An Ounce of Prevention! Tips to Avoid Litigation


Small business owners all seem to have one common fear: the fear of being drawn into a costly and time consuming legal battle. For the business owner in particular there are many relationships where lawsuits may arise, from the petulant customer or client, the dissatisfied or terminated employee, the landlord or tenant, the disgruntled partner, the visitor who falls on the premises, and the list goes on. With all these possible sources of litigation, any reasonable steps which can be taken to avoid the process or to lessen its costs should be embraced. There is no magic wand to make a potential lawsuit disappear, but there are some common sense approaches to typically recurring problems that can reduce the possibility of suits thereby helping to conserve business resources.

He said, she said

Failure of communication and failure of recollection are two areas which are constant sources of litigation. Simply because two people get together and talk to each other does not mean they understand or agree. Even if they are able to agree or comprehend the facts and circumstances of a particular transaction, human recollection, being far less than perfect, may let them down one month or even one week later. Yet, it is common for lawsuits to arise one or more years after an event. In some extreme cases, such as those involving asbestos, the litigation is not filed for 10 to 20 years after the initial occurrence.

In Washington state, for example, there was a case involving a mobilehome reseller and a manufacturer who entered into an oral agreement. The agreement was to allow the reseller to have exclusive rights to sell one brand of the manufacturer's line. When the manufacturer started selling almost the identical homes under different brand names to other dealers in the area, major problems developed. At trial the evidence came down to who had a better recollection of the agreement. Unfortunately, there was absolutely no documentation as to the specifics of the actual agreement and neither party got the result they desired.

Had there been a written communication between the manufacturer and the reseller, each would have understood the specifics of the deal and the attendant protracted litigation might never have arisen. With a writing, even if a dispute does arise, there is documentation for the trier of fact to refer to when determining each party's responsibility. The lesson is simple. With any agreement, not just contracts, make sure there is a true meeting of the minds, and with any agreement or event of significance it should be memorialized in writing. If the significance of an event or agreement is unclear, memorialize it anyway.

You can't be all things

Running a small business and keeping it in the black is tough. Businesses retrench or fold together every day. There is no money for extras, and everyone knows that attorneys are expensive. Besides, bring an attorney into the mix and he'll raise so many other issues you will forget why you hired him in the first place. At least so goes the modern wisdom, but is it so wise?

In another case a mobilehome park sold a mobilehome to a couple who were to make their payments over time. They reached a tentative agreement and true to the first rule stated above, the park drafted a purchase agreement to "memorialize" the transaction. Unfortunately, the finished product left much to be desired. When the mobilehome burned to the ground, the buyer and the park both argued, the other was responsible for carrying fire insurance. Neither the park nor the buyer had purchased insurance on the subject mobilehome.

No businessperson is an expert at everything, nor can he or she be. The world is simply too complex. A businessperson in need of medical attention seeks out a physician. Likewise, a businessperson in need of an enforceable contract should have it reviewed by an attorney. Even "standard contracts" need periodic review to keep them current. While a well-drafted contract cannot eliminate all possibilities of a lawsuit, it can define the rights and obligations of the parties and, as such, lessen the chance of litigation.

Moreover, and perhaps more important, the skilled attorney reviewing a contract, like the skilled physician examining his patient, can spot potential problems the businessperson might not have considered. Knowledge is power, and the specialized knowledge of an attorney gives power to the businessperson to be in control. As with anything else, it is much easier, not to mention cheaper, to solve a problem before it occurs than to fix it after a problem (or a lawsuit) arises.

Do unto others...

Another constant source of litigation is human emotion, in particular anger and wounded pride. Of course anger and hurt feelings do not constitute causes of action in and of themselves, however, an angry, wounded person (client, employee, tenant) will find the grounds for a lawsuit if he or she believes he has been wronged.

 

A typical illustration is the case of a buyer who purchased a new mobilehome and expected quality, leak-free construction. Instead he was subjected to a residence which leaked and was so poorly constructed the interior walls did not match in the corners, the closet doors would not slide and the finish came off all the cabinets. When the buyer still had leaks two years later and the manufacturer refused to help while the reseller went out of business, the buyer was angry. In his anger he hired a litigation attorney and problems which could have been solved informally became the basis of a lawsuit.

Blanket refusals to assist one's clients or customers often serve no useful purpose. To the contrary, such actions can give rise to litigation. Giving an attentive ear to the employee who claims harassment, keeping common areas in tip-top shape, or correcting problems with rental units may cost money, but the good will engendered tremendously lessens the likelihood of litigation. The angry, vengeful person always cries for "justice," while the well-treated person believes justice has been done.

Conclusion

Through resources readily available to businesses, e.g., insurers, attorneys, trade organizations, areas of risk can be identified and isolated and steps taken within a business to avoid those areas. In the meantime, it is important for the business owner to remember to memorialize agreements even if they seem insignificant at the time, have contracts reviewed by an attorney and deal proactively with complaints.