By Adam Atlas
Attorney at Law
Let's face it; disputes happen - between ISOs and merchant level salespeople (MLSs), ISOs and processors, processors and acquiring banks and so on. The purpose of this article is twofold: to highlight key features of disputes in our industry that make them different from disputes in other industries and to offer suggestions on how to avoid disputes, as well as resolve those that do arise.
A dispute over a merchant portfolio is a bit like a dispute over a truckload of tomatoes in 100-degree weather. In the payments industry, regardless of whether you are the person making payments or the person receiving payments involved in a dispute, you will, of course, want to preserve the value of the portfolio in question.
Therefore, it is in the interest of both parties to reach a resolution as soon as possible.
During the dispute, the person who usually receives payments will be tempted to (rightly or wrongly) move merchants to another processor. And both parties may lack motivation to service merchants in the normal manner, which could exacerbate attrition.
In my experience, reaching a prompt settlement - meaning within a matter of days - will lead to the best result for all parties.
While I am full of admiration for my esteemed colleagues who practice in the field of litigation, I have a strong bias toward the amicable settlement of disputes in the payments industry.
Setting aside the cost of litigation, which is never insignificant, adversarial dispute settlement raises a number of additional issues that would not necessarily arise through an amicable negotiation.
For example, adversarial settlement procedures tend to build on the distrust between the parties rather than build on whatever trust there may be.
Adversarial parties may also end up trying to claim amounts that are very much greater than their true losses and begin to compete on issues unrelated to the fundamental, core issues of the dispute.
Amicable dispute settlement is also more likely to be faster than adversarial dispute settlement.
Disputes between payment businesses or within individual businesses themselves, like divorces, offer an interesting test of character for the parties concerned. If a party is behaving in a dishonest manner through a dispute, that dishonesty will only serve to undermine the value, solidity and effectiveness of the ultimate resolution of the problem.
As distrust mounts within a crumbling relationship, parties tend to withhold information from each other and hold their cards close to the chest. Without foolishly disclosing all information, it is in the interest of both parties to summon the courage to be honest with each other so they can build a settlement that is reliable and worthwhile for both parties.
For example, if one partner in an ISO business is buying out another, the purchaser should consider buying at a price that is similar to the price for which he or she would sell his or her share of the same business, on a proportional basis.
Parties to a dispute should at least agree on certain underlying facts, such as the actual revenue from the merchant accounts concerned, the confirmed track record of the agent involved and the documented facts underlying the dispute at issue.
Of course, it is not always possible to agree on the facts, especially when trust has broken down. However, our industry has the advantage of reporting provided by processors which, on a general level, is supposed to offer objective information with respect to portfolio activity. Parties should rely on objective third-party data as much as possible so as to avoid arguing about the underlying facts.
Ever since arbitration became popular in commercial matters in the 1990s, lawyers and others have been debating whether it is better than litigation. In payment disputes, arbitration does tend to be faster and less expensive. However, arbitration will not always be faster or less expensive than litigation; it depends upon the evidentiary questions and the complexity of the dispute.
Arbitration can also be more expensive in larger cities like New York or Los Angeles and less expensive in smaller metropolitan areas. On balance, in my experience, arbitration tends to be a better way to solve disputes in patent matters. But this general recommendation does not apply to all cases.
Payment businesses should avoid getting into disputes in the first place by carefully reviewing all relevant documents before signing them and maintaining a steady flow of accurate information to all parties to agreements. This will help to avert misconceptions and discord.
When misunderstandings do occur, as is normal, the parties should be able to fall back on raw information from an objective source and work together amicably and efficiently to solve the problem. Doing business with a trustworthy party is also invaluable, so due diligence before entering into agreements is essential.
In publishing The Green Sheet, neither the author nor the publisher is engaged in rendering legal, accounting or other professional services. If you require legal advice or other expert assistance, seek the services of a competent professional. For further information on this article, email Adam Atlas, Attorney at Law, at atlas@adamatlas.com or call him at 514-842-0886.
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