One of the more frequently overlooked provisions of a meeting contract is the clause dealing with dispute resolution — the procedure to be followed when one of the parties breaches its obligations.
Negotiation between the parties is always an option and need not be specified in a contract. The parties could specify mediation — bringing in a third party to help facilitate a resolution of the problem — but since a mediator generally has no authority to impose a solution, this approach is rarely used.
Most hotels prefer arbitration, a process usually conducted under rules of organizations such as the American Arbitration Association or JAMS, the nation's largest provider of alternative dispute resolution services. The parties empower one or more arbitrators to hear evidence and render a binding decision that's enforceable in court. But because both parties must agree to arbitration for it to work, the process, if chosen, needs to be specified in the contract.
The reason that hotels prefer arbitration is that the process is private; even the fact that an arbitration is under way is not subject to public disclosure. So hotels don't have to disclose how many clients they are suing, and the documents that inevitably are revealed to the parties aren't subject to third-party scrutiny either.
If the parties wish to resolve disputes by arbitration, the supervising body (AAA or JAMS) should be specified, as should the number of arbitrators (one is usually all that is necessary) and the location (the hotel's city or the client's city).
While arbitration results can usually be rendered more quickly than verdicts in a traditional lawsuit, filing fees and other costs (e.g., the arbitrator's fee) are often significantly higher than for litigation.
There are many issues that are typically decided upon in a contract before a dispute ever arises. The first is which state's law would control the dispute. Called “applicable law,” the usual choice is the state in which the contract is to be performed, (e.g., where the meeting or event takes place). The parties could choose the state in which either is incorporated or is located, but they generally cannot pick a state with no connection to the parties or the transaction.
A more important issue might be the jurisdiction (often called “venue”) in which the lawsuit will be brought. Courts generally have authority only over individuals or organizations that can be found or are doing business in their states. Whether an out-of-state company that holds one meeting at an in-state hotel is actually “doing business” in that state for court jurisdiction purposes may be a complex legal issue.
For that reason, many hotels want to specify that the client company will consent to jurisdiction — that is, consent to being sued — in the state in which the hotel is located. That moots the “doing business” issue but could force the company into a court with which its attorneys are not familiar.
Yet another issue is whether the winner in any litigation should be reimbursed for its attorney fees and costs. In the American legal system, the loser in a contract dispute isn't automatically required to pay the winner's legal bills, unless the contract so provides.
While it may sound like the fair thing to do, awarding legal fees to the winner isn't always the preferable commercial choice. For instance, a company holding a meeting at a hotel may make the judgment that it's more likely to be sued (for nonpayment of a master account) than to bring an action against the hotel for breaching the contract. Based on that analysis, it might not want to agree to a “lawyer's fees to the winner” provision to give it better bargaining position in settlement negotiations.
Although the majority of disputes are settled without the need for a full court trial or arbitration proceedings, knowing how to negotiate the appropriate procedure up front can be helpful in the event any disagreement does arise.
James M. Goldberg is a principal in the Washington, D.C., law firm of Goldberg & Associates PLLC. His practice focuses on representing associations, corporations, and independent meeting planners. He is the author of The Meeting Planner's Legal Handbook.