Case Study 8
Creative Business Solution
Breach of Contract for Non-Payment
Future Commissions retire debt
Background on the Case: Plaintiff Subcontractor provided sophisticated underground directional drilling services, and filed suit against the Contractor for non-payment on numerous projects completed for the same Owner. Defendant Contractor had a coveted “qualified contractor” relationship with the Owner, a national telecommunications firm, that resulted in frequent assignments for project work. Plaintiff’s case was well documented and legally strong; the principal defense asserted as an inability to pay and threatened bankruptcy.
Leadership by the Mediator: The Mediator held separate meetings with each side prior to the scheduled Hearing (the Mediator refers to this practice as “PreMediation” and considers this a foundation for successful resolution of disputes). The Mediator learned that the Defendant’s financial difficulties arose out of acquisition of sophisticated (but underutilized) equipment, and unanticipated health issues for a principal; all of which suggested an inability to continue as a going concern. Assets, if liquidated, were insufficient to pay the amount owed to Plaintiff.
The Mediator learned the Subcontractor’s business was successful and explored the opportunity for the Subcontractor to “take over” the role of “qualified contractor” with the telecommunications firm. But the Subcontractor had previously been unsuccessful in obtaining the preferred “qualified contractor” status, in part based on personality conflicts with the Owner. With encouragement of the Mediator, both the Contractor and the Subcontractor agreed to meet with the procurement officials with whom the Contractor had strong personal ties, and present a proposal developed with the assistance of the Mediator. Both sides explained the dilemma to the Owner and obtained acquiescence to conditionally transfer its “qualified contractor” status to the Subcontractor for future work.
Outcome: When the transfer of the “qualified contractor” status was assured, the parties returned to Mediation. During several joint sessions, and numerous drafts, the parties agreed to create a new entity and to credit a “commission” on future jobs performed by the Subcontractor until the outstanding debt was satisfied, with the possibility of an upside for the Defendant Contractor. The Subcontractor also agreed to rent the sophisticated equipment, with an eventual buy-out, avoiding an inevitable default by the Contractor. A pocket judgment was executed in the event the proposal failed, and the Business Court case was dismissed.
Insight: The Mediator was able to identify high-benefit moves for one side; the Subcontractor who was in line to take over future work from the Owner. And the Mediator was also able to identify the low-cost concessions for the other side; cooperating in the transfer of work to the Subcontractor as a way to liquidate an acknowledged debt. The Defendant Contractor’s failing health made a planned liquidation a desirable arrangement. The result satisfied the interests of both parties.
Business Court Judge: James Alexander
Plaintiff’s Counsel: David Michael Zack, Mark L. McAlpine , McAlpine PC, Auburn Hills, MI
Defendant’s Counsel: Timothy J. Klitz, Livonia, MI