According to Forbes, at any given time, 30-50% of small businesses will be involved in litigation in any given year. So, it’s likely that as a mid-market CEO, you’ll be involved in a lawsuit at some point, if you haven’t been already – so buckle up. It can get bumpy.
I’m excited to welcome this week’s guests, Lee Davis and Ingrid Daniel, from Lee Davis Law. We talk about how litigation is changing, and ways to avoid pitfalls and weather the litigation storm with as few bruises as possible.
#1 Litigation is not Necessarily a Bad Thing
Litigation happens to the best of us. When you are in a thriving business that’s getting lots of attention, not all of that attention is good. Litigation becomes part of the game. Davis says, “I see it as kind of being a sign of growth, because your business is going to get to a certain point where it’s almost unavoidable that you’re going to find yourself in some type of legal trouble. Either you run afoul of something that a customer expects you to have delivered, or a customer has not paid you for what you have delivered. So, really, it’s kind of a rite of passage.”
Yes, it would be great to make it all the way to the top of the charts without any disagreements, but it’s not likely. Litigation is a way of moving past disagreements. Treat it as such, and try not to take it personally. Congratulations, you’re in the big leagues now.
#2 Plan For It
I’m a strategist by trade, so you know I love a good plan. When you get to a certain level in business, litigation should be a part of that plan. As a parent, you wouldn’t opt out of starting a college fund for your kid in hopes that they get a full ride to Harvard. It might happen, and when it does you can turn that college fund into a new boat or a five star travel fund – but you need to have it set aside in case Harvard-for-free doesn’t work out. Same for litigation. You could get lucky, but chances are you are going to need to tap into that fund at some point (or several points).
So how much to save? Davis says it’s hard to know. Most lawsuits settle before they ever go to trial. That said, Davis places the bare bone costs of getting through a jury trial at around $25,000 to $30,000. That is without discovery, or any of the other processes that drive litigation processes sky high. It’s fine to keep your litigation funding wrapped into your contingency funds, but be aware of it as you plan those funds.
Now, with your litigation savings started, let’s plan to avoid litigation, if at all possible. This boils down to having solid fair business practices in place. Do a good job with communicating expectations, get everything in writing, and deliver what you say you’re going to deliver. It also means drawing firm lines about payment practices, both ways, and sticking to them. Davis has had trouble in his own business with allowing too much leeway with payments. He tells of one client who he allowed to amass a large bill. When he approached him finally for payment, the client said that the hole he had dug into was simply too large, and he wasn’t able to pay. If Davis had been rigorous in the early stages with collections, he would likely have been paid more, or stopped working for free much sooner. Good clients are clients who pay you, plain and simple.
#3 Talk It Out, Even if You Don’t Want To
When you have a disagreement in business there are several avenues to go down before you jump into a lawsuit. First, try picking up the phone and discussing the disagreement with the other party. That can be an awkward conversation, and so it’s a simple step that often gets skipped. Even when there are two great people on either side of a disagreement, there can be a contact clause that is interpreted in two different ways. That can cause frustration and bad feelings. Both parties feel they are in the right, and the other person is wrong, wrong, wrong. Sometimes a conversation can straighten this out, so before you lawyer up, pick up the phone and see if you can get to the heart of the issue and find some common ground. Davis says, “You can have genuine disagreements about what a clause in the contract means, but you don’t have to be ugly about it.”
When it does come time to bring on a lawyer, look for someone who is not prone to jump straight into a lawsuit. Daniels said, “You can reach out to the other side. There’s a lot you can do that will actually help pave the way. Even if it doesn’t settle the case, it can help pave the way for a more or less contentious lawsuit if one has to be filed”
#4 Be Willing to Be Wrong
In the spirit of not jumping into a lawsuit, sometimes it’s all around better just to chalk the disagreement up to a lesson learned and walk away. “My bad!” Easier said than done, I know. When we feel that we’ve been wronged it is human instinct to fight back, to find justice. Sometimes, that isn’t the smartest (or cheapest) course of action.
When you are feeling particularly aggrieved, look for outside perspective. Go to business colleagues not affected directly by the situation, or bring in a good lawyer. Do a dispassionate analysis on what the potential payoff versus expenses will be, including a sober look at your chances of winning. Most cases are based on people having different points of view. Davis always reminds clients that, no matter how sure they are that they are in the right, there is at least one person out there that disagrees with them – and there might be twelve.
Davis says that the most important job of the lawyer is to be able to take a broad, clearheaded look at the case and provide honest feedback. “Tell the client exactly what you think about the case, whether it’s a good case, whether it’s a bad case, whether it’s somewhere in the middle – and don’t be afraid to give bad news. Sometimes that’s the best service that we can give, is to tell people bad news.”
#5 Find Ways to Manage the Stress
And, on the subject of litigation being stressful, find some outlets. Davis says, “I’ve seen clients break down over cases that were not emotional, and that did not involve a loved one who was maimed, or killed, just something that is routine as a busted roof.” The legal system can be slow and frustrating, and regardless of the subject of the case, it can take its toll. I asked Davis and Daniels how they deal with the stress of being constantly involved in litigation. Their answer was to find calming outlets in other areas of life. Both are avid gardeners, and look for activities that involve their full attention, and thus take their mind off of work.
Daniels says, “It gains me the energy that I need to be able to do the next things that are necessary, and really put me back in a frame of mind that brings me peace, comfort. So for me, the gardening part is really getting to the point where I’m at peace, that I can now do more for our clients.”
Litigation is stressful, yes, but it is a part of business today. With planning, a great team, and objectivity (plus a lot of deep breathing exercises), you can make it to the other side stronger and smarter than when you started.