Recently Resolved: Where is My Penalty Payment?

The Dispute

Our latest Resolve involved a laboratory services contract that specified the payment of about $28,000 in penalties if the customer delayed the start date of the study. As is often the case, both sides believed they were in the right, actually had good reasons for believing it, and felt the other side was acting the scoundrel. The laboratory had reserved and purchased resources and materials specific to this study and so had lost the opportunity to do other work. The customer had proceeded with the study just a month later than expected and had paid for it thinking the issue was behind them.

The Arbiter

Since the parties were located on opposite coasts, we recommended a neutral Arbiter who was a senior attorney with industry experience located in the Midwest. The parties agreed to the Arbiter and a fixed shared cost that was a fraction of the claimed penalty. Over a three-week period, our Arbiter interviewed the key witnesses, gathered and reviewed all documents, and then, after failing to broker a mediated settlement, decided the dispute.

The Resolve

It turns out that both parties had overlooked the underlying contract’s conditions for triggering the penalties, so none were owed. Our independent post-mortem review confirmed that this is the same outcome a court would have reached after many months of communication cycles, formal discovery, briefing and hearing or trial. While not happy with the outcome, the laboratory recognized that it had saved thousands of dollars and substantial productive time. The customer, of course, felt vindicated by the outcome and was grateful to have enjoyed the same savings and avoided the great waste inherent in having to hire counsel to prove they in fact owed nothing.




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