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Know When To Hold ‘Em, Know When To Fold ‘Em

by Rob L. Wiley

We have all seen countless westerns or action films (a recent James Bond movie comes to mind) in which the embattled rancher or beleaguered entrepreneur “bets the farm” in a desperate effort to save all. That’s sometimes our image of lawsuits, too — desperate gambles to prevent cashing in the chips or greedy attempts to take the farm. It doesn’t have to be that way. Reason, deliberation and experience can reduce the gamble and produce satisfactory outcomes.

Litigation and business almost always go together. No matter how hard we try to avoid litigation, business owners should never have any surprise at becoming involved in a lawsuit. We live in a litigious society. Despite so-called “tort reform,” business owners still often find their companies being sued or needing to sue to right a wrong. The real issue often becomes how a company — large or small — handles the litigation that comes its way. Sometimes it’s wise to push ahead, and sometimes it’s best to back off. As in a card game, with litigation it’s good to know when to hold ’em and know when to fold ’em.

Obviously, the first thing that a business facing litigation needs — as a plaintiff bringing a claim or as a defendant having been sued — is a good lawyer. More on picking commercial litigators later, but for now, remember that lots of lawyers do not handle litigation matters. That means that your regular company lawyer may not fit the bill for defending that claim which a supplier just brought for breach of contract or for pursuing a former executive’s violation of a non-compete agreement. In either case, the company needs an experienced, capable litigator.

Defending Claims

Companies served with lawsuits ought to always ask at least the following three questions:

  • Do we have insurance that covers this claim? Insurance policies generally don’t cover breach of contract actions, but often plaintiffs in business disputes also bring, along with the breach of contract allegation, tort claims like fraud and breach of fiduciary duty. General liability and other insurance policies often will cover those kinds of claims or at least provide a defense.
  • Are the people who had anything to do with the transaction at the heart of the suit still around? Both key business people and the company’s lawyers need to start talking with those people – NOW!
  • Do we have documents (contracts, letters, e-mails, memos) that deal with the subject matter of the lawsuit? The affected people and departments need to start gathering them – NOW!

Once the appropriate business people and lawyers identify the key employees and documents, the decision making executives involved need quickly to assess potential liability and damages and make an initial decision about whether to mount a vigorous defense, seek an early settlement, or perhaps pursue both approaches at the same time; such strategies sometimes are not mutually exclusive.

Asserting Claims

Most businesses, at one time or another, need to bring claims against another business or an individual who might otherwise get away with something. Breach of contract claims, fraud allegations, interference with third party contracts, and violations by former employees of non-compete agreements are just a few of the claims that a business organization may need to assert through the legal system. Before bringing such a claim, decision makers should ask:

  • Do we actually have proof that links the prospective defendant with the harm we think we’ve suffered? Do we have documents and testimony that really support the claim or is it all just surmise and speculation?
  • Can we afford to bring the claim? This involves both the fee arrangement (hourly or contingent) with our lawyer and the investment in case expenses (deposition transcript costs, expert witness fees, etc.) and employee time that the case will require. A company may also want to consider whether bringing the claim could result in any negative publicity or damage relationships with suppliers, customers, or others.
  • What are our real interests? Is there something important to the company that the claim represents or is the claim more about pride and status for the people in the company who are pressing to make the claim?

Tough, realistic answers to these questions will provide a measure of the company’s commitment to the investment that the case will require. If the answers to these questions raise doubts about the wisdom of proceeding, a step back to re-evaluate is in order.

Selecting Counsel

As noted, a company’s regular attorney may not excel at representing the company in complex litigation. He or she may well provide excellent advice about corporate organizational issues, contract negotiations, regulatory filings, and many of the other legal matters that a modern business faces, yet still not have a clue about how to handle a litigation matter. That means finding someone who does know litigation. Things to look for in picking litigation counsel:

  • Trial experience – has the lawyer actually taken cases to trial or arbitration (an increasingly popular process for resolving commercial disputes)? How many? What kinds of disputes has he or she handled?
  • Willingness to go to trial – while it’s true that the overwhelming majority of commercial cases settle without trial, many won’t unless the parties believe that the other side will actually risk going to trial.
  • Pre-trial experience – today’s commercial litigation practice emphasizes pre-trial skills – such things as deposition taking, discovery-related hearings, motion writing, and sorting out and interpreting large volumes of documents. Your litigation counsel should have a thorough understanding of such things.
  • Toughness, not meanness – some clients say they want a “junkyard dog” representing them in litigation. Be careful what you ask for! Lawyers who poison the well by throwing trash at the other side frequently make cases harder to settle and, therefore, more expensive for their clients. A tough, but fair and cordial, approach usually works best and appeals a lot more to judges.

Navigating the commercial litigation minefield – as a plaintiff or defendant – requires awareness of the process, realistic expectations, and wise counsel to look over your shoulder at your cards. Having an experienced litigator evaluate your claims and defenses before you see if you’re contemplating being a plaintiff or right after you get served as a defendant can save a lot of heartache (and expense) later. Your advocate will look at the law, the facts, and some less tangible factors and advise you about staying in the game. There are times when it serves your company’s interests to push a particular position hard and other times when it’s best to sit back and wait. When the game affects your business and the stakes are high, knowing when to hold ’em and when to fold ’em certainly applies to litigation as well as to cards.

He has practiced law in the Houston area for over 25 years. Reach him by phone at 281-367-8007 or by e-mail at [email protected]

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