By Michael Hanks, Esq.
In the life of most businesses, the owner will either sue or be sued at some time. Hopefully, these instances will be few, but they seem increasingly inevitable.
Just as it is important for a business owner to understand what is possible with litigation, it is also important to understand the limits of litigation.
Limit number one: Litigation reduces predictability in decision-making.
A lawsuit places the outcome of a dispute in the hands of a third party. It may be a judge, jury, or an arbitrator in binding arbitration. Regardless, it removes decision-making from the parties and places it in the hands of a stranger.
The outcome of litigation is unpredictable at best. A common misconception is that a plaintiff is able to predict, with near 100% accuracy, what a judge or jury is going to do. This illusion of predictability arises from selfish subjectivity, lack of experience in the court system, and emotion, all coupled with an ignorance of (or refusal to acknowledge) facts in favor of the other side.
Limit number two: Litigation places your fate in the hands of persons less familiar with your problems than you are.
Courts handle everything from felony criminal matters to family law and business disputes. While judges may be knowledgeable in the field of general law, he or she will have no prior experience in your particular case. The judge may also be a lousy businessperson. It is the job of your lawyer to educate and persuade the judge on matters factually and legally complex and subject to uncertainty and dispute.
Limit number three: Litigation impedes efficient problem solving.
Any system that requires a hearing before a judge in order to make a decision is worse than a committee system. A committee can convene on short notice. Not so for court matters. Anyone who has attempted to operate an ongoing business through a court procedure, such as a receivership or a bankruptcy, can attest to the fact that there is no worse way of operating.
Limit number four: Litigation is extremely expensive.
Litigation requires the involvement of lawyers who charge for their services. Although I strongly believe that good business lawyers are worth more than their hourly charge in almost every circumstance (if used properly), the same is not always true for lawyers involved in litigation. As I discussed in an earlier article in this paper (“So You Want to Sue? Look Before You Litigate,” December 1994) there is no “natural limit” on the cost of litigation. The $30,000 legal dispute can be as complex legally and factually as the $3,000,000 business dispute. Payment of attorney’s fees in one instance may well be justified, while in the other instance unwise. A case’s “value” for this purpose is a combination of the defendant’s potential liability once all facts are known and the defendant’s value as a judgment debtor, if and when a judgment is recovered. Even if liability is 100%, if the judgment debtor is insolvent, litigation is unwise. Even in justified litigation (i.e. where value exceeds the probable attorney’s fees, costs, and the value of your time), attorney’s fees will be burdensome.
Once commenced, litigation acquires a destiny of its own. It may not be a simple matter to cancel the lawsuit. It may have gained a momentum which is reversible only at a high cost. Once this critical mass is reached, lawsuits tend to move in a glacial manner toward an unpredictable resolution. The likely result: You lose control of the cost of the solution.
Limit number five: Litigation destroys relationships.
The fifth limitation is less tangible than the first four, but nonetheless real. Litigation destroys the relationship between the plaintiff and defendant. It may also require a considerable effort to collect or enforce a judgment, which increases the intensity of the hostility. Successful businesses operate in an atmosphere of good will and trust. Those companies that are known to handle problems in a fair manner do better over time than those who are litigious and hostile. The value of good will in a community, particularly over the long term, is considerable.
In the final analysis, litigation should be avoided except where no other options exist. It is the role of your lawyer to insure that all other options are fully explored before you decide to sue the bastards.
To speak directly with Attorney Michael Hanks about a business, real estate, estate planning, elder law or prenuptial agreement matter, contact the Law Offices of Michael Hanks at (916) 635-0302.