Have Your Day in Court?

Lawsuits happen-and as with any other aspect of negotiating, it's up to you to get the best deal for your business.
Magazine Contributor
3 min read

This story appears in the April 2002 issue of Entrepreneur. Subscribe »

Litigation is one of the most time-consuming, aggravating, expensive and unpredictable risks that deal-makers have to face. Unfortunately, in the litigious society we live in, if you haven't already had the pleasure, you're probably overdue for some sort of legal entanglement.

You'll know you've been sued when you receive a formal notice. Generally, a written response must be filed within 20 or 30 days, depending on the court. So move quickly, or you may lose valuable rights. First, find out if you're covered by one of your existing insurance policies-for example, a homeowner's, general liability or umbrella. You may be pleasantly surprised. If so, contact your insurer promptly. Otherwise, they may point to the fine print and claim that your delay has relieved them of their obligations.

Whatever you do, resist the urge to contact your opponent directly. Speak to your lawyer first. What you unwittingly tell the other side in a casual phone call may really hamstring you later.

Before you meet with your attorney, assemble a complete file. Include all relevant documents: insurance policies, correspondence, bills, canceled checks, contracts, contact information for potential witnesses and so on. If you're not sure what's important, bring it along anyway. Put together a blow-by-blow written chronology. Your litigator will be thrilled. Best of all, you'll save time and legal fees.

Early on, get your lawyer to outline a strategic plan and budget. Of course, there are no guarantees things will go your way, but to make intelligent decisions, you must get a frank evaluation of the strengths and weaknesses of your case.

Above all, talk to your lawyer about alternatives to litigation. Specifically, ask him or her whether you should consider arbitration or mediation.

Basically, arbitration is streamlined litigation. Both sides bring their quarrel to an impartial, private third party who is empowered to make a final decision. At its best, it's cheaper, less formal, quicker and more confidential than litigation. However, unlike judges, arbitrators are not obligated to follow legal precedent or procedure, and their decisions may be impossible to appeal. An arbitrator may also corruptly favor a party who throws them repeat business. Combine these risks with the legal fees you'll already have to pay and re-evaluate whether you might be better off in court.

In mediation, a neutral third party facilitates face-to-face discussions between the parties. Unlike arbitrators, mediators have no binding authority. However, by defusing anger and clarifying issues, skillful mediators are surprisingly effective. In fact, studies indicate that disputants are far more likely to honor their mediated settlements than litigated outcomes.

Unlike on television, real-world lawsuits can drag on for years as each side tries to harass and wear the other down. Eventually, however, cooler heads will prevail and litigation will give way to a cost-benefit analysis. Despite all the huffing and puffing early on, nine out of 10 lawsuits settle out of court.

So when that summons arrives, remember the above. Perhaps you'll avoid the fate author and critic Ambrose Bierce ascribed to the typical litigant-who goes into litigation as a pig and comes out as a sausage.

A speaker and attorney in Los Angeles, Marc Diener is the author of Deal Power.

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