To Court, or Not to Court
Avoid litigation when you can. When you can’t — win.
The expense, distraction and time to fight your battles in court — litigation — has exploded over the past few decades. Frequently, litigation costs hundreds of thousands or even millions of dollars and lasts for one to two years and sometimes more.
It can also tie up some of the most important people in your company in meetings with lawyers, depositions and, ultimately, the trial.
Is it worth it? Or, more importantly, when does it make sense to fight it out in court, and when should you do everything possible to avoid it?
You run a business, and hopefully, what’s good for business dictates your decisions. But too many people approach litigation like their opponent punched their baby. They’re mad. Very mad. They think court will make the pain go away and inflict a real hurtin’ on their adversary. Wouldn’t that be nice? Instead, they are about to enter a Byzantine government machine that often sucks the life — and money — out of your company and sometimes produces bizarre rulings. Don’t think “Hollywood movie ending.” Think “depressing Russian novel.”
Most entrepreneurs are Type A’s — you like results, and quickly, too. But here is one guaranty: You are not getting any of that in court. Typically in litigation, one side files a lawsuit. Then the other side usually gets anywhere from 20 to 60 days to file an answer and, if they want, their own counterclaims. Next, you enter the discovery phase. In some states, this is quick. By the way, in “court time,” quick is six months or so. In other states, discovery can easily drag on for a year, even more. Then there are pre-trial motions and hearings. These are the skirmishes before the big battle. Motions and hearings can slow things down mightily. You might spend tens of thousands of dollars and months preparing for some.
One day, you will actually get to court. The trial itself is the quickest part of the whole process. Some trials are as short as a day or two, and others often last a week or two. Of course, business goliaths have been known to thrash about in trials lasting months — but that is far from the norm. Then there is the court’s judgment. Here, there are decidedly no guarantees. In fact, any experienced trial attorney likely will tell you that they have lost cases they should have won and won cases they should have lost — and it didn’t depend on whether they did a great job or not. Judges are people, and sometimes they just don’t see things the way we do.
Then there are the post-trial motions and appeals. This means that even if you do endure and finally win that court victory, it is not necessarily over. There is nothing quick and only occasionally something satisfying about litigating. A decent settlement is almost always better than a court battle.
Given all of the negatives of litigating, why would a sensible executive ever take his or her company to court?
First, the stakes are high and settlement negotiations have failed. It happens. Despite your best efforts, you can’t come to an agreement with the opposition. When you are entitled to a large amount of money or some other significant benefit — which can even be the indication of an important principle — sometimes you can’t just walk away.
Second, you’re the one being sued, and the other side won’t take any reasonable settlement.
Third, you do business in a contentious environment, and it is important to establish the precedent that you will fight and, when you do, you win. Here, being able to point to a prior court victory will actually reduce the potential for litigation in the future.
There are alternatives to litigation. Aside from attempting to negotiate a resolution with your opponent, you can try mediation and arbitration.
Mediation involves a neutral party — jointly selected by the parties — hearing out each side’s story and then attempting to broker a deal between the parties. Each party pays their own costs and one-half of the mediator’s fees.
Mediation is non-binding, and either side can give up on the process when it wants.
In contrast, arbitration is binding and often is governed by a pre-existing agreement between the parties. Still, the parties can agree to enter into binding arbitration, without prior agreement, once a dispute has arisen. In arbitration, the parties usually split the costs of the arbitrator and often the loser pays some or all of the winner’s legal fees. Generally, the arbitrator’s decision can’t be appealed, absent some extraordinary circumstance, like fraud. It is important to realize, though, that over time, the relative speed and cost savings of arbitration have diminished. Arbitrations have become more like trials, although still shorter and less expensive than litigation.
In all but a few rare instances, you’ve already lost something significant if you have to go to court. So consider the following to minimize the pain:
- Draft good contracts. These should clearly spell out the expectations of the parties.
- Include dispute resolution. Include in your agreements provisions for dispute resolution that protect your business. These terms can include awarding attorney’s fees to the winning party to reduce the potential for frivolous lawsuits; conducting the trial or arbitration in your hometown to reduce the expense and distraction of travel and the potential of your opponent having an unfair “home field” advantage; and requiring arbitration to reduce costs and hasten the results.
- Get the right attorney. This means someone with experience and a history of results. It also means an attorney with whom you connect — you will be working together a lot. You also want someone who believes in your case. If they do, they will try harder.
- Be realistic. Once you have selected an attorney, make sure your goals are realistic.
- Set aside time. Adjust your schedule so you can devote sufficient time for the “war effort.” You or other members of your company are likely to be vital to gathering the necessary information and communicating with your attorney. Your attorney can’t fight the opposition and you in order to succeed in court.
Jack Garson is the author of How To Build a Business and Sell It for Millions (St. Martin’s Press) and writes a business law column called The Legal Edge for SmartCEO Magazine.He serves as a legal advisor for numerous local, regional and national companies, focusing on business transactions, commercial real estate and construction law. In addition to providing legal counsel, he services as a strategic advisor and negotiator for many clients, providing guidance on issues such as the growth and sale of businesses, liability and risk reduction, the hiring and retention of key personnel, and protecting and enhancing profitability, as well as negotiating the resolution of complex commercial disputes. Jack has been selected to be included in The Best Lawyers of America and he has repeatedly received the Super Lawyer designation. He has been recognized as a DC region Legal Elite and has received a Martindale-Hubbell Peer Review Rating of “AV” since 1995, representing the highest possible ratings for legal ability and ethical standards.