Pragmatic Thoughts on Litigation and Your Business

Introduction

Litigation can wreck your business. It can ruin your sleep and rip  apart what you built through years or even decades of hard work. It is  expensive, exhausting, distracting, and emotionally damaging. But with  the right approach, litigation can be managed and overcome just like  all of the other obstacles that confronted your business to this point.  This chapter presents a quick overview of litigation, with emphasis on  pragmatic considerations.

What litigation will come your way? That may be tough to predict  in advance, and it certainly depends on your type of business. You might  affirmatively sue a supplier for failure to deliver products as ordered. The  supplier may sue you for failing to pay on time. An employee may sue  you for discrimination. You may sue a co-founder of your venture (or  she may sue you). A customer could suffer a personal injury on your  property. A larger competitor may be worried by your success, and will  sue you in hopes of crushing you, under guise of having interfered with  their customers or employees, or somehow stolen their trade secrets.

While the specific type of litigation may be uncertain, a dispute  will eventually pay an unwelcome visit to your growing business.2 In all  likelihood, the litigation will be costly, emotional, and damaging. Keep in mind that not only will you have to bear the costs of the litigation and  the risks of an adverse verdict, the existence of litigation itself may dry  up interest in your business from private or venture funding.

So You’ve Been Sued (Or, You Want to Sue Someone) You have not formally been sued until “service” is effectuated.  Service occurs when a copy of the complaint and summons is delivered  to you or to an authorized representative of your business. Sometimes  service occurs through “personal service,” meaning an individual hired  by your adversary will personally deliver documents to you. In other  situations, service may occur via mail.

Once you have been served, it is not time to call up the other  side to complain, negotiate, or yell. None of that will help, and will  likely hurt. Rather, court deadlines are fast approaching, and it is time  to lawyer up.3

If you have not been sued, but are convinced that you need to  take affirmative action against another person or entity, do not delay the  process. Seek out legal counsel promptly to advise you on the situation.  The law dictates that if you do not bring your suit within a specified  period of time (which differ depending on the type of suit), that you  may lose your right to bring the suit at all.

Selecting Litigation Counsel

Choosing the right lawyer matters. As you begin looking for the  right litigation counsel, you will want to consider the following:   •  Litigation expertise, including expertise in the specific type  of lawsuit that you are facing: Understand first that litigation  is a specialty among lawyers. And within litigation, attorneys  often further specialize, focusing their time on certain types of  litigation. Whether you are facing an employment, contract,

intellectual property or other type of dispute, you want an  attorney with expertise in that particular type of suit.

•  Knowledge about your business (or willingness to learn): You  want an attorney who either knows about your type of business,  or cares enough to learn about your business.

•  Experience: more so than other professions, the legal profession  (and the judge who will decide important aspects of your case)  respects seniority and experience—be extremely careful when  hiring an attorney without any gray hairs;

•  Size of law firm: Three general categories of options here: a lawyer  who works at large firm, a small firm, or is a solo practitioner.  Advantages of a large firm include reliability, accountability,  access to numerous specialists, easy collaboration with other  successful attorneys, and access to a large amount of internal  knowledge. Meanwhile, some small firms are also sophisticated,  may be more flexible in how they work with you, and also may  be more excited about your business. As to the solo practitioner  category, a wider range of competence exists, as you might  expect. Such lawyers have the most flexibility in setting costs of  representation.

•  Price/Billable rate: Generally speaking, attorneys in greater  demand and with more experience and expertise are able to  charge more per hour. However, it is not accurate to conflate  an attorney’s offered billable rate with overall cost or efficiency.  In short, the attorney with the higher billable rate may have the  right expertise for your case, and ultimately cost less than an  alternative option advertising a lower rate.

•  Integrity: You of course need to trust that your attorney will  competently represent your interests in the litigation. But  you also need to trust that your attorney will bill you fairly,5  tell you the truth about your case,6 represent you diligently and promptly,7 preserve your confidences,8 avoid conflicts of  interest,9 and maintain professional integrity.

•  Reputation: An attorney’s reputation is her stock-in-trade, with  both the courts and fellow practitioners. In short, that reputation  is important to the prospects of your case.

Once you have considered the above factors, begin the process of  selecting your attorney. Do not select your attorney via vague word-of mouth from friends or family. The following are steps to consider in the  process:

•  Inquire with your business attorney: You should ask your  business attorney for advice and recommendations as to whom  to select as your litigation counsel. Where the prospective  litigation counsel is a colleague of your business attorney,  your business attorney will typically be motivated to select a  competent colleague and work behind the scenes to help with  a smooth relationship. However, it would be a mistake to allow  your business attorney to make the selection for you. While your  business attorney’s input should be considered and valued, her  evaluation should not replace your own evaluation.

•  Research and recommendations: Seek out other  recommendations from your business networking circle.  Attorneys, especially those unbiased by the prospect of obtaining  the work for themselves, are often knowledgeable sources  about the right attorney for the job. Furthermore, consider the  literature available as to attorney recommendations. As one  example, Chambers & Partners conducts systematic interviews  and research, and identifies top firms and practitioners within  geographic areas.10 Other companies purport to perform a  similar task, although many do not observe any distinction between objective, researched recommendations and paid  advertising. Other possible avenues of research would be to  investigate bar complaints against the attorney or firm,11 whether  the prospective attorney and firm has previously been sued by  clients,12 or whether the attorney and firm have sued clients for  unpaid fees or sought attorney’s liens.13

•  Interviews: Your relationship with your attorney is personal and  sometimes intense. You need to get along with the person. In person interviews are the best way to gauge fit. Even on a relatively  small matter, plan on interviewing at least two attorneys. On larger  matters, consider three or more interviews. For these interviews,  be prepared with a list of questions, including topics such as  experience, qualifications, gut reaction to your case, references  (specifically ask if you can speak with any former clients who  were involved in similar cases). Depending on the size of the  litigation, you may not be hiring just one attorney– rather, you  will hire a team of attorneys and staff—a junior, a mid-level and  a senior attorney as well as paralegals. In a significant case, ask to  meet with all the attorneys that might be staffed to your case.

•  Significance of decision. You are entitled to counsel of your  choosing. Mid-litigation, you may fire your attorneys and hire  new attorneys. However, numerous transaction costs come along  with a change in counsel; therefore, it is far better to make the  right decision at the outset.

Once you have made the decision about which attorney and law  firm to hire, it is time to negotiate an engagement letter. As a general practice, Utah attorneys will provide a written explanation of the  attorney-client relationship and fee agreement. The lawyer will likely  send you a letter and ask you to sign it. In some circumstances, the terms  proposed by the lawyer may be adequate and fair. However, these letters  and the terms included in them are generally binding on you and the  attorney; think of the letters as a contract, and negotiate as appropriate.

The following are typical terms included in an engagement letter: •  Names of attorneys and paralegals who are likely to work on the case, and their hourly rates: Consider adding a provision  that will require the firm to advise you in writing if additional  unnamed attorneys will used on the case.

•  Statement that the hourly rates may increase on an annual basis: Consider adding a provision that disallows such increases  without your authorization, with authorization contemplated  only where attorney provides justification for the increase in  hourly rate.

•  Retainer amount: A retainer is a pre-payment for services not yet  performed. The retainer is deposited in the law firm’s client trust  fund, to be dispensed to the firm only upon billing for services  actually performed. If the services are never performed, then  the law firm is required to return the unused retainer amount  to the client. Some retainers are applied to the first billing,  although more commonly the retainer amount is held until a  final billing. Many clients, especially small businesses, are often  overly concerned about the retainer amount, and are resistant  to pay. However, paying a large retainer will likely improve the  attorney’s confidence in you, which may lead to improvement  in your service. No attorney enjoys working for a company that  is a slow-pay or a no-pay, and resistance to paying a retainer is a  sign that the attorney can expect future payment problems and  complaints.

•  Jury waiver: This term may obligate you to waive your typical  right to a jury trial in the event you file a malpractice lawsuit  against the law firm.

•  Mandatory arbitration: This term may obligate you to waive  your typical right to file a lawsuit against the law firm. Instead you  would be obligated to bring your claim in a private arbitration.  Such arbitration provisions are popular in business-to-business  interactions; however, many attorneys believe that arbitration is  often as expensive as litigation, in part because the arbitrator  must be paid an hourly fee for adjudicating the matter.

•  Interest on late-paid invoices: No reason justifies agreeing to  pay exorbitant interest on late payments. I have seen engagement  letters specifying 24% annual interest. Something around 10- 12% is more reasonable, sufficient to motivate you to pay the bill  on-time without proving punitive if unforeseen calamity affects  your ability to pay.

•  Costs of copies, faxes, etc.: Consider asking for the amount of  these costs to be identified, or in the alternative, insert a term  requiring that such costs be passed through to the client at the  same cost incurred by the firm. Ask yourself: is there a reason to  be paying 25 cents per copy when the law firm likely pays a few  cents per copy?

•  Electronic research databases: In litigation, an attorney’s stock in-trade is the ability to find comparable cases and judicial  decisions, as to which arguments of relevance or non-relevance  will be presented to the court. To do so effectively, the attorney  must scour electronic databases; these databases are expensive.  Passing such costs onto clients may be justifiable. However,  some clients with sufficient leverage refuse to pay these passed on research costs. Additionally, free services like Google Scholar  are increasingly available that allow attorneys to conduct free  searches without incurring database charges.

•  Out-of-pocket costs: Nearly every litigation matter will incur  substantial expenses payable to entities other than the law firm.  Such costs include filing fees, process server fees, deposition fees,  travel expenses, expert fees. Determine now whether you would  like to pay these costs directly, or whether you can ask the firm  to pay them for you and then invoice you for the amounts paid.

•  Billing: By and large, attorneys are old-fashioned. Typically bills  are sent out once a month, and often with some lag time tagged  onto that schedule. Given this frequency, it is easy to be surprised  by bills. Consider asking the attorney to send out twice-monthly  invoices, and to do so via email on specified dates (such as the 1st  and 15th).

So How Much Will this Cost Me, and Am I Going to Win? The above two questions require an attorney to be a fortune teller.  Attorneys are not fortune tellers; they cannot predict the future.  As to “How much this will cost me?”, clients often ask an attorney  to prepare a litigation budget that contains some estimates. Such  estimates are difficult to provide, as most of how much a litigation will  cost depends on unknowns, including the behavior of the opposing  side. Litigation takes unforeseen turns. Nonetheless, these estimates  provide an accountability framework that can be helpful for guiding  attorney and client expectations and communications. You should set  expectations for regular consultations with the lawyer about the billings  in the case. You will benefit if you can frame these consultations as driven  by your business finances and practices, rather than as frustrations about  your attorney’s practices. Most attorneys do their level best for their  clients, and may interpret ongoing and poorly framed questions about  billings as an attack upon their character or competence. If predictability  is important to your business, you could also ask your attorney for a  weekly update on hours spent that week.

As to the second question (“Am I going to win?”), your attorney is  obligated to provide you a candid assessment of your prospects of success  in the litigation. These predictions will often include an explanation of  the law that will apply to your case, and caveats that the application of  that law to your case will depend upon the facts that emerge—many  of which are not yet known. Generally, any dispute that has risen to  the litigation is not a slam dunk case for either side. You may of course  feel that the case is a slam dunk for you, but part of your attorney’s  job in giving you the best candid advice is to help you recognize the  risk that the Court may not interpret the facts in the same way that  you do. Furthermore, your attorney should help you recognize that even in a very strong case, inherent uncertainty exists in the process  of adjudication. You may initially feel that this advice means that your  attorney is “not on your side” and “does not believe you.” Resist this  reaction. Your attorney’s job is not to tell you what you want to hear.  Her job is to give her best advice in an effort to help you make informed  decisions about the case. Rest assured that when it comes time for your  attorney to advocate your case in court and to the opposing attorney, she  will be your zealous advocate.

Litigation Commences, Law Firm Engaged—Off to the Races A separate chapter in this book addresses various substantive  proceedings in litigation. Suffice to say, litigation can be very complicated.  Part of your attorney’s job is to explain the proceedings to you. The  following are some general thoughts on the pragmatics of the situations  you will confront. Consideration of these topics may help you know  what questions to ask your attorney.

•  Motion practice. A motion is a party’s request for the Court  to rule on some issue. There are numerous different kinds of  motions. Most motions are not “dispositive,” a term used to  mean that the outcome of a particular motion will determine  whether you win or lose your case. In strategizing whether to  bring a motion, always ask your attorney the following: the cost  of preparing and arguing the motion; the likely effect upon the  opposing party; the possible outcomes; and the strategic goals  for the motion in view of the overall case.

•  Discovery. Our judicial system emphasizes the rights of all parties  to full information relating to the relevant facts of the case. This  means that you need to turn over all your “stuff”—documents,  texts, emails, financial information—you name it, you’ll likely  have to provide it to the other side. This process can be absurdly  expensive. Even where your lawyer is supremely cost conscious,  discovery costs will always seem excessive. Still, some lawyers  unnecessarily expand the scope of discovery to materials that are  not truly essential, file too many discovery motions, and fail to  develop a working relationship with the opposing attorney that can reduce costs for all involved. At the outset of the litigation,  you may well have been impressed by the “bulldog” attorney.14  If that bulldog is not able to be pragmatic and negotiate during  discovery, those failings will show up in additional zeros on your  invoices.

•  Trial. Modernly, most cases (likely more than 95%) never reach  the trial stage. Cases settle. They are dismissed by plaintiffs who  run out of zest or funds for a years-long fight. They are resolved  by the judge on a dispositive motion. But only rarely are they  tried to a jury of your peers. In terms of trial strategy, pay close  attention to the instructions of your attorney. The jury will be  watching you throughout the trial, and don’t think that your  persona will not be assessed and weighed. If you are in a large stakes trial, consider bringing in separate appellate counsel to  observe the proceedings and offer occasional tips to trial counsel.

•  Complaining Does Not Help. During litigation, you can  spend your time in a lot of ways. You can focus on your personal  health, your business, and on providing specific support to  your attorney as asked. Or, as many litigants prefer, you can  obsessively complain about the system, the judge, your attorney,  the other side’s attorney, and myriad other perceived injustices.  Rest assured, it is a 100% probability that the judge assigned  to your case is not “out to get you.” Our judicial system is not  perfect, but it dramatically better than the system in any other  country in the world. Granted, attorneys and court fees can be  expensive, and litigation takes a substantial amount of time. But  here in America, you get a fair shot at a remedy for the wrong  that harmed your business.

•  (Almost) Always Agree to Early Mediation. Mediation is a  voluntary appearance before an experienced attorney (often  a former judge) who will attempt to facilitate a settlement.

Relatively speaking, mediation is cheap and it often succeeds  where there are any reasonable prospects at a settlement.  Carefully and repeatedly inquire with your attorney about the  right time to mediate a case. Be skeptical about an attorney’s  advice to refuse to mediate a case.

•  Do Not Get Confused by Emotion, Justice, Revenge and Other Irrelevant Feelings: Litigation is (Almost) Always About  Money. Consider rationally whether settlement makes fiscal  sense. You may feel like you ought to fight the moral fight to prove  the other side wrong. The longstanding advice to not litigate out  of principle is still true. Do not do it. Litigation should (almost)  always be a business decision. As a simple example, consider an  offer to settle your case that would require you to pay $50,000.  Your attorney informs you that she thinks you have a 75 percent  chance of winning the case and paying nothing, but that it  will cost $100K in legal fees to get through trial. Furthermore,  if you lose at trial, you will lose an additional $100K. If you  settle, you will pay $50K. If you proceed, you will surely incur  $100,000 in expenses, and you have the statistical probability of  incurring an additional $25K (not to mention a risk of incurring  an additional $100K). In such a situation, only a fool proceeds  where the grounds for doing so are purely emotional. Granted,  in some situations, though, legitimate broad business reasons  may exist that justify continuing the litigation. Such rationales  include establishing a pattern of practice or a market message. Be  aware, though, that while such tactics and strategy sound strong  and therefore appealing, they are also expensive. They should be  considered carefully in light of your entire business strategy and  budget.

•  Disputes with Hired Attorney—Before or After Conclusion  of Litigation. Hopefully, the care you exercised in selecting  your litigation counsel increased the probability of a favorable  experience. However, if during litigation, you become  convinced that your attorney is not zealously or competently  representing you, you may consider switching counsel. Just like every other professional (engineers, doctors, accountants),  attorneys are responsible to perform their obligations pursuant  to an acceptable standard of care. If you feel that your  attorney has breached the relevant standard of care, you may  bring a lawsuit against your attorney for legal malpractice. In  either setting, carefully and objectively evaluate the situation,  preferably with the assistance of unbiased separate legal counsel.

As to fees, if you feel that your attorney has overcharged you,  you are not alone. Legal services are expensive. Clients often feel  that they are too expensive. The legal test for whether charges  are appropriate asks whether they were reasonable under the  circumstances. To determine that for yourself, first speak candidly  with the attorney about the charges. If that discussion does not  resolve your concerns, consider retaining a new attorney to ask  her thoughts on the matter. Understand that if this counsel is  hoping to replace your current litigation counsel, her perspective  may not be unbiased. The Utah State bar also has a “fee dispute  resolution services” that may prove helpful in achieving a  voluntary resolution.

Conclusion

At the end of a litigation, first pay your lawyer,16 and then take a  vacation! After your vacation, it’s time for your business to evaluate what  was learned from the dispute. Speak with both your litigation counsel  and business counsel about possible measures to implement to try to  avoid future litigation or reduce future litigation risk.