Hemp Litigation: Pre-Lawsuit Options

When issues arise, many people think filing a lawsuit is the answer. That will initiate the litigation process, which will most likely involve an exchange of information and documents, the process of taking depositions, and probably some motion practice along the way.  While in some cases it certainly is, we typically counsel new clients (and even existing clients) about other options that can be much more cost-efficient and effective in achieving mutual goals. This post contains a breakdown of those options.

Hemp litigation: demand letters

A demand letter is essentially a formal notice that you will initiate some legal action unless the dispute is resolved informally beforehand. Demand letters come in all shapes and sizes, and such a letter can be very effective because (1) it will lay out what gives rise to your legal claim or claims, (2) it will serve as a “final notice” that the opp0sing party better pay attention to, and (3) usually, the last thing people want to receive in the mail or in their inbox is a letter from an attorney.

The form of the demand letter will largely depend on the facts and relationship of the parties. While it can be a bit of an investment up front — especially if the strategy is to start with that longer letter — we find that demand letters are usually the logical first step. It’s rarely considered a waste of time because those facts and arguments will ultimately be used in the next phase – whether that’s a settlement negotiation, preparing a mediation statement, preparing an arbitration claim, or preparing a complaint.

Hemp litigation: mediation

Another available option is mediation, which is a non-binding form of dispute resolution that can be a good fit for many types of disputes. Essentially, mediation is a negotiation between the parties that is moderated by a mediator.

Typically, the parties will select a mediator and provide that mediator with submissions that outline their claims and defenses, prior settlement negotiations (if any), and attach key documents, like your contracts or operating agreements.

Mediation is probably the least formal proceeding, but it’s a useful tool for multiple reasons: (1) it brings the parties together for the sole purpose of trying to resolve the dispute, (2) the mediator will help facilitate the discussion by encouraging meaningful and productive dialogue, and (3) the mediator, while a neutral third-party with no decision-making authority, will also provide his or her honest opinion as to how strong the parties’ respective claims are. This is a great perspective to consider given that mediators are typically retired or very experienced judges or attorneys themselves. If the mediation is successful, the mediator will usually help the parties formalize a settlement agreement right then and there.

Hemp litigation: arbitration

I like to loosely define arbitration as a private court case. The parties will agree on one or more neutral third-parties, or arbitrators, to decide their dispute after receiving evidence and hearing arguments.

Arbitration usually involves a hearing where attorneys make opening statements, present evidence, and examine or cross-examine witnesses. Compared to traditional court cases, arbitration is (typically) much more relaxed and has more flexible rules, making it easier to streamline the entire process. For example, I’ve commonly seen agreements to limit the number of depositions per side, limit the number of document requests, or altogether set a shorter or expedited timeline to complete discovery. Ultimately, this should lead to a faster and more cost-efficient process.

Hemp litigation: receiverships

The best answer for some companies is a court-appointed receiver. These receivers are neutral third-parties that will take over a business’ operations while it’s involved in legal proceedings. A receiver’s sole purpose is to preserve and protect the business during this period – and, if you take care to ensure that your receiver is well-versed in the hemp industry, he, she or it can typically handle everything from sales to personnel to accounting.

Some clients have viewed receivership as a “last resort” option as most don’t like to relinquish control of a business they’ve grown from the bottom up. This is a valid concern, as a receiver’s powers over a business is usually extremely broad. The receiver can manage all funds, replace a management company, hire and fire employees, obtain new legal counsel, etc.

However, especially in the case of something like a partnership dispute, there are definite upsides. If you’re concerned that funds are being commingled, misappropriated, or flat out stolen, putting in a receiver can safeguard against those concerns for the time-being. Similarly, if you suspect that your partner is unmotivated or may be sinking the ship intentionally, a receiver can step in and make sure that the business is being run optimally.

In the best cases, a receiver may make the business better than ever by implementing better business practices (think: actually setting up books and records) and stopping any unnecessary bleeding (think: reducing exorbitant salaries or theft of cash and inventory).

Hemp litigation: final note

In most cases, if you find yourself in a dispute, the above options likely can and should be considered as alternatives to running to the court. For some more in-depth articles we’ve written about each before, check out:

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Hemp/CBD, Litigation