Mediation Helps Firm Settle Partner Dispute

By Michael Gaines, CPA, Rosenberg Selsman & Co. LLP

My firm learned a valuable lesson on the benefits of alternative dispute resolution as a result of a recent experience regarding a partner leaving our firm and continuing to practice public accounting.

Our firm had an agreement with this individual that applied during his first three years as a partner. This agreement incorporated our overall partnership agreement and the terms of the partner's continuance with the firm. The departing partner believed we did not meet our obligations under this agreement, and both parties disagreed about the obligation due to the firm for clients that followed him, and the allocation and collection of work-in-process and accounts receivable from these clients.

Fortunately, we had a clause in our agreement which provided for the resolution of any disputes among partners through arbitration by the NYSSCPA Arbitration and Mediation Committee. We included this clause because we believed it provides a faster and less costly way to resolve a dispute than would litigation. After substantial legal fees, several months delay, and loss of billable time due to our departed partner's efforts to move the dispute to court, the State Supreme Court ruled that the case must be heard in arbitration in accordance with our agreement.

The Society's Arbitration and Mediation Committee quickly appointed a panel of three neutral arbitrators to schedule document production and hearing dates. At this meeting, even though the arbitrators did not formally participate, the parties were given an opportunity to negotiate the temporary allocation and collection of work-in-process and accounts receivable. After protracted discussions and correspondence concerning this negotiation, the arbitrators were asked to intercede and they provided guidelines for a temporary solution subject to a final determination in the formal arbitration.

To facilitate the process, Philip Zimmerman, then the Arbitration and Mediation Committee chair, suggested we consider mediation under the committee's guidance. He explained that mediation was nonbinding, private, fast, relatively inexpensive, and could be terminated at any time. Arbitration, on the other hand, results in a binding decision handed down by independent arbitrators. We agreed on the condition that the scheduled arbitration session would not be canceled in case the parties could not reach a voluntary settlement through mediation.

We participated in a one-day mediation session at which each party was represented by a partner and an attorney. The Arbitration and Mediation Committee appointed co-mediators, Philip Zimmerman and Harvey Moskowitz. Each party presented its case to the other at a joint session, and the co-mediators conducted "shuttle diplomacy" in separate confidential sessions with each party. Progress was made and a final settlement was reached on the allocation and collection of work-in-process and accounts receivable. However, we were still too far apart on the major issue of the obligation to our firm for clients that went with our former partner. The mediators suggested we adjourn to further evaluate our interests.

After a few days, we asked for a second mediation session, which, because of scheduling difficulties, had to be held the morning of the date selected for the arbitration. Despite our firm's belief that we would not arrive at a settlement, we reached a voluntary agreement minutes before the arbitration was to start. We had gone into the mediation believing that, to settle, each party would have to be a little unhappy with the result but that settlement would enable us to put the dispute behind us and give our full attention to our practice.

We were able to reach the settlement because our firm believed we had our "day in court." With the assistance of the mediators, we evaluated the strengths and weaknesses of both sides' cases, and we reached the resolution ourselves rather than leave it to an arbitration panel or a judge. In addition, we discussed confidential matters, and mediation allowed our firm to avoid any embarrassing allegations that might have become public knowledge if brought up in court.

We were very pleased with the services of the Society's Arbitration and Mediation Committee. Its members donate their valuable time, without compensation, as a service to their fellow CPAs. We were especially delighted with the mediation. In the event of any future disputes, whether internal or external, with clients or vendors, we certainly will consider mediation as our first option.