I am a litigator, I make my living by fighting courtroom battles. So you’d think I shouldn’t be advising people on how to keep out of court. But this week I was involved in some Federal litigation that could have been avoided had my clients and my adversary’s clients followed some basic advice. After all, after litigating for over 30 years I have learned some simple tips for business clients to try and stay out of the courtroom that are worth passing on:
1. Be Proactive — Whether you are the owed money or you owe money, if non-payment issues arise, initiate communication and address them promptly. Do not allow the problem to continue to grow. Large problems are far more difficult to resolve than small ones. You are more likely to get the other side to come to a reasonable conclusion if you assure them that you are willing to work it out and try to resolve it before it gets out of hand.
2. Consider Alternatives Which Improve Your Position — In an economic downturn, creative resolutions may be necessary, but can also provide an opportunity to improve your position. If you are owed money from a deal or a business relationship of any kind, for example, such resolutions may include a note secured by property; a payment plan with agreed provisions for interest and attorneys fees; or for an agreed-upon judgment in the event of default. If you are on the other side, a work-out over time could provide for more affordable installment payments and a discount incentive for early payoff. This is also a prime opportunity for all sides to clearly document any agreements that are not in writing.
3. Evaluate Filing Suit — In certain situations, filing suit is necessary. The law provides deadlines for filing different types of claims, which will be denied if not filed in time. Additionally, as a practical matter, a lawsuit may be required to bring uncooperative parties to the table. But once you file, consider other pre-trial out-of-court options such as mediation, settlement conferences, or neutral case evaluations that can often lead to resolution when a neutral, third party is brought in to size things up. That will keep costs way down as well.
4. Evaluate the Likelihood and Cost Of Collection — Obtaining a judgment is different than collecting one. Winning a case is only the beginning. Now you have to get the defendant to pay. What assets do they have? If they are a corporation, can they just default and leave you with an empty piece of paper? A judgment is a court order deciding the merits of the case and the relief to which a party is entitled. If a monetary judgment is not voluntarily paid, enforcement procedures must be initiated and pursued by the judgment winner. Additionally, appeal rights might delay collection of a judgment. In tough or lean times, the advantage of a prompt voluntary payment may provide both an incentive to the plaintiff and leverage to the defendant in negotiating a potential discount or compromise. If the matter cannot be resolved, get help from an attorney familiar with enforcement options and procedures to keep costs down.
5. Invest In Prevention — Prevention is generally much less costly. Many businesses try to save money by “doing it themselves” or going to cheap, document-generating websites that tout “one-size-fits-all” documents. Think about how once-size fits all clothes generally look? Stylish? Hardly. Litigation often arises from differing expectations and from the use of the Internet or other “cut and paste forms” that do not fit the particular situation or conform to applicable law. Consider investing in a sit-down with a lawyer to create documents favorable to your business. Many documents, such as service contracts, notices, or mechanic’s lien waivers, can be tailored to protect your interest and be standardized for repeated use. Professional drafting and/or review of documents stating relationships and obligations can minimize the risk of time-consuming and costly litigation in the future. In other words, pay me now or pay me more later.
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