Expert: Timmy Chou - 5/29/2010

Question
Hi,

I have a situation that I need some guidance on.  I'm an artist and crafter and have been in the retail and wholesale field for my entire adult life.  I am now a "retired" disabled senior citizen and involved in projects for my own interest and sometimes a bit of extra income.

Several years ago I was invited to put my jewelry and crafts into the gift shop at Opus 40, a not profit place in Saugerties, NY.  I started quietly but was so successful there, that they invited me to expand and then finally give me free reign over the shop.  They actually told me that I had to clean the shop because it was "mine."   

I brought in hundreds of dollars of displays, paid people to carry things for me since I am disabled, bought stock over the years etc.  I also have increased the income of the shop over 300% during that time.  

This year the owners of Opus who are supposed to be my friends, have decided to sell the place for 3 1/2 million dollars and legally had to remove themselves as officers of the board.  They brought in some other people to become the officers although they still remain on the board.  The new people suddenly decided that they don't want me in the shop.  This was about 10 days ago, after the owners told me to hurry and get ready for the season which officially starts on memorial weekend but they insisted that I be ready by last weekend when they opened to the public.  I assumed that my history with Opus and my verbal agreement was viable and binding.

I am unable to remove my things from the shop before Sept, for many reasons, including ill health, no storage space, no time, no money to pay people and the fact that I have other pressing issues at this time.  I would like to know what my legal rights are.  I also want to know if they can remove or move my stock, some of it fine art, by themselves.

I just spent weeks preparing for this season at Opus, time which could have been spent making income from other sources.
They have ordered me to remove 4 years of stock in 2 weeks, after closing hours.  I am horrified at their demands and attitude.

I really need some guidance.  

Thank you.

Answer
Thank you for your question!

As I always advise questioners, mediators act as neutral third parties to disputes and never "get involved" in judging the merits of conflict, but merely use special techniques to help the parties decide how to negotiate their own settlement.

I am not an attorney and cannot give you legal advice but can respond from my management and consulting experience.  Note that this issue may certainly have legal ramifications and you may wish to consult an attorney.

Naturally, it is best to have as much structure created at the outset of starting or building a business rather than in the middle because there are inevitable assumptions and expectations created by each party.  FYI the area of least development in small closely-held businesses is in break-up or dissolution contingencies, where partners specify what the rules are in case of problems.

You have invested heavily in a venture without any legal protections I'm afraid.  No one will care if you decide on your own to do all the things you have described without any promises or agreements, and therefore you may have an uphill battle trying to protect your interests.

That said, this is not a casual or short-term relationship and it is likely that a precedent and tacit business partnership has been created even though none of the paperwork has been done.

Consider doing the following preparatory and proactive steps right away.  Here are my recommendations:

1.  Document a chronological timeline noting the creation of the business, the promises made, the continuity of the business relationship, and your individual contributed work products or other contribution.  Also document the rise of this dispute and record how this plays out.

2.  Review your documents.  Review whatever written agreements, operating agreements, notes, letters, or other written documents you have backup material.   

3.  Look at your legal options.  You don't say how much money is involved here but any litigants will incur a large cost to file suit, and you have to count the possible cost to yourself to pay for litigation.  Remember that nearly 90% of lawsuits settle BEFORE trial so the question is usually not IF you will settle, but WHEN AND AT WHAT COST!  Both parties would be better off to wisely choose a cheaper, faster mediated settlement.

4.  Go see a lawyer.  The local Bar Association usually has a referral service that will give you access to an attorney for free.  You need to understand the legal landscape, but if there are not extensive documented agreements then you are in a "he said, she said" situation that will not be easily litigated, but you do have an established precedent.  

Once you understand where you are legally you are in a position to begin to try to find solutions, but I would think there would be some grounds to seek a temporary restraining order from a judge.  You have an established business relationship, you have assets and ongoing business that will be harmed if you are kicked out in 10 days, and you will suffer extreme harm that you would need to be compensated for.  Another possible point is that YOUR actions and investment may have been crucial in establishing the VALUE of the place and the selling price, and you may have some legal grounds to seek to be compensated for this consideration you have provided.  Even if these are not the easiest arguments, at least the threat of a lawsuit may be useful in bringing the other parties to a mediation to discuss how to manage your exit in a way that does not harm you.  Talk about these things with your referral attorney.

I would absolutely recommend mediation first.  You will pay a mediator about $100-200 an hour (split among the disputants), and the mediator will only help you to try to come to a solution.  It is very cheap to try this approach first compared to the other options, and you are not precluded from seeking redress in other venues if it does not work.  Remember that mediators work with these type of "intractable" disputes all the time and are skilled at moving through these kinds of impasses.  

These are some ideas.  Feel free to follow up with additional questions.

For your general information, the pros and cons of the types of dispute resolution methods follows.

GOOD LUCK!

Arbitration, Mediation, and Litigation

Arbitration: the referral of a dispute to one or more impartial persons for final and binding determination outside of the judicial system

Benefits of Arbitration:

  Confidential, no public record
  Limited exchange of documentation, information
  Quick, don't have to wait for a court date
  Arbitrators have expertise in the subject matter and are trained in conflict resolution
  Cheaper than litigation
  Preserves business relationships

Negatives of Arbitration

  It's often a compromise, no 100% winner
  Complex arbitration can be costly
  If not satisfied, may litigate the arbitration procedure
  Poor results with an unskilled arbitrator
  Both parties must agree to cooperate in the process

Mediation: the process by which parties submit their dispute to a neutral third party (the mediator) who works with the parties to reach a settlement of their dispute.

Benefits of Mediation:

  Neutral mediator can objectively suggest alternatives not considered before
  Parties are directly engaged in negotiating the settlement
  Can be quicker than litigation
  Less costly than litigation
  Preserves business relationships
  85% of American Arbitration Association cases mediated find successful solutions

Negatives of Mediation

  may not reach a binding decision
  unskilled mediator

Litigation: using the judicial system to resolve disputes

Benefits of litigation:

  a clear winner and loser
  uses a prescribed set of procedures
  more predictable outcomes
  is final

Negatives of Litigation:

  waiting for court dates can do more harm
  usually more expensive than mediation and arbitration
  part of the public record