How to Reduce Risks and Costs of Litigation
October 3, 2013
Perhaps the most difficult question a client can ask an attorney – a question that causes anxiety for both clients and attorneys alike – is the simple question “how much will it cost to resolve the dispute?” This question is almost always followed by the second most difficult question “how much will this cost me?” Having heard these questions for more than twenty years and watching the legal process play out, the approach I take to answer these questions is always the same.
While it may seem counter-intuitive, the intent of this article is to leave you with more questions than answers. This article encourages the concept of self-exploration. Begin with answering the following questions that have nothing whatsoever to do with the underlying dispute: What is your corporate culture regarding risk? What degree of risk prevention, if any, has been maintained as an ingredient within your own corporate culture? Is your company in good standing with the law? Are all legally required corporate documents up to date in the appropriate jurisdictions? Are all required licenses up-to-date both in your home state and any other state (and local) jurisdiction where your active projects are located? These questions are important because they may affect your personal liability, i.e., protections afforded by the ‘corporate veil,’ as well as your company’s legal access to the required courts for dispute resolution. Having your own house in-order remains a top consideration for preventative risk avoidance and the costs associated with remedying any issues on an expedited basis.
Is there a corporate protocol in place to anticipate and eliminate disputes before they occur? Do you have proper contract documents in place and have you negotiated the best contract terms possible on a given project? Do you have the contract documents incorporated by reference? More importantly, have you even read the contract documents? Has your project management read the contract documents? Is your field management aware of key contract provisions on issues such as notice, change orders and differing site conditions? Are potential issues properly documented and, when necessary, brought to the attention of the ‘upstream’ or ‘downstream’ parties as required by the contract documents? Is project labor tracked properly? Are potential extra costs tracked properly? Are there schedule delays on the project? Are you signing away your rights every month when you execute change orders and lien releases or do you have a practice in place to protect and preserve legal rights and remedies? Establishing a corporate protocol means establishing best practices months or years before a project, let alone a dispute, has even started.
Pondering the above questions should invoke the concept of best practices as a means of risk avoidance as this is the best way to reduce the risks and costs of litigation. However, if dispute resolution through litigation or arbitration seems inevitable, have you consulted legal counsel to research the relevant legal issues? Have the issues been adequately researched and clearly communicated and articulated to the proper parties? Through the years, I have found that litigation often results from the failure to properly communicate and understand opposing positions. A well-reasoned path of written communication, supplemented with exhibits and legal authority where necessary, often yields surprising results.
If litigation or arbitration must be initiated, the key to reducing the true cost of litigation is eliminating unnecessary time commitments for both lawyer and client. The importance of proper documentation cannot be underestimated. For example, properly filing a notice of claim per the contract documents not only strengthens a legal position, it may eliminate an opponent’s motion to dismiss the claim and the cost required to oppose the motion. The goal is to keep the eye on the ball and remain focused on the underlying legal issues. Overcoming roadblocks that could have been avoided through smart business practices reduces both risk as well as litigation cost.
The final factor to consider is the risk of an adverse result. It is often said that the best settlements in litigation happen “when both parties walk away unhappy.” I would argue that this often-quoted phrase doesn’t deserve a negative connotation. Settlements are the ultimate tool to reduce both the risk and cost of litigation. Certainly a show of force is sometimes necessary to bring parties to the table. However, negotiated settlements ultimately define the final cost to both sides and eliminate the risk of an uncertain outcome.
In the end, the take-away from this article is the introspection of core business practices before the dispute surfaces. With best practices in place, litigation strategy and risk analysis is much better defined, provides a better factual foundation for legal advice, and allows the client to make informed decisions that affect risk and cost.