Lawsuits are inevitable when you are running a successful business. Ask any business executive and they will tell you that there are usually appropriate situations where litigation is necessary. However, properly managing disputes is an excellent way to avoid litigation.
There are many reasons why a business should avoid litigation. Going to court is costly and often times can lead down a torrential path that may be impossible for a company to recover from. There are certain risks that accompany a trial. Failing to properly avoid any unnecessary risks does not facilitate the proper risk management necessary for a successful business.
One thing many executives fail to take account for when deciding whether or not to bring a case to trial is that litigation distracts managers and employees from doing their jobs. This distraction results not only from the time commitment for the trial, but also from emotional factors generally caused by litigation (e.g., stress, fear, anger, etc.). These distractions can be time-consuming and detrimental to a company’s productivity.
Also, litigation involve business relationships, either directly or indirectly. If not well-managed, these disputes can result in strong personal animosities that impact existing and future business. This can create adverse effects on a company’s reputation and standing within its own industry, among potential investors or partners, consumers, industry oversight groups and the company’s own employees.
The following are five common sense tips to avoid litigation:
1. The Golden Rule
Before declaring all out war against an adverse party, consider what is objectively right, not only from your perspective, but also from the likely perspective of your potential adversary. When stepping into the shoes of the opposing party, one can sometimes achieve a more enlightened understanding of what motivates the other party. This common ground can help both sides achieve an agreeable settlement and avoid litigation.
2. Improve Communications
Clear communication from the inception of a business relationship through the final transaction between the two sides is essential. Few would disagree that there is a need to carefully draft and read letters of intent, contracts, addendums, purchase orders with terms and conditions, or even letters and emails. Keeping the lines of communications clear and open between both parties in the waning days before litigation occurs is equally crucial in order to avoid litigation. Often times, litigation ensues due to one side’s complete failure to respond to the other side’s communication.
3. Analyze Company’s Historical Performance
Obtaining an understanding of the company’s historic deficiencies or weaknesses from situations that have previously resulted in litigation can help the company avoid costly litigation in a similar situation in the future. However, a company should not study only those situations in which the company has been sued or has itself filed suit in order to avoid litigation in the future. It should also carefully scrutinize situations where a problem was resolved and suit was successfully avoided. It is important to cure the causes behind the failures and reinforce factors that support success.
4. Don’t Sit on Potentially Threatening Developments
Opportunities to avoid litigation are often missed simply because inadequate resources and attention are dedicated to a dispute in its early stage. One effective method to ensure proper identification and analysis of a potential or existing risk is to implement an expedited review procedure. Such a procedure can help ensure that resources are timely employed to enhance your prospects of avoiding litigation.
Some review procedure examples are:
- Create a reporting procedure encouraging employees to report potential risks;
- Identify the stage of the risk and develop a plan for risk evaluation;
- Allocate the necessary resources and delegate authority as needed;
- Ensure follow-up;
- Continue with basic steps to evaluate risk;
- Identify, interview and evaluate potential witnesses;
- Identify and retrieve important and potentially relevant documents and electronic information;
- Identify anticipated disputed and undisputed fact issues and key legal questions;
5. Incorporate Risk Shifting and Litigation Avoidance Provisions:
Many business disputes will be either directly or indirectly related to contractual instruments. One powerful way to avoid litigation is to include litigation avoidance provisions and/or risk shifting avoidance provision within your contractual instruments. Here are some examples of such provisions:
Litigation Avoidance Provisions
- Cure provisions;
- Mandatory mediation provisions;
- Arbitration provisions, sometimes preceded by mandatory mediation;
- Agree in advance to be bound by expert opinions rendered by mutually agreeable experts;
- Fact finding and/or neutral evaluation; and
- Require partnering, whereby parties agree to cooperate as a team to improve communications and avoid disputes.
Risk Shifting Avoidance Provisions
- Indemnity and hold harmless provisions;
- Exculpatory agreements;
- Additional insurance provisions;
- Release language;
- Disclaimer language;
- Waiver language.
Avoiding litigation is usually preferred whenever the company’s objectives can be achieved through reasonable alternatives, especially if it is at a lesser cost. Available alternative methods should be explored and precautions should be implemented for both existing and potential legal disputes. If you need assistance with a business litigation issue, you can contact a business litigation attorney through FindLaw.