Big lawsuits involving clubs make it into the headlines, and it seems there have been more than normal lately. Clubs can’t avoid all disputes, but there are steps clubs can take in advance to improve the chances that disputes can be handled more privately. Beyond the bad publicity, lawsuits costs can be staggering. If the matter is covered by insurance, the insurance company may have too much control over the lawyers and the settlement (and reviewing the club’s insurance coverage is equally important, because there are strategies to improve the club’s position there). One potential first step is to add alternative dispute resolution (ADR) processes to the club documents. The specific details of the process, and any limitations on the extent to which it can be applied, is a state law question, so clubs should discuss the details with its attorney.
ADR benefits can be numerous. ADR can be handled privately, without filing a lawsuit in the public record that is accessible to the press. The parties can be obligated to keep confidential the proceedings and all the information related to the claim or dispute. This removes negative publicity as a weapon to be used against the club, and it also removes the risk to the members that they will be publicly embarrassed.
ADR can be much less expensive. The ADR provisions that are drafted into club bylaws and other governing documents can limit the “discovery” process, thereby reducing exorbitant legal bills resulting from weeks of depositions and parades of expert witnesses. ADR can limit the time for presenting the case to hours or days rather than weeks in a courtroom. ADR is handled by a private judge called a “neutral.” This means the club is not vying for time on a judge’s crowded docket and being postponed multiple times. It also removes a potential jury trial. The ADR provisions can include specific requirements for the neutral, such as a type or amount of experience in the industry or issue in question.
ADR can be flexible. For example, some clubs have a process that begins with meet-and-confer, then mediation, then arbitration. Some clubs have found this process redundant and wasteful, but others have found that matters resolve quickly when both sides feel heard. The club can choose some or all of these steps, depending on what it thinks would work best for it.
Before a club adds ADR to its documents, there are a few things to consider. First,
understand the applicable laws. Depending on the state where the club is located, there may be statutes regarding ADR, and there may be a body of case law that has developed over the years, which offers some good tips on what to do and not to do. Consider whether an ADR organization should be named. A club could choose one based on following the processes or using the neutrals of that organization. There are some that are nationally recognized, and in some states, there are specific local options. A club can add specific requirements for its neutral, such as that they must be a licensed professional with experience particularly in the club industry.
When drafting ADR documents, there are numerous details that can be included, such as location, selection of the neutral, powers of the neutral, governing law, rules of evidence, timing, confidentiality, extraordinary remedies and matters excluded from the ADR requirement.
Many of these are self-explanatory (usually the location is the county where the club sits, and governing law is the state law where the club sits). Matters excluded from ADR might include member delinquent accounts, incidents in which the club wants to go straight to getting a quick judgment in small claims court (the club should have the option to use “any means”), or member discipline being imposed by the club (e.g., the club can impose the discipline but if the member wants to fight it their remedy is through ADR).
ADR provisions can be added to the bylaws in most cases. Adding a consent to ADR in the joining documents can be helpful and may be required in some situations.
Use counsel with experience in these matters specifically, so that the club has the best documents and procedures, and so it can put in place as many helpful elements as possible. For example, specifically stating that the ADR provisions are intended to avoid unnecessary expense and publicity might be helpful if you are seeking attorneys’ fees from a member who files a lawsuit rather than following ADR, or to obtain a court or neutral’s order regarding confidentiality. You could also consider stating that filing a lawsuit rather than following ADR subjects the member to immediate suspension.
Alternative dispute resolution procedures may be useful to a club. In some states there may be limits on the extent that a club add these requirements, and it is important to align the process to the local laws. Be sure to review the club’s insurance coverage to align with the ADR provisions if a club adds them, and in general to put in place riders that assist with how coverage is applied if a club ultimately has a claim.
Robyn Nordin Stowell, JD, is a partner at Nelson Mullins. She can be reached at 864-373-2353 or [email protected].
Disclaimer: This column is intended for informational purposes only and should not be relied upon in reaching a conclusion in a particular area of law. Applicability of the legal principles discussed may differ substantially in individual situations. Receipt of this or any other National Club Association (NCA) publication does not create an attorney-client relationship. NCA is not responsible for inadvertent errors that may occur in the publishing process.