Business Disputes, Money and Principle

“I don’t care about the money. It is about principle.”

Thirty (30) years of practicing law and representing hundreds of clients engaged in business disputes, I cannot honestly recall how often I have heard the aforementioned statement. Oftentimes, this is the primary motive that typically results in a 2-3 year battle that will ultimately cost more in legal fees than the actual value of the dispute.

Litigation costs tend to capitulate as the result of an average of six (6) court appearances, two (2) depositions, a jury trial of at least two (2) days, followed by more than two full weeks (80 hours) of court preparation.

Unless you are a religious institution, sometimes “principle” being the basis of waging a legal way is extremely counterproductive.

The very essence of being in business is to make money. Legal battles based on “principle” are typically driven by anger. The “plaintiff” is oftentimes dealt with a time-consuming and expensive battle that can be difficult to withdraw. Therefore, at SmythLawPC, we highly recommend thinking through all the options before throwing the first legal punch. Always consult with a lawyer when considering business litigation.

By highlighting the foregoing, I am advising against my own financial interests.

Typically, a furious client seeking vindication is willing to invest in a lawyer – no matter the cost. Frequently, those who initiated the battle based on principle tend to lose steam as time passes on. As their anger subsides so does their interest in proving their righteousness. Many become recalcitrant to pay the ongoing legal fees for a case which is only half completed and in which a lawyer is legally required to continue with until the Court grants them permission to withdraw.

There are various ways to vindicate one’s commercial rights (including a client’s “principled” position), without engaging in a full-blown legal battle.

Please note, the methods offered here are not without their drawbacks.

1. On a case in which the legal fees will likely exceed the value of the amount of money in dispute, no lawyer will want to take the same on a contingent fee (usually 1/3 of the gross recovery).

2. No lawyer, with any business sense, would be willing to take a case requiring such a high workload in return for the chance of receiving one-third of the perceived recovery which, in itself, is worth less than the value of the lawyer’s anticipated work.

Alternative Dispute Resolution (“ADR”) is a good option.

The most binding on the parties is Arbitration.  ADR is where the parties agree to hire a private judge (often a retired Judge) to hear their dispute.  The ADR procedure is relatively inexpensive, oftentimes quicker, and can often yield results similar to those achieved through a traditional trial.  In ADR, the right to a jury is waived, in lieu of the private judge deciding the case.  The rules of evidence are informal and discovery is more limited – saving substantial legal and out-of-pocket costs.  An ADR case is nearly always completed within six months.  The parties simply prepare their cases and have them informally heard in the ADR provider’s offices. The ADR provider typically renders their written decision, within 30 days.  The cost of the ADR provider is usually $400.00 to $800.00, per party, for a two hour session.  Of course, the parties must pay for the actual time that is required to have their cases heard.   Lastly, the Courts strictly enforce an agreement to arbitrate.  The results of arbitration, excepting fraud or an arbitrator exceeding his agreed-upon authority, are nearly never overturned by a Court.

Mediation is another ADR option.

With mediation, the process is directed towards bringing the parties to a voluntary agreement.  For all practical purposes, it is a settlement conference.  The success of the mediation depends on two factors; the first being the skill of the mediator and the second is the willingness of the parties to compromise their positions.  Usually, a good settlement results in both parties being less than fully satisfied.  With mediation, both parties pay and/or compromise, to avoid the risks, uncertainty, and very high cost of traditional litigation.

One drawback to ADR is that both parties to the dispute must agree to use ADR.  It takes both to enter into an agreement to use ADR and only one to continue the court battle.  While in ADR, the right to a jury is lost, juries can be far more fickle (random) than an experienced arbitration/mediator or a retired judge.

Small Claims procedure alternative.

Small claims operate much like a garden variety “People’s Court” television show.  Cases are filed and heard before a Clerk-Magistrate of the Court, usually within 4 months after the Complaint is filed with the Court.  There is no right to a jury trial and the rules of evidence are very informal.  Hearings in the Small Claims Court rarely take more than two hours.

However, except in cases involving property damage caused by a car accident, the Small Claims Court cannot award a Plaintiff more than $7,000.00 (excluding some relatively rare legal circumstances). Still, if your case is worth even $15,000.00, the Small Claims process may still be economically efficient.  A standard jury trial, lasting even only two days and after a year or two of obligatory pre-trial legal procedures, with usually cost at least $20,000.00 in legal fees and costs.  The legal fees often incurred in a Small Claims matter is usually one quarter or less than the cost of a full-blown jury trial making the Small Claims matter ultimately far more economically efficient.

There is one huge drawback to seeking the resolution of a business dispute in the Small Claims Court.

The Defendant, if they lose their case, has the right to appeal the case against them to a Jury of six jurors in the District Court.  In doing so, the Plaintiff is again faced with a somewhat lengthy and complex process of a full jury trial (although discovery is limited).  While, in such Appeals to a jury, the jury is to be told that the Plaintiff won their case before the Clerk-Magistrate, the rules of evidence and procedure are now formal (the Massachusetts Rules of Evidence).  This will greatly increase a Plaintiff’s legal fees.  While it is possible to have such a trial without a lawyer, the results are usually disastrous without them.  Despite their claims to the contrary, the Courts despise litigants who bring their claims or defenses to a jury without the benefit of lawyers due to the complexity of the rules which must be followed.   This is particularly true because the amount of money in controversy is relatively small.

Buyer beware when the cost of business litigation that is based more on “principle” rather than economic gain is extraordinarily high.

No decision to litigate a comparatively small business dispute should ever be made out of anger.  It is akin to throwing a punch in a barroom quarrel.  Once the first punch is thrown, it is impossible to take it back.  If you are angry about a small business dispute, first take a deep breath and then call a lawyer for a consultation.  The cost of the consultation may cost a few hundred Dollars and any lawyer with integrity will advise you in accordance with concepts that I have set out above.  Such advice is not given out of a reluctance of the lawyer to zealously represent a business client’s interests, rather it is given based upon years of experience, a good business sense, and common sense.  If, thereafter, you still want to fight (litigate), be prepared to reach deep into your pocket and to get to work.