Identify Dangers and Plan to handle conflict.
In California, there are more than a few thousand lawsuits filed every single day. In our own un-scientific observances, we would give a rough estimate that about 800 of these lawsuits involve a business issue. If these rough estimates are averaged out, that paints a picture of 3 lawsuits every 2 minutes in California. When our law firm keeps up with the “daily dockets” to ensure exceptional knowledge of the current legal landscape for businesses in California, we can’t help but think about all the business owners that are about to get the bad news. That’s a lot of unfortunate situations.
Look at 100 lawsuits and you’ll see 100 different issues. It is hard to write a book about how to reduce the likelihood of all types of lawsuits. However, in general, there are some patterns that may emerge that could be helpful to pay attention to. Ask questions about:
Communication
Like any relationship, communication is key to working out or preventing problems. However, you are a lot less likely to find communicative personality types in business. People are not in business to have feel-good relationships with each other. If that happens once in a blue moon, great. Most of the time, people are in business to make money. Instead of expecting abounding friendship with everyone you do business with, a better strategy is to clearly communicate concerns when discussing contracts.
It is better to flesh out issues while negotiating deals. Be mindful of previous litigation you’ve encountered, or litigation issues your attorneys, mentors, and fellow business owners have mentioned. The mature thing to do is to voice concerns, and spell out the details of a deal. Really take a look at what happens if your freight company isn’t able to deliver on time. What happens if a contractor doesn’t deliver a final product in the way they agreed to? You could use any example, but try and address the core of the concerns: what are the responsibilities of the parties, and what should happen if a party fails on an individual responsibility?
Explore how you think those issues should be handled with your business colleagues.
Of course, there are many lawsuits that involve zero communication. Mostly those are intellectual property or patent suits. If a major movie studio sues a small online shop for selling unlicensed items, there were no contracts. Just perceived damages. Thus, there may be communications involving a cease and desist letter, or they may opt not to communicate and go straight to court.
Pay attention to complaints.
It is a good business practice to try and resolve complaints of customers, employees, partners, and vendors/competitors as reasonably as you can. When you notice these complaints, if you feel like you are not in a position to satiate their concerns, it may be time to receive guidance from a business lawyer. Even if no talk of a lawsuit has occurred, the business attorney may help provide the proverbial ounce of prevention that helps the issue blow over, and wards off a full blown lawsuit.
This takes training. Some business owners take great pains to avoid creating situations that cause conflict. They may even take on more expenses to keep more people happy. Other business owners always seem to leave a crowd of discontent in their wake. While there are no statistics on the volume of litigation assigned to these two philosophies, I’d be willing to bet that those who are more flexible, and understanding may find themselves in less lawsuits. Yes, you have to be tough in business. You should absolutely stand up for your rights. Knowing which issues to fight and which to re-prioritize is a valuable skill. If you don’t have it yet, it’s time to look for a mentor or business lawyer.
Detailed but Concise Contracts
We’ve covered this issue before. Unfortunately, a lot of assumptions are made in business. When approaching contracts that hold you or someone else liable for responsibilities, it is best to work with a lawyer that can identify your concerns about your own duties and the duties of the other party. Detailing these in a relevant way can save a lot of heartache. This is one of the main complaints of ‘boiler contracts’. Template contracts try to be a catch-all, while still staying relevant. When you see that a template contract has been downloaded over 2 million times, you have to wonder how many of those people are signing a contract that has little to do with their specific situation.
Can’t we just work it out?
Mediation clauses are excellent ways to reduce the likelihood your issue will end up in court. You can have multiple levels of mediation requirements. Why would you not? Why allow disputes to go straight to court when both parties could agree to face each other first and be challenged to work it out.
Most of the time this language will say something like, both parties agree that upon a dispute, they will engage a licensed mediator to resolve the issue and split the cost. Some may dictate that there is a minimum of four to eight mediation hours. I’ve even seen ‘soft mediation’ clauses that contractually obligate the parties to sit down and work out any issues face to face without a third party. There must be documented proof of the meeting having occurred before moving on to the next step. (However, you should usually include an additional third party mediation and/or arbitration clause. Mediation can fail if both parties are not interested in mediation. Often times, two entities simply can’t resolve the differences by themselves.)
Mediation can typically be handled by “neutrals”. Neutral judges, neutral attorneys, or professional mediators. For mediation, the mediator helps guide lawful negotiation. These forms of alternative dispute resolution may not necessarily be less expensive, but there are major benefits which cause mediation to be attractive. The process can be far quicker than going to court (which can also sometimes translate to being cheaper.) Mediation can be private and confidential. An engagement in court can be very public. Mediation also helps with goodwill. When it can be salvaged, it is more likely to be salvaged if both parties have come to agree on a compromise, rather than a judge or arbitrator having the final say.
Avoiding Court: Arbitration
Arbitration clauses seek to keep the dispute outside of court. It is usually recommended to specify that AAA rules should be followed (Arbitration Association of America.) While you can agree not to use an AAA company, it is the industry standard to do so. Why? Because the AAA is a standard rule set, it can help ensure that whatever judgments are made in your case, are similar in other cases (ie: fair.)
Some arbitration clause considerations:
– Does the clause state where the arbitration should occur?
– Does the clause state if one or three arbitrators should be involved?
– Does the clause state who pays?
– Have the relevant parties of a dispute actually signed an arbitration clause?
– Is there ‘entry of judgment’ language for domestic cases?
– Are you or the other party seeking to arbitrate ALL issues, or only certain types of disputes?
– Should you request an expedited procedure that prevent the arbitration from dragging out?
Who is going to pay?
Dictating who pays attorney fees is a common strategy. These clauses dictate how attorney fees will be handled. Some require the plaintiff to pay all costs if they fail. Others require each side to pay their own fees regardless. Keep in mind, that these clauses are routinely upheld, modified or disregarded by a judge. If they feel that attorney fees change the balance of justice, they can invalidate a requirement for one party to pay the other side’s legal fees. That being said, even a neutral clause that states that each side pays their own attorney fees can be a great motivator for both sides to avoid litigation. There is no secret here: litigation is expensive.
No one likes to think about litigation. However, once it has happened, it can quickly consume participants. Keeping an eye on the potential litigation and working to resolve issues before they become contentious is ideal. Unfortunately, we are not always given the chance to work something out with another party. In circumstances like patent trolling, you may not want to work out a deal with a party you feel you owe nothing to.
However, if you are dealing with a general complex litigation, business contract, employment, real estate or construction issue, the more often you and the other party are able to work together to resolve issues, the better.
Our next section will review the other side. After a lawsuit has been filed, jurisdiction becomes an important issue.
As always, be sure to consult with an experienced business law attorney before taking any action on matters like these. This blog is for reference/information purposes only and is not legal advice.