There are, believe it or not, people who believe that every disagreement that comes up in business should or must be settled by a lawsuit.
I’m pretty sure that most of them have not stopped to consider the ramifications of such action, but rather it’s a spur-of-the-moment response. First and foremost is the cost, which I’ll discuss in a bit, but the next issue is, do you really want your disagreements to become public record? Just about everything that goes on in court becomes a matter of public record which future potential clients, customers or vendors can, and often do, take into account before deciding to do business with you. If a vendor, for instance, does some research and discovers that you have been sued, repeatedly, by former (or current) vendors, they may not want to take the chance to extend credit to you.
Likewise a new customer or client. If you display a predisposition to escalate every matter to a public, legal forum, it might scare away potential business, either because they don’t want you to sue them or because you display a cavalier attitude about being sued.
So let’s go back to the cost. Of course you have to hire your attorney. Even if he’s on a retainer with you, it’s not a salary. You’re going to be charged by the hour for whatever time he puts into the case. All your attorney has to sell is his time. Then he has to pay something to file the case. He may have to do legal research into your argument or produce documents to substantiate your case.
He may have to hire expert witnesses, including travel and lodging.
So let’s say that you do all of that assuming that any potential winnings will far offset the up-front investment. The case goes to trial and you have an outcome. 1. You lose, and you’ve wasted a lot of time and money. 2. You win a judgment. Now you have to go to the additional time and expense of collecting. Believe it or not, just because a court tells the other side that he has to pay you doesn’t mean it’s going to happen anytime soon, or without another fight.
3. The third scenario is that you win the judgment and the other party simply doesn’t have the resources to pay you. They are “judgment proof”. Maybe all of the assets are in a personal name and you won your verdict against the company, with whom you had the dispute. If the company has no assets, maybe a desk and file cabinet, what can you go after? Maybe you can obtain a garnishment against future earnings, maybe not. So you and they simply move on with your lives with this unsatisfied, unsatisfiable debt hanging between you. What have you accomplished?
There are times when you sue to prove a point, such as a restraining order or injunction. Maybe it’s a patent or copyright infringement and you need to stop the other party from doing something that will hurt your company. Again, you may not win any monetary compensation, but this may be an investment in your company’s future that you simply have to make. You may need to establish ownership or certain rights that are vital to your company’s existence. Sometimes you just have to bite the bullet and spend the money.
One alternative to a lawsuit is binding arbitration. This is a situation where the parties choose a referee to listen to both sides and make a decision, like a judge, on the merits of the case. The downside to this approach is that the arbitrator may not be an expert in your industry and may not understand how the situation affects your business.
The upside is that you and the other party get to choose your “judge”, there are few procedural rules as compared to rules of evidence in court, and it’s a whole lot less expensive.
The bottom line is that while knowing you can always sue is a business model, it is not a good one. Better to get conditions in writing beforehand so everyone knows what is expected of them. If a problem does arise, cooler heads should prevail and try to work it out. It is everyone’s best interest to avoid the court system if at all possible.
