By James A. Woehlke and Vincent J. Love

The time to agree on using mediation or arbitration is during negotiation of a contract, not after a dispute has arisen. When parties are in dispute, emotions can flare up and irrationality can set in. Quick, low-cost approaches to resolving a dispute appear less attractive after the parties have become disputants.

Many contracts contain language similar to the example in the attached sidebar to move disputes into mediation or arbitration and away from litigation. The proposed language can, of course, impact the legal rights of the negotiating parties, and should only be used with the assistance of competent legal counsel who will explain the advantages and disadvantages of the language and tailor it to each individual situation.

The contract clause in the accompanying sidebar is written to help the parties bring their dispute to the NYSSCPA’s mediation or arbitration program. The language is only one example of what can be included in a dispute-resolution clause.
The Society’s member-service program is designed to cost-effectively resolve certain disputes between its members. The program is not designed for disputes between CPAs and their clients, or CPAs and nonmember employees. Nor does it contemplate the resolution of issues related to the implementation of Generally Accepted Accounting Principles (GAAP), Generally Accepted Auditing Standards (GAAS), the tax code or other technical issues. The clause is written to default to another source of mediation and arbitration services if the dispute is one not covered by the NYSSCPA member-service program.

The Society’s program is cost effective because the qualified neutrals—mediators and arbitrators—available under the program have agreed to volunteer their services. There is a small administration fee charged by the Society. Details of the program are available by visiting the Society’s website at www.nysscpa.org/membership/benefits.htm and scrolling down to mediation and arbitration services.

The clause accompanying this article encourages disputants to resolve their disagreement themselves before resorting to outside assistance. The clause also refers a dispute to an alternative source of qualified neutrals if one or more of the disputants turns out not to be an NYSSCPA member. For instance, if a firm includes the clause in its partnership agreement and a dispute arises with a partner who is not an NYSSCPA member, the clause will default to the American Arbitration Association (AAA) as an alternative supplier of qualified neutrals. The clause is written to be useful in both partnership agreements and CPA firm employment agreements.

Before adopting the example clause, however, there are a number of issues left open that may need resolving. To determine whether any of these open issues are important to an agreement, the following questions should be asked:

• Would one qualified neutral be sufficient, or would more be necessary?
• Would the qualified neutrals need to have any additional qualifications not contemplated by the NYSSCPA or AAA rules?
• Who would pay the administrative costs and the costs of the qualified neutral if the NYSSCPA program is not available to settle the dispute? For employment disputes, recent cases suggest a firm is well advised to keep the cost of any dispute resolution charged to an employee to a minimum.
• Would the agreement require reasonable exchange of documentation (i.e., limited discovery procedures)?
• How would the termination of the mediation be known?
• What would happen if a qualified neutral develops a conflict of interest?
• Would it be necessary to agree in advance on a location to mediate and arbitrate?
• Would the arbitration award be a bottom-line result or would it contain the reasoning of the arbitrator(s)? In other words, would there be an expectation for an arbitrator to provide an explanation for his or her award?
• What would be the level of confidentiality of any settlement?
• Would there be any limits on remedies?
• Would interim relief be permitted?
• Would a court appeal of the final award be permitted?

A future article in The Trusted Professional will discuss the implications of the answers to these questions.

If you have any questions about the Society’s mediation or arbitration program, please contact Vincent J. Love, NYSS-CPA Mediation and Arbitration Committee Chair, at 212-338-0600 or vlove@kramerandlove.com, or Society legal counsel Jim Woehlke at 212-719-8347 or jwoehlke@nysscpa.org.