MEDIATION – IT CAN WORK UNDER THE RIGHT CIRCUMSTANCES

November 21, 2023

By:  Chaim J. Jaffe, Esq.


Often times, clients ask why the litigation process is so lengthy. The answer is not always a simple one. The time-frame within which an action is judicially resolved is a function of the court's caseload, the complexity of the matter being litigated and the lawyers' schedules. There are, however, avenues available to litigants in certain circumstances that will allow them to resolve their disputes quicker and, in many cases, more economically. The two most recognized methods of alternative dispute resolution ("ADR") are mediation and arbitration. This article will focus on the mediation process.


In many instances, parties to an agreement can contractually agree to submit any dispute that may arise to one or more forms of ADR. Parties' whose claims are not controlled by a contract can similarly agree to utilize the ADR process prior to or subsequent to the commencement of a formal court litigated matter. Finally, there are circumstances under which a judge presiding over a court litigated matter can "order" the parties to participate in the ADR process.


Mediation is usually the first step in the ADR process, although parties can agree to skip this option and proceed directly to arbitration. Parties who agree to submit their dispute to mediation will agree who the neutral mediator will be. This individual can be an attorney whom counsel for the litigants believes is best qualified to impartially provide an opinion as to the merits of the underlying dispute. In many written contracts, the parties will agree to select the mediator from one of several nationally respected mediation companies.


Procedurally, the mediation process is relatively straight forward. Once the parties agree on a neutral mediator, the parties will enter into a written mediation agreement with the mediator. In addition to the parties usually agreeing to equally bear the mediator's fee, the parties will be required to agree to, among other things, the confidentiality of the proceeding, that nothing disclosed during the mediation sessions will be used at trial (if the mediation process is unsuccessful) and that the mediator cannot be called by either party as a witness if the dispute proceeds to a court supervised process.


Prior to the commencement of the mediation session, both parties will usually be required to provide the mediator with a confidential written mediation statement, the length of which depends on the complexity of the matter and the mediator's instructions. This pre-hearing submission will usually include a description of the parties, the underlying facts and circumstances of the dispute, the legal issues involved, the parties' respective strengths and weaknesses, the resolution of specific issues by the mediator that the parties believe would be beneficial in resolving the entire dispute and a history of any previous settlement efforts undertaken by the parties.


The mediation session can be held wherever the parties agree. Sometimes it can be held at the mediator's office or at the office of the attorney for one of the litigants. It is not uncommon at the beginning of a mediation session for the mediator to gather the parties in the same room for purposes of reviewing the "ground rules" and for allowing each party to make some opening remarks. At the conclusion of this "joint session", the mediator will separate the parties into different rooms. The mediator will then conference separately with each party. The amount of time that the mediator conferences with each party can vary and can often be lengthy. It is not uncommon for parties to wonder why the mediator is spending so much time conferencing with the opposing side. It is during these private conferences that the mediator "goes to work". The mediator, needing to be very good listener, will allow the participants to tell their "side of the story". The mediator will provide the litigants with his/her view of the case, including an opinion as to the legal issues involved and the monetary value of the claim being asserted, where money damages are involved. This process continues until (a) the conclusion of the agreed upon time for the mediation session, (b) the parties have reached a resolution, or (c) the mediator and the parties agree that a resolution cannot be achieved.


It is important to emphasize that without express permission from a party, the mediator will not share what was discussed during the private conference with the opposing side. The participants to the mediation need to feel comfortable discussing the matter openly and freely with the mediator. Simply stated, each individual in mediation needs to gain the mediator's trust and vice versa. Once that trust is established, the hope is that the parties will be more amenable to looking at their dispute from a different perspective.


What makes mediation an attractive alternative to the court system is that the process is not binding. The parties are free to accept or reject the mediator's recommendation. In some written agreements, mediation might be a required precursor to proceeding to a binding arbitration process. Where no written agreement controls the dispute, the parties are free to proceed with commencing a formal court action or can agree to submit their claim to binding arbitration.


Mediation can be a very productive ADR mechanism, the results of which depend on the effectiveness of the selected mediator and the parties' willingness and desire to resolve their dispute quicker and more economically. 

Important Notice for New York State LLCs: Addressing the 30-Year Limit Expiration

August 8, 2024
By: Nicholas J. Graham, Esq. Limited Liability Companies ("LLC") have been authorized in New York since 1994. When the law was first enacted, an LLC could not have perpetual existence like corporations. This limitation was removed in 1997. If your LLC was established under the old New York State law that imposed a 30-year lifespan, it's crucial to be aware of the approaching expiration of your company's duration. Originally, LLCs in New York were required to specify a limited duration, commonly set at 30 years. Many of these companies are now reaching the end of this period and must take action to continue operating. Special attention should be given to LLC's formed between 1994 and 1997, as they were likely established with a 30-year lifespan. What Has Changed? The law in New York has evolved, and LLCs are no longer bound by the 30-year limit. Pursuant to NY LLC law §701(1), businesses now have the option to exist perpetually, providing greater flexibility and stability for long-term planning. However, this change is not automatic for existing LLCs that were originally set up with a 30-year term. What You Need to Do To ensure your LLC can continue its operations beyond the original 30-year term, you need to file an amended Articles of Organization with the New York Department of State. This amendment should update the duration of your LLC to perpetual, or to another term if desired. Steps to Amend Your Articles of Organization: Prepare the Amendment: Draft an amendment to your LLC's Articles of Organization. This document should clearly state the new duration of the LLC, typically set to "perpetual." File the Amendment: Submit the amended Articles of Organization to the New York Department of State. This can usually be done online or by mail. Ensure that you include the necessary filing fee. Update Internal Documents: Reflect the change in your LLC's operating agreement and any other internal documents to ensure consistency and compliance. Notify Members and Stakeholders: Inform all members and relevant stakeholders of the change to ensure everyone is aware of the updated status of the LLC. Why It Matters Failing to update your LLC’s duration could result in the automatic dissolution of the company once the original 30-year term expires. This could lead to significant disruptions in business operations and potential legal complications. By taking proactive steps to amend your Articles of Organization, you can ensure the continuity of your LLC and take advantage of the flexibility offered by the current laws. Need Assistance? The Scolaro Law Firm specializes in helping businesses navigate changes in regulatory requirements. If you need assistance with amending your Articles of Organization or have any questions regarding your LLC's status, please contact us. Our experienced team is here to provide the guidance and support you need to keep your business running smoothly. This article is intended to be for informational and discussion purposes only and is not to be construed as legal advice or as a legal opinion on which certain actions should or should not be taken.

SMB M&A SERIES: Financing Business Acquisitions with SBA 7(a) and 504 Loans

July 23, 2024
By: Nicholas J. Graham, Esq. The SMB M&A series provides insights into buying and selling a small business. For business buyers looking to acquire a small business, securing the right financing is often a critical step. The U.S. Small Business Administration (SBA) offers two popular loan programs that can be invaluable in this process: the 7(a) loan and the 504 loan. These loans are available through local lenders and are partially guaranteed by the SBA, reducing the risk for lenders and making it easier for small businesses and entrepreneurs to obtain financing. Both programs provide favorable terms that can make acquiring a business more achievable. Here’s a closer look at how each can be used, with a particular focus on the flexibility of the 7(a) loan, as it is more commonly used for business acquisitions. The SBA 7(a) Loan Program The 7(a) loan program is the SBA’s most popular and flexible loan option. It is designed to help small businesses and entrepreneurs obtain financing when they might not be eligible for traditional financing options. Here are the key advantages and uses of the 7(a) loan for business acquisitions: 1. Broad Eligibility and Use of Funds: The 7(a) loan can be used for a variety of purposes, including purchasing a business which can include goodwill, buying out partners, acquiring real estate, and refinancing existing debt. This flexibility makes it an ideal choice for business acquisitions where the buyer may need to cover multiple types of expenses. 2. Favorable Terms and Conditions: 7(a) loans offer competitive interest rates, long repayment terms (up to 10 years for business acquisitions), and lower down payment requirements compared to conventional loans. These favorable terms can ease the financial burden on buyers and improve cash flow during the critical early stages of ownership. 3. Working Capital Inclusion: One significant advantage of the 7(a) loan is the ability to include working capital in the loan amount. This can provide new business owners with the necessary liquidity to manage day-to-day operations, especially important during the transition period post-acquisition. 4. Collateral Flexibility: While the SBA prefers loans to be fully collateralized, a 7(a) loan can still be approved even if sufficient collateral is not available. This can be a major benefit for buyers who have limited assets to pledge. The SBA 504 Loan Program The 504 loan program is another powerful financing tool, primarily focused on fixed assets such as real estate and equipment. It involves a partnership between the SBA, a Certified Development Company (“CDC”), and a private lender. Here’s how it works for business acquisitions: 1. Structured Financing: A 504 loan typically consists of three parts: a loan from a private sector lender covering 50% of the project cost, a loan from a CDC covering up to 40%, and a 10% down payment from the borrower. This structure can reduce the amount of equity the buyer needs to provide upfront. 2. Long-Term Fixed Rates: The 504 loan offers long-term fixed interest rates, which can provide stability and predictability for business owners. This is particularly beneficial when acquiring property as part of the business purchase. 3. Real Estate and Equipment Focus: While the 504 loan is less flexible than the 7(a) loan in terms of eligible uses, it is ideal for acquisitions that involve significant real estate or heavy equipment investments. The ability to finance these assets over a long term with a fixed rate can be a strategic advantage. Conclusion Navigating the complexities of financing a business acquisition can be challenging, but SBA loans offer valuable tools to help buyers achieve their goals. The 7(a) loan’s flexibility and broad eligibility make it a particularly attractive option, while the 504 loan’s fixed-rate, long-term structure provides stability for significant asset purchases. However, to truly capitalize on these advantages, it's essential to structure the transaction properly and adhere to all eligibility criteria and regulatory requirements. With careful planning and compliance, SBA loans can provide the financial support needed to successfully acquire and grow a business. If you’re considering buying a business and exploring SBA loan options, our experienced M&A team at Scolaro Fetter Grizanti & McGough, P.C. is here to help. Our team handles small business M&A transactions throughout New York State, Vermont, Pennsylvania and Florida. This article is intended to be for informational and discussion purposes only and is not to be construed as legal advice or as a legal opinion on which certain actions should or should not be taken.
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