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As we all know, the San Francisco Bay Area is a prosperous commercial center on the U.S. West Coast integrating a variety of businesses from different parts of the world, including mainland China, Taiwan, and Hong Kong. The economic ties between the Bay Area and the Greater China market is so close that an increasing number of Chinese individuals and companies are swarming into the Bay Area every year for commercial opportunities and business expansion. According to recent statistics in 2012, San Francisco’s population of 805,235 consists of 21.4% Chinese descent. In Cupertino, 27.2% of the population is Taiwanese. And in Millbrae, 26% of the population is Hong Kong Chinese. The Silicon Valley also attracts Chinese immigrants with high-tech jobs, start-up opportunities, and an overall attractive quality of life. There are 85 Chinese companies that have registered with China’s Counsel General in San Francisco. As the growing Chinese population becomes an ever more vital part of the region’s general economic growth, the question of how Chinese individuals and business can best integrate into the larger American society and local culture has drawn increasing attention. One important aspect of cultural integration is adjusting to and using the American legal system to maximally protect the Chinese community’s legal rights and interests. Most Chinese probably formed some impressions of the American legal system from TV shows such as Judge Judy, Law and Order, CSI, etc. However, it must be remembered that these programs are for entertainment and not education, and are far from sufficient for anyone to truly understand the structure and operation of the American legal system. This article tries to give a brief but helpful summary about the use of law in America, how best to guide your actions to avoid running into problems with the system and how you can use litigation to protect your assets and other economic interests.

1. How do I stay out of trouble?

One important difference between the two cultures is that the Chinese culture is more focused on the group and consensus within the group, while the American culture is more focused on the individual. Also, Chinese often believe that business dealings are based on the long term “trust” relationship, while Americans usually would not rely on such “trust” without sufficient documentation and legal protection. Therefore, Chinese tend to think that business negotiations (usually conducted over an extended period of time), agreements (sometimes not even written down) and any problems that arise from negotiated agreements can be worked out between the parties. In America, business people tend to want to move quickly to work out a deal and want it in writing. If you are doing business in America, you must be prepared to move more quickly and to be much more careful in how you negotiate with the persons with whom you are dealing and what agreements you make with them.

Before entering into any negotiation, you must be clear about your own goals, or you may get pushed into directions that you do not wish to go, wasting time and upsetting the parties on the other side of the transaction. Once you are clear about your goals, you should do what you can to make the other parties understand not only what those goals are, but (unless very obvious) why they are important to you. This provides a solid basis for reasonable and efficient negotiation. However, you still must be careful in negotiation and in the drafting of agreements. Try to make clear that negotiations are just that, a process of trying to see if an agreement can be reached, but not an agreement in itself. Lawsuits sometimes arise when one party takes an action based on a belief that an agreement has been reached, such as turning down a similar business deal offered by another party or entering into another agreement to allow them to satisfy their perceived obligations, such as purchasing supplies or raw materials. In America, you should always make clear that neither party is bound by any part of the discussions, until those discussions are reduced to writing. And, though that message can be made in a friendly manner, it should be made clear in writing.

In our previous article on the litigation system in the United States, we commented that Chinese prefer to resolve legal disputes through harmonious and peaceful means without the intervention of third parties and the court system. While it may appear that only Chinese prefer non-court means, most and perhaps all ethnic groups also prefer to avoid litigation, which helps to explain, at least in part, the rise of the use the mechanisms of Alternative Dispute Resolution (ADR). ADR comes in two major forms – arbitration and mediation. Before delving into the details of each, it is useful to mention that ADR mechanisms share certain common features, which differ from litigation. They are often less time-consuming and thus, generally speaking, more cost-effective. Both mediation and arbitration are usually procedurally less cumbersome and thus more flexible and informal than litigation. A very important feature in ADR, whether arbitration or mediation, is that information supplied in ADR proceedings remains confidential, whereas, in litigation, any information used in a court proceeding almost always becomes accessible to the public. This potential for ADR confidentiality is particularly important when issues of finance or trade secrets are involved. This article will explain how both the mediation and arbitration systems are used in this country and, when appropriate, contrast them with litigation.

1. Arbitration and Mediation Compared

To begin with, both arbitration and mediation involve the use of a neutral third person or persons. However, that is where the similarity ends. The critical difference between the two is that in arbitration the neutral third party or parties typically are required to render a decision which is often, but not always, binding on the disputing parties. Where a decision is binding, the end result of an arbitration proceeding is little different from a decision made by a court with a judge and a jury. Indeed, an arbitration award can be enforced through court procedures. For instance, if you file an arbitration claim against someone for monies owed to you, the arbitrator must decide whether or not to award you anything and, if an award is made, how much you are entitled to receive. In contrast, a mediation proceeding gives the third party neutral no power to bind the disputing parties. The mediator’s role serves more like a peace-maker, who functions as a go-between for the two sides, examining each party’s position and sometimes suggesting possible alternatives to resolve the impasse, in hopes that either the parties adopt one of the alternatives or fashion a solution of their own. Unlike an arbitrator, a mediator has no power to force a resolution on the parties. Continuing with the example of monies owed to you, a mediator may assist in suggesting different payment time schedules, but has no power to give an award forcing the debtor to pay you. The parties must agree and, if they do, a proper agreement must be drafted to make sure the agreement, if necessary, can be enforced by the courts.

2. Arbitration

How does arbitration come about? There are two major ways. The first is by written contract. As an example, very frequently, knowingly or not, you may have signed an agreement which states that if a legal dispute should arise in the future, the matter shall be submitted to arbitration. That type of a clause is found frequently in stock brokerage account agreements, employment agreements, or health care provider agreements. As an illustration, if you signed a brokerage account, and you believe later on that your broker did something wrong, you may choose to seek legal redress. If there was no arbitration clause, you will file a lawsuit in court. When (as is common) a mandatory arbitration clause exists, you will have no choice but to use an arbitrator and your option to resort to the courts is foreclosed.

About 20 years ago, it was said on a radio talk show, hosted by a lawyer, that nearly 50% of the people who should know better, namely, lawyers, die without a will. You have probably heard the story that former chief justice of the U.S. Supreme Court, Warren Burger, prepared his own will. Apparently, the will he drafted was convoluted and led to much controversy for years following his death, costing his heirs a lot of money. If instead Burger had gone to a lawyer familiar with the applicable law and paid a bit of money at the inception, it would have saved his heirs a lot of expense.

1. What can a will accomplish?

Quite aside from these anecdotes, perhaps the first point of inquiry is what purpose does a will serve? A will is simply a document which lays out how a person wishes to have his or her assets distributed upon death. In the will, the person writing the will, called a testator, designates a person or company, called an executor, to see that the wishes in the will are carried out following death. With only certain limitations, a person can dispose of assets in any fashion they want. For instance, a father may say in his will that he wants his wife to inherit 50% of his estate, his eldest daughter to acquire 20%, and his remaining three children to inherit only 10% each. It is the duty of the executor to see that the wishes of the testator are carried out.

The vast majority of people own assets that can be considered generic or fungible. Rental income properties and stocks and bonds are common examples. There is nothing terribly unique about those types of assets. Most people making wills are not concerned that specific stocks or bonds go to their heirs. They are just as satisfied that these assets are sold and converted into cash, and the proceeds from the sale are turned over to their heirs.

Some people, however, have very specific assets, such as family heirlooms, precious gems, and priceless paintings. They may feel very strongly about to whom the items are to be given. In that case, the testator may designate his oldest son to receive his Civil War rifle, his oldest daughter to take over the family’s china set from Victorian England, the second son to inherit the Monet painting and so on. With very specific gifts, a will can readily address matters that are meaningful to the testator.

1. What happens if there is no will?

When a person dies without a will, the need to dispose of assets still exists. Each state has its own set of laws dealing with those who die without a will or other testamentary document. Those laws are known as “intestate succession” laws. For instance, in California, if a man dies leaving a wife and only one child, they each share 50%. If he dies leaving a wife and more than one child, then the wife receives one-third, with the children receiving two-thirds. In the event there are no heirs (i.e., no parents, aunts, uncles, grandparents, etc.), then the assets are given to the State of California.

Most people would prefer to distribute property according to their individual wishes, and not leave distribution to the arbitrary system under the intestate laws. Having a will ensures the testator that assets will be distributed according to his wishes.