Here Comes Litigation - Ready or Not
Most businesses will end up confronting litigation. The business that plans in advance for it can prevent a lawsuit or at least place itself in a position of strength when litigation does arise.
Preventive/Minimizing Measures
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Insurance Significantly Limits Business Exposure. Insurance is available to indemnify loss and provide your defense for personal injury, property damage and some employment claims. There are also other specialized types of coverage available.
You should carefully review your insurance with a professional on an annual basis to assess coverage areas and evaluate the impact of deductible and limitations which can affect coverage.
Because the law generally does not wish to encourage or indemnify intentional bad behavior, be aware that you generally cannot buy insurance to cover intentional torts or punitive damages claims.
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Anticipatory Contractual Terms are Important Tools which can limit business exposure. Basic, but significant, examples include:
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Location of Litigation. You do not want to defend a lawsuit in Tuscaloosa, Alabama or Anchorage, Alaska, especially if this is your opponent’s home town. Accordingly, you should always try to negotiate exclusive jurisdictions and venue provisions in your contracts that provide that all disputes will be decided in courts located in _________ County, Illinois. Courts tend to view such “choice of venue” clauses with favor.
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Interest. If possible, you always want to negotiate interest from the date of your loss on the amount due to you.
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Limitations on Certain Damages. You want to limit your liability to actual damages incurred by your opponent in claims against you. Accordingly, your contract should state that you are not liable for consequential damages (e.g. losses that do not flow immediately and directly from the breach of contract but that result indirectly from the breach) or punitive damages (e.g. damages designed to deter bad behavior).
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Attorneys’ Fees and Costs to Prevailing Party. Absent a contract provision to the contrary, American jurisprudence generally allocates fees and costs to the parties themselves, whether or not they prevail. A “prevailing party” clause, however, awards fees and costs to the prevailing party. The clause discourages specious claims and provides incentive to parties to reasonably and fairly resolve their differences by settlement before extensive fees and costs are incurred.
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Avoid Mandatory Arbitration Provisions. Often, mandatory arbitration provisions are hidden in the boilerplate sections of the documents. We recommend avoiding this clause in most cases. Arbitration tends to be costly and without the full protections provided by due process.
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Personal Guaranties from the business owner can be valuable if your client/customer cannot demonstrate substantial business assets at the time the contract is being signed.
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Jury Trial Waivers can be helpful in contracts that involve complex or technical subject matters or where your business is perceived to be one generally not well received by the general public (e.g.car dealers).
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The Litigation Itself
The Process of a Lawsuit will usually begin with a demand letter or service of a lawsuit. Once a lawsuit is filed, the case will usually proceed through the following stages in this order:
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The Pleadings, where the parties set forth in writing their respective positions;
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Fact Discovery, where the parties acquire relevant information, documents and sworn statements (depositions) from one another and from those with knowledge of the facts of the dispute;
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Expert Discovery, where the parties acquire information, the opinions, documents and sworn statements (depositions) from each other’s experts, if there are experts on liability or damages issues in the case;
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Pretrial, where motions that could decide the case are sometimes filed and material is assembled for the court to utilize in the upcoming trial;
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Trial, either before a judge or a jury.
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Appeal, where the losing party can appeal the trial court’s decision to a three justice appeal panel.
Litigation is an expensive and lengthy process which takes valuable time and resources from you and your staff. It can can sometimes take years to complete.
Over 80% of all civil cases are disposed of by motion or settlement without a trial. The parties can explore settlement at any stage of their dispute. The court, often on its own initiative, will also explore settlement, frequently at the pretrial stage.
Selecting counsel experienced in trying cases is a significant part of prosecuting your lawsuit. An attorney who tries cases will fully prepare the lawsuit and your opponent will know your attorney is willing and able to try the case if necessary. In modern litigation where actual trials are becoming fewer and fewer, the presence of your ready and able trial counsel encourages settlement, often results in favorable settlements and positions you to effectively try your lawsuit. It’s the old story about the best way to avoid war is to be fully prepared to wage it. Thus, when you interview prospective counsel, directly inquire about the attorney’s actual trial experience and results.
Mediation is an increasingly utilized tool, given the expense, time and risk inherent in litigation. In mediation, the parties agree to the appointment of an impartial, experienced mediator who will try to help the parties settle their controversy. The mediator assists the parties in their settlement discussions, often shuttling back and forth between the parties. The mediator does not rule on any matters. Mediation promotes candor because the process is confidential and the communications are not admissible in any court proceeding. Mediation has the advantage of allowing the parties to still control the resolution of their dispute and to some extent the outcome, a control that is lost once trial begins. If mediation is a viable option, you should carefully choose the mediator and carefully choose counsel familiar with the mediation process.
Some parties are interested in arbitrationas an alternative to proceeding through the court system. If you agree to arbitration, your case will be decided by an arbitrator or an arbitration panel. The losing party has very limited appeal rights. The advantage of arbitration is speed - - it generally takes 12 months or less. The disadvantage is that it is very expensive and the decisions are sometimes arbitrary. Arbitration is seldom a good idea. One possible exception is where there is a highly technical dispute. You may want an accountant arbitrator, not a judge or a jury, to decide an accounting issue; you may want a structural engineer to decide a structural engineering issue. Arbitration can facilitate this application of expertise.
Conclusion
Latimer LeVay Fyock LLC hopes that these tips are helpful. Please contact Robert S. Minetz at rminetz@llflegal.com or Brian D. LeVay at blevay@llflegal.com if you have any questions or comments. Be safe and healthy.
Latimer LeVay Fyock LLC
312-422-8000
