Anne has breach-of-fiduciary-duty and corporate waste claims against John, a
former fifty-percent-stockholder in JoAnne Corp., a closely-held corporation
that Anne and John formed. Anne’s attorney was all ready to assert those
claims in an arbitration proceeding because the shareholder agreement between
Anne and John had a clear and unambiguous arbitration provision. However,
Anne’s attorney also wants to assert claims against John’s newly-formed
company. That is the company that is competing with JoAnne Corp.; that is
the company that stole all of JoAnne Corp.’s customers; and that is the company
that has the assets to pay the sizeable arbitration award that Anne’s attorney
seeks to recover.
But here is the rub: Pennsylvania courts repeatedly have held that
you cannot force a party to arbitration if that party has not contracted to go
to arbitration. Because John’s newly-formed company was not a party to the
arbitration agreement, Anne is not entitled to arbitrate her claims against this
company. To make matters worse, if Anne files a lawsuit against both John
and JoAnne Corp., you can bet that John will object and seek to arbitrate Anne’s
claims against him. Even if Anne manages to keep alive the lawsuit against
John and his newly-formed company – and that is a long-shot – there will be
delays and legal fees that will be costly in every sense of the word.
Before fighting on two fronts, however, there is a third option that Anne’s
attorney could try – negotiating with John and his newly-formed company in an
attempt to convince them voluntarily to proceed in one arbitration
proceeding. As part of her pitch, Anne could tout the benefits – not to
her, but to John and his company – of arbitrating all claims (and counterclaims,
if any) in one proceeding:
- It would be efficient to resolve, in one arbitration proceeding, all
disputes involving the parties who have claims arising out of the same set of
facts.
- Eliminating two distinct adjudications – in arbitration and in court – will
avoid the risk of inconsistent determinations and rulings from two different
fact-finders.
- It will avoid forcing John and his company to present their respective cases
more than one time, which is not an insubstantial concern because, as a
practical matter, John and his company are one and the same. This will
save time for John, his fact witnesses and his experts since they only will have
to attend and testify once.
There are several reasons why John and his newly-formed company would prefer
to avoid a consolidation of all claims into one arbitration proceeding. By
anticipating these arguments in her negotiations, however, Anne may well be able
to convince John and his company that they should agree with Anne’s
proposal.
Anticipated objection No. 1. If numerous parties present
their claims and defenses in a consolidated arbitration proceeding, there would
be delays and additional expenses caused by scheduling problems; these problems
will be exacerbated for those parties who have insubstantial claims or interests
in the dispute.
Anne’s response to this objection: This objection may well make
sense where lots of parties (and hence witnesses and attorneys) are
involved. Here, however, the presentation of Anne’s claims will be
virtually the same against John and John’s newly-formed company – same evidence,
same documents and, most importantly, same witnesses. So having one
arbitration, against John and his company, would not incrementally increase the
delays, if any, arising out of an arbitration proceeding against John alone and
a lawsuit against John’s company alone. To sweeten the pot, Anne could
defer to John and his newly-formed company when it comes to scheduling and other
matters. She could offer to hold the hearing on dates and in locations
that are convenient for John and his company. Is that fair? Perhaps
not. Is Anne giving up something? Of course she is. But the
alternative – an arbitration against John and a separate lawsuit against John’s
newly-formed company – would involve extra expenses, extra delays, and extra
aggravation. Measured against these added costs, Anne’s incentives could
be worth their cost many times over.
Anticipated objection No. 2. Presenting numerous claims
and defenses in a consolidated proceeding could be so complicated that the
parties and factfinder will spend extra time and energy in sorting everything
out.
Anne’s response to this objection: This theoretical objection
has little practical significance where, as here, Anne’s claims will involve
virtually identical evidenced, witnesses and arguments. Neither John nor
his newly-formed company is a bystander to this dispute; each eventually will be
forced to defend against Anne’s claims.
The bottom line is that, as in most aspects of dispute resolution, it pays
not only to understand the governing law. It makes even more sense to seek
a win-win situation by making your adversary understand that agreeing on the
procedures to resolve the dispute can allow all sides to save time, money,
aggravation and energy.
