You Sues’ You Lose

Posted on 08/31/2010


Lawsuits are an unfortunate fact of life these days. If you own a business for any extended time period, the chances are pretty good that you will either sue or be sued. A customers slips and falls in your store, a former employee starts a competing business with your client list, or a fellow subcontractor does shoddy work and drags you into a multiparty litigation. Unfortunately, these things happen.

It’s no secret that litigation is expensive. Attorneys aren’t cheap and when you throw in the expense of expert witnesses and depositions–not to mention the value of your time spent in producing documents and materials to respond to discovery demands–and costs can quickly spiral out of control. On top of that, our nation’s courts are swamped, and it’s common for cases to take several years to be tried and appealed to final resolution. As a result, a major law suit can cripple a company, even if it wins!

With that in mind, over the next few days I’ll discuss actions a business owner can take to minimize the risk of a lawsuit and reduce the cost of litigation for those disputes that can’t be avoided:

1. Put It In Writing

Doing business on a handshake is a noble concept harkening back to a time when a person’s word was their bond and disagreements were resolved by violence and other “self help” measures that are frowned on by modern law enforcement.  It’s a quaint concept, but verbal agreements–like pinky swears and double dog dares–are difficult to enforce. Under the Statute of Frauds, the lack of a written agreement is a nearly absolute defense in lawsuits involving many types of transactions (see for a good discussion).

More importantly, misunderstandings are much less likely to happen when a transaction is documented with a well prepared written agreement.  The money the parties spend on legal fees for a negotiated and well drafted contract will be saved ten-fold if it prevents litigation. When two well-intentioned parties disagree, the clarity of the written word provides leverage and incentive to settle their differences amicably and outside a court of law. Where one party is not so well-intentioned, a well drafted agreement can discourage them from making a frivolous argument, since doing so could result in court imposed sanctions.

When it comes to business transactions, the best advice is “Get it in writing.”

Next we’ll discuss the importance of doing business with good people…