“Why is it so important to keep one’s business out of court?” There are
several answers to this question
By Abid Hussain (firstname.lastname@example.org)
As a business attorney for the past six years, I have seen all sorts of deals come together and fall apart. I have negotiated deals on behalf of clients in a variety of businesses, including restaurants, software companies, private schools, retail stores, private inventors, and commercial and residential real estate investors. Throughout all of these transactions, I have always advised my clients to take steps that keep them out of the courtroom. In this article, I want to highlight some of those steps.
First and foremost, let’s answer the question, “Why is it so important to keep one’s business out of court?” There are several answers to this question, but the bottom line is that when you go to trial, your legal fees skyrocket. Typically, if you have been served with a complaint, you will likely have to hire a litigator to defend yourself in a court of law; such a defense alone can start at $5,000 and up. By the time you count negotiations, responses and many hours of your attorney’s time, even reaching a settlement can costs thousands of dollars.
In addition to the cost, you have factors such as response time and stress, both of which are bad for business. In the event that you have to go to court, a civil lawsuit can take months to years to resolve your complaint. During that time, you will be paying legal fees and court costs, all the while having no guarantee that the issue will be resolved. During that time, the stress of the lawsuit will keep you unfocused from your business. As you can see, staying out of court should be a high priority in your business.
Here are several rules of thumb that can help you keep out of court:
1. Put everything in writing. Putting discussions and verbal agreements in writing helps to avoid any miscommunications, which are how most disagreements and lawsuits get started. On a day-to-day basis, you should get in the habit of creating emails to confirming phone conversations. For more important deals, you should make sure you have properly executed contracts drafted and reviewed by lawyers.
2. Always execute agreements as an entity. This means that a business owner must never personally sign agreements, because doing so could put them at risk personally. If you sign as your entity, then your entity can protect you from personal liability. Of course, you have to make sure that you are operating your entity properly and in a manner that does not allow creditors to pierce the corporate veil, but that’s a topic for a future article.
3. Address all issues before they grow. When running a business, getting complaints from customers is inevitable. If you are resolving these complaints often, hopefully they will not escalate into a demand letter from an angry customer’s attorney. However, in the event that you do receive a demand letter from an attorney, you should consult your own attorney. Often, successful negotiations between attorneys will lead to a resolution that avoids a showdown in court. In such cases, where a negotiation is possible, the legal fees you pay to achieve the resolution are a fraction of the cost of a trial.
At the risk of sounding self-serving, I have to strongly recommend that when you receive a demand letter from a lawyer, you should be very careful if you respond yourself. There are many words and phrases that lawyers use in these demand letters that are “terms of art.” You must understand what you are negotiating and what you are agreeing to. Again, the fees you spend with lawyers in avoiding a lawsuit are far less than what you will pay in defending a suit in court.
If you use these simple techniques and adopt good habits, you will be in a much better position to avoid suits. Ultimately, being preventative now will save you lots of money down the road.