Litigation Cost-Benefit Analysis and Enforceability of Arbitration Agreements

Scenario: Solar Co. Inc., a solar panel manufacturing and installation company, has recently encountered a series of scandals and bad publicity relating to defective solar panels, poor workmanship, and employee allegations of harassment by executives within the company. One claim resulted in a two-year trial which Solar Co. lost; all other claims were settled out of court.

Solar Co. enters into a contract with XYZ Media to prepare a 6-month national advertising and public relations campaign to help restore its tarnished reputation at a cost of $600,000. XYZ Media launches the campaign, and it is successful for the first two months until XYZ’s computer servers are hacked and all client information is lost because XYZ failed to have adequate backup systems in place. In addition, social media account information and passwords were compromised, resulting in derogatory and inappropriate posts being made on all of XYZ’s social media accounts for several hours. Because XYZ was managing Solar Co.’s social media presence at the time, Solar Co.’s social media accounts were also taken over by the hackers for a brief time and filled with damaging posts.

XYZ issues a public apology; however, Solar Co. wishes to terminate the contract with XYZ and receive a refund of the $200,000 it paid for the first two months of the campaign due to the damages caused by the computer hack. XYZ refuses to cancel the contract or issue a refund, insisting that it can successfully continue the campaign and re-create all of the material that was lost. Solar Co. refuses to pay any further amounts due under the contract and has already begun seeking a new media relations firm to re-launch the campaign.

Part I

Write a 525- to 700-word recommendation to Solar Co.’s CEO advising whether Solar Co. should:

• file a lawsuit and proceed to trial
• try to reach a settlement with XYZ Media, or
• use a method of alternative dispute resolution (ADR)

Your analysis should specifically discuss each of the nine factors provided in the “Contemporary Environment Cost-Benefit Analysis of a Lawsuit” feature found in Ch. 4, “Judicial, Alternative, and E-Dispute Resolution.” Provide a clear explanation and reasoning for your recommendation based on the facts of the scenario.

Would your recommendation be different if you were advising XYZ Media’s CEO? If so, how?

Part II

Solar Co. intends to use arbitration agreements with all clients, subcontractors and employees in the future.

Write a 350- to 525-word memo to Solar Co.’s CEO explaining the arbitration procedure and the enforceability of arbitration provisions under the Federal Arbitration Act.

Include a recommendation as to whether arbitration agreements should be used in the future to reduce Solar Co.’s legal risk and why.