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Pride and Principle…and Lawsuits

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Written by Adam R. Fracht
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For most businesses, filing lawsuits is an unfortunate but necessary tool to help the business succeed, especially when the business is owed money by, or has been wronged by, another business. There are a host of good reasons to bring a lawsuit, but there are also some reasons that warrant caution.

Let’s start with principle. It is not uncommon to hear a client justify a lawsuit by saying “it’s the principle of the matter.” In fact, this is one of the most common justifications cited when a business decides to pursue its first lawsuit. Not that principles don’t matter—they certainly do—but repeat litigation frequently teaches an equally important truth: principles alone can be quite expensive.

Outside of law firms, most businesses are not “in the business” of lawsuits. Lawsuits are something tacked-on to a business’ already busy schedule. Lawsuits include time-intensive document searches, oral depositions, expert witness reports, mediations and, ultimately, a trial. Worse yet, a business typically cannot recover for its own time invested in such efforts.

This brings us to another consideration: an expectation of fully recovering attorney’s fees. Many legal claims—including breach of contract claims—typically allow a successful plaintiff to recover its reasonable and necessary attorney’s fees, but even then, some caution is advised. What a court determines to be “reasonable and necessary” is not always equivalent to what the plaintiff actually incurred. Moreover, a typical business lawsuit is overwhelmingly likely to be resolved by settlement before a trial actually occurs, and thus the recovery of attorney’s fees is frequently a matter of settlement discussion, not a court’s adjudication. As most lawsuits are the result of the plaintiff and defendant disagreeing on who is at fault, it is common to see the defendant insisting that both parties “eat their own fees” to get the deal done. Whether, or to what extent, the plaintiff is willing to do so is of course up to the plaintiff.

Another concern is the sunk cost fallacy. Put simply, the sunk cost fallacy is when a party feels they’ve invested too much into a plan of action to quit the plan. In a lawsuit, after a year or more of battling with the opposing party over evasive discovery responses and compel motions, exhausting all-day depositions, and a smattering of summary judgment motions, it is often hard for a plaintiff to swallow the huge investment of time, money and resources already put into the lawsuit, and attempt settlement in light of the realities mentioned above.

Does this mean that pushing forward—even on through trial—is never appropriate? Of course not. But a business’ decision to go to trial should be motivated by the realities of the business and the strength of the case, not by principle alone, nor by a gut feeling that we’re too invested to turn back now, and fully aware that not all attorney’s fees incurred are likely to be recovered. A lawsuit for a business should be treated no differently than any other business decision – every step along the way, the business should ask itself, “what achieves the best outcome for the business while minimizing ongoing costs to the business?”

After all, it’s not personal; it’s just business.

These materials are made available by Stibbs & Co., P.C. for informational purposes only, do not constitute legal or tax advice, and are not a substitute for legal advice from qualified counsel. The laws of other states and nations may be entirely different from what is described. Your use of these materials does not create an attorney-client relationship between you and Stibbs & Co., P.C. The facts and results of each case will vary, and no particular result can be guaranteed. The facts and results of each case will vary, and no particular result can be guaranteed.


Topic: Commercial Litigation

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