediation in general, such as the fact that mediation is generally faster and less expensive than litigation and the parties determine their own outcome rather than having that outcome determined by a judge, arbitrator or jury.

Another advantage is that mediation is confidential, and thus protects the parties and the business from having their “dirty laundry” aired in public. The proprietary information and trade secrets of the business can also be better protected through mediation.

Mediation is also more flexible and may result in an “outside-the-box” solution that can’t be achieved through litigation.

Lastly, mediators and parties should understand that the parties will continue to be involved in their respective profession or industry long after their dispute is resolved. Lingering animosity or enmity benefits no one.

As a mediator, there are some steps that you need to take to mediate one of these disputes.

You should become familiar with the business itself, its customers, product or service, market and workforce.

You should learn something about the business’s industry and competitors.

You should look into the relationship between the parties and try to find out the cause of the dispute. Sometimes the real cause of the dispute is not what the parties or their lawyers will tell you that it is.

Finally, you should check whether the business’s operating agreement, shareholder agreement or bylaws contain any provisions that might affect the resolution of the dispute.

Once you have prepared yourself as a mediator to mediate a business divorce, you should gather the parties together for a joint session and opening statements.

Some mediators skip this step, other than making their own mediator’s opening statement, but I prefer to allow the parties to address each other and to verbalize their respective positions. In my opening statement, I remind the parties and their lawyers that we’re in mediation-not in court, and I ask them to make their opening statements nonadversarial. This helps set the tone for a productive mediation.

Some business divorce mediations are conducted by videoconference for reasons of convenience or cost, but I prefer to conduct these mediations in person.

As far as the mediation itself is concerned, it is conducted much like any other commercial mediation, usually with separate breakout rooms.

One distinction from other commercial mediations, however, is that business divorces often lend themselves to creative solutions. As a mediator, you should always be aware of this possibility, and you should also suggest that the parties keep an open mind and be aware of potential outcomes that might satisfy all of the parties’ respective interests.

Some business divorces can be resolved by agreeing to put in place a process such as an “earn-out” or by agreeing to make changes in management personnel or structure. Sometimes an appraisal of the business will be required as part of the process.

Mediators should be aware that sometimes a business divorce dispute can’t be resolved with one transaction or event.

It should be evident that mediation of a business divorce can be more complicated than other types of mediation. It requires a mediator who is familiar with statutes governing partnerships, corporations and LLCs, familiar with business principles and financial statements and familiar with different methods and measures of valuing and dissolving a business.

Mediating a business divorce can be intellectually challenging and emotionally draining, but it is never boring.

Steven Gard is a Florida Supreme Court Certified Circuit Court Mediator and a Certified Federal Court Mediator in the Middle District of Florida.



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