Does it really have to be just a cost of doing business?
Commercial Litigation is a broad term that encompasses any formal legal dispute a business could experience during its life. The list of potential disputes that a business could run into is far too long to list but chances are, if you are a business owner or hold a management position in a business, you've experienced one.
As an owner or officer of a business, it is critical to understand that the nature of your business dictates the type of disputes you are likely to encounter. For example, a business that is open to the public must be mindful that they could be liable for slip-and-fall or other personal injury claims that occur on the premises. A business that manufactures goods for purchase must be mindful that a defective product or design could lead to liability.
The most commonly litigated business dispute is a breach of contract. This could result from a dispute over the terms of a lease, a failure of a supplier to deliver goods as agreed in a purchase contract, a dispute over the costs of the suppliers goods, the nonpayment of a bill that results in collections, real estate disputes, and any other dispute that involves a breach of an agreement, written or otherwise. Business owners also must be mindful that internal disputes involving employees can and often do surface. Laws exist, both state and federal, to protect employees from harassment and discrimination based on race, color, religion, sex, and disability. Additionally, disputes over workers compensation benefits are common.
With the exception of employment discrimination cases, most cases that reach the level of formal litigation are tried in state courts. General Sessions Courts maintain jurisdiction over claims less than $25,000 and offer a less formal forum to litigate a dispute. Most other cases are tried in Chancery or Circuit Court. The great majority of all cases end in settlement prior to trial. With overflowing dockets, most judges encourage parties to work towards a settlement in order to avoid trial. In some instances judges may even require parties to mediate their disputes before receiving a court date. While the vast majority of mediations are successful (80%), it is important to understand that if the case is not resolved, mediation efforts simply add to the litigations expenses.
Most business owners will tell you that litigation is just a cost of doing business. And while that may be true, the best business practice is to plan to prevent litigation, where possible. Planning to prevent litigation is critical to the survival of a business because, depending on the issue and the outcome, litigation costs can range from a few thousands dollars to several million dollars. Not only can these costs cripple or destroy a business financially, they can strain or destroys business relationships and damage reputations. And to add to that, the wheels of justice move slow, or sometimes not at all. Litigation can drag on for months or even years. Simply stated, business disputes are not good for business.
So what are some proactive steps you and your business can take to help prevent litigation? First, and perhaps the most important, is to consult with an experienced business attorney before and throughout the operation of your business. Consulting with an attorney will help you identify the areas of potential conflict so that you can take the appropriate preventative measures. An experienced business attorney can also help you draft employment agreements, handbooks, and policies & procedures for you and your employees to follow. These important documents can serve to protect and defend your business should employment litigation arise.
Secondly, get it in writing! And when I say "It" I mean everything. If you are leasing space to operate your business or entering into an agreement to purchase supplies for your business, get a thorough contact or lease drafted or reviewed by an experienced attorney. Spelling out the terms of any agreement places all parties on notice of what is expected of each under the contract and can minimize future disputes.
But even the most well crafted contract or lease will not guarantee that you are insulated from litigation. With that in mind, along with the high costs and long delays in traditional courtroom litigation, many businesses have opted to use arbitration and/or mediation clauses in their contracts. To be clear, these are two different processes but with the same intended result, reaching an expedient resolution to a dispute.
Arbitration is a process where a neutral third party hears the dispute in an informal setting outside of a courtroom. At the conclusion of the hearing, the arbitrator makes a decision that is final and binding on both parties. Mediation also involves a neutral third party. However, the mediator's role is to facilitate a negotiated settlement in an attempt to resolve a dispute in a more cost effective, less-confrontational setting. The major difference between arbitration and mediation is who retains control over the outcome of the case. In a mediation, the parties are free to accept or reject a resolution they generated in their mediation session. Failed mediation often leads to tradition courtroom litigation while arbitration generally ends the dispute.
And lastly, a bit of elementary advice: If you are experiencing a dispute, deal with it immediately. Being proactive in dealing with disputes on the front end can decrease the tension and resentment that builds the longer it goes unresolved. Effective negotiation during this time is critical and having a skillful advocate can certainly help.
Eric Larsen is a Managing Member/Attorney at Papa & Roberts PLLC in Brentwood, Tennessee. His practice focuses on general civil and commercial litigation.