California Apparel News

The power of mediation to resolve disputes is well known in legal circles, but it is not as familiar to the fashion industry. As a former garment-business owner myself, I started Fashion Dispute Resolution because I saw a need in the apparel and textile industries to give business owners a way to resolve their differences in a less costly and time-consuming manner as opposed to the court process.

Mediation is a consensual agreement requiring both parties to agree to the process. The cases that come to FDR often fall into one of two categories: disputes that are driven by emotion more than legal issues and disputes that are based in legal issues where emotion is less of a factor.

Case Study I: Transformative Mediation

An example of an emotional, multi-issue dispute resolved by FDR involves two friends and business partners. Let’s call them Smith and Jones.

Smith is a licensed contractor who alleged that he helped Jones remodel his house but Jones never paid him for his work. Jones asserted that Smith was just a friend helping out, that there was no formal contract for the work and that, besides, the work Smith did was defective. Smith sued Jones for non-payment.

Before the remodeling scuffle, Smith and Jones had decided to create a garment-manufacturing company together. Jones invested some money into the company but charged in his countersuit that Smith failed to make his investment, which caused the venture to fall through and Jones to lose his entire investment.

The legal issues in this case were not very significant—there was nothing novel about these claims. The rub was the personal disputes between ex-friends and ex–business partners and the tactics each used to try to gain an advantage.

For example, Smith filed a mechanics lien on Jones’ property, sent out letters to a number of people accusing Jones of fraud and even threatened to disrupt the wedding of Jones’ daughter.

For his part, before the remodeling project began, Jones took all the money out of the property to make it judgment-proof, indicating an intent from the outset not to pay Smith.

Both parties were culpable in some way, but this was all about emotion. The personal issues overshadowed the legal issues.

The strategy I used to deal with this case is called “transformative mediation.” I sought to show that this kind of destructive interaction is the most significant negative impact of conflict resolution.

I first helped the parties understand the scope of their legal issues, and the fact that they were not complicated. Then I gave them the opportunity to vent personal frustrations harbored against the other. Each one just wanted a pound of flesh. I made them realize that litigation is not a good vehicle to satisfy personal animosities. The court system is not a forum for people to redress emotional issues.

This was a case where mediation created an environment for the parties to reach an agreement that is not available in court. We got the parties to realize that their positions were preventing them from negotiating a settlement.

Case Study II: Evaluative Mediation

A second case study involves FDR’s mediation to resolve a legally complicated, but non-emotional, multi-issue dispute between two companies. In this case, Seller sold textile products, and Buyer was its customer.

Seller delivered his goods late, which Buyer claimed cost him his business relationship with some of his customers. Buyer also realized that at least some of the goods had a latent defect that could not be detected by normal inspection. It would be impossible to test all the product for defects. Buyer refused to pay Seller for the goods, and Seller sued.

Seller denied there was anything wrong with the product. And, even if there were problems, Seller alleged that Buyer sold the products without giving Seller timely notice of the defect, in violation of the Uniform Commercial Code. Buyer contended he was obliged to mitigate his damages by selling as much non-defective product as possible. Buyer also asserted that Seller had not only shipped late but had shipped “a bunch of junk.” Furthermore, Buyer contended Seller’s product was supposed to be exclusive to him but it wasn’t.

The mediation uncovered a pivotal issue. Buyer asserted that the contract was unenforceable because there was a “significant customs irregularity” in the importation process that may have rendered the contract illegal. Seller countered that Buyer was complicit in the customs irregularity.

A different approach—“evaluative mediation”—was called for in this case. You look at the legal issues and how they affect rights, duties and obligations of the parties. This case had a host of issues, not the least of which was the legality of the contract. If Seller and Buyer had colluded in the customs irregularity, the court could refer the matter to the Justice Department!

FDR went through all the legal issues, helping the parties to understand the importance and consequence of each. We asked them, “What’s the upside if you do not settle now?” Focusing on that question helped drive them to settlement.

And settle they did, in the course of one day.

In any type of case, everything is always disputed. As a mediator, I do not tell the parties what is going to happen in court. I make the parties drill down to the real issues. I try to work with clients and lawyers to deliver what the issues are, how to approach them and help craft alternatives so they can resolve their differences outside of court.

One of the advantages to resolution by mediation is that arrangements of all kinds can be worked out, limited only by the parties’ imaginations. On the other hand, in court, someone wins and someone loses. That is the only outcome. The cost of litigation in time, money and emotion can be better spent.

Robert Ezra is a founding partner of the law firm Ezra Brutzkus Gubner LLP. He is also a founder of Fashion Dispute Resolution. Ezra can be reached at rezra@fdr-mediation.com or at (818) 827-9000.