Reference no: EM133233045

Case: Read the Fact Pattern below, then compare and contrast the three available methods to resolve the dispute: (1) litigation, (2) arbitration/mediation, (3) informal settlement or business re-negotiation.

For each method, please provide a definition and explanation of the dispute resolution process involved as well as the pros and cons of selecting that method. Identify at least four pros and four cons for each method. Refer to Table 4.1 (Chapter 4, Page 96) for additional guidance. Properly cited materials outside the text may also be used and are recommended. Your conclusion should select one of the methods as the best option and explain why you have chosen it. (There is no wrong answer). Please also identify at any facts or circumstances that, had they been present or changed, would have altered your chosen answer.

Fact Pattern: You are the manager of operations for a business called AeroOne which is located in Ft. Pierce, Florida. AeroOne purchases used airplanes and salvages them for parts. Once AeroOne purchases a decommissioned plane, parts that remain usable are refurbished by one of your subcontractors and then returned to AeroOne. AeroOne then sells the refurbished parts at a markup to airlines. AeroOne's primary customers are small domestic airlines and airlines operating out of foreign countries.

In one transaction, your company agreed to refurbish and sell the landing gear from a Boing 747 to a company called Avion Parts, Inc. Avion Parts, Inc. is based in Argentina where it sells parts to South American airlines. While you have never done business with Avion Parts before, the transaction was arranged by a Business Broker whom you work with frequently. No formal contract was signed, instead you (AeroOne) issued a written purchase order to the business broker itemizing the parts, stating the price of $1 million dollars, and promising the landing gear would be delivered to Avion Parts in Buenos Aires. The purchase order included two additional terms in fine print: (1) that the winning party in any litigation would be entitled to recover the costs of their attorney's fees, and (2) that any arbitration can only occur in a place or jurisdiction mutually agreed to by the parties.

AeroOne hired a maintenance company in Miami to refurbish the parts. Due to the convenience of being located near the Port of Miami, the Business Broker convinced everyone that the completed landing gear should just be directly shipped to Avion Parts in Buenos Aires, without being returned to AeroOne in Ft. Pierce for final inspection.

Two weeks later, when you send your invoice for $1 million dollars to Avion Parts, they state that the landing gear arrived damaged and that they had to fix the parts at a cost of $150,000. As a result, Avion Parts will only pay AeroOne $850,000 for the landing gear. Avion has provided some pictures showing the damage on arrival, but it is unclear how the damage occurred or why it cost $150,000 to fix. You suspect that they are just trying to get a discount by lying.

After investigating, your maintenance subcontractor in Miami has provided you with pictures showing the landing gear was in good working order when shipped. Angry about Avion's refusal to pay full price, you contact your lawyer. First, he tells you that it was very foolish to conduct such a complex transaction using a one-page invoice instead of a full contract. Once that is out of the way, your attorney tells you the following:

Question 1: Payment was due to be made to AeroOne in Ft. Pierce, Florida. If you want to sue Avion, you could bring the lawsuit in your local Florida state court. He estimates the cost of going through a full trial in Ft. Pierce would be approximately $50,000 in legal fees. This is partly because all of the key witnesses are located in Miami or Argentina. While he thinks you have a good case, but there are two problems. First, Avion might be able to argue that the lawsuit that the problem arose in either Miami or Argentina and should be tried there. If Avion Parts can convince a judge the lawsuit should be somewhere else, the cost of the lawsuit could double or triple. Second, there is a chance you might lose the case. The invoice says that the winning party recovers their legal fees so, if you (AeroOne) loses the lawsuit with Avion Parts, you might not recover any money and be forced to pay all of their legal fees (also likely to be $50,000 or more). Conversely, if you win, you would recover the full $150,000 plus your own legal fees.

Question 2: Your attorney called the lawyer for Avion Parts. They both agree that you are not required to conduct arbitration based on the invoice terms. However, Avion Parts has insisted it prefers arbitration and will only conduct arbitration in Argentina. While the arbitration would be entirely confidential, your attorney is worried about Avion being able to select the arbitrator in its home country. Your attorney estimates the cost of conducting arbitration in Argentina would be less than $50,000 and that cost would also be split between you and Avion Parts.

Question 3: Avion Parts also told your attorney that they might be willing to just settle the case. Avion thinks the entire problem was caused by the Business Broker, who convinced everyone to skip the final inspection and chose the shipping company that (likely) let the landing gear get damaged. Avion had separately agreed to pay the Business Broker $50,000 as a commission for his work. They would rather settle the case with you (AeroOne) and continue to do future business without litigation. Therefore, Avion has offered to pay you the $50,000 they would have paid to Business Broker (bringing the total paid for the landing gear to $900,000) if you are willing to drop the case, help in their lawsuit against the Business Broker, and agree to do future deals without him. Your attorney says the settlement offer is reasonable, but you aren't convinced the Business Broker is at fault and he is an important source of business for AeroOne.