Thinking Litigation? Think Again.

In this day and age, if you are in the business of building companies, buying and selling companies, or simply navigating large transactions, then a brush with litigation is almost inevitable.  It comes with the territory.

The most amazing litigation I ever encountered was a class action lawsuit involving one of my colleagues as a defendant. It was several years ago, and at the time, I was still close enough to my law firm days (as a corporate lawyer, mind you) that I was being counted on as a strategy sounding board. About 5 years into the process, the case was at an impasse and appeared headed to court. One of the problems, in our opinion, was that the lawyers for both sides, having battled for years, were so emotionally attached to the outcome of the case that they had become unwilling to compromise.  In other words, they flat out didn’t like each other.

Recognizing the problem, we decided on a fairly unorthodox approach.  First, my colleague fired all of his lawyers. Mind you, these were lawyers from some of the most prominent firms in New York — all making close to $1,000 an hour. Rather than replace them with experienced litigators, I signed on as lead counsel (after checking to make sure my license was still current), and off we went for one last ditch effort at settlement negotiations.  Needless to say, opposing counsel was fairly surprised.  It’s not every day that a defendant in a class action lawsuit, with millions of dollars at stake, shows up for settlement negotiations with a former corporate lawyer at his side.

While it is not a legal strategy I would recommend, it definitely accomplished our goal.  The emotion and the anger that had built up over the previous months immediately dissipated when we showed up alone.  Without the personal animosity, we were successful in negotiating a fair settlement in relatively short order, and avoiding a costly court battle.

I was thinking about this experience last week, when two different entrepreneurs that I work with mentioned litigation, or at least the threat of litigation, as a potential strategy.  It’s not that I don’t think litigation can be a valid strategy — at times, it is unavoidable. The mistake I see people make, particularly those who have never been through litigation, is to end up in a law suit by accident (often, because they feel the need to defend their threats). In my experience, litigation without intention rarely leads to a good outcome.

Here is the advice I usually give to entrepreneurs considering litigation:

  • Don’t Bluff. If you are willing to litigate an issue, then feel free to let the other party know.  If you aren’t willing to litigate, then a threat of legal action probably sets you up for a worse outcome.  In some circumstances, you could be inviting a pre-emptive claim. Almost worse, you could be told to go ahead and sue.  Neither outcome leaves you with a lot of negotiating power moving forward.
  • Don’t Sue to Settle.  A lot of people tend to forget one thing: Initiating a law suit takes one party.  Settling a law suit takes two.
  • Don’t be Emotional.  The most common mistake I see people make is to litigate based on emotion.  It really doesn’t matter how you feel, or how offended you were by someone else’s actions.  Judges rule based on cold hard facts and the application of the law.  In order to accurately assess your chances and make the right strategic decisions, you must be able to remove emotion from the equation.
  • Don’t Think it Will Not be a Distraction.  Litigation is all consuming. Period.  It is a mistake to think you can fight a court case and build a start-up business at the same time.  Win or lose, the distraction alone will probably be a threat to your existence.
  • Don’t Think You Will Win Just Because You Are Right.  Courts are unpredictable, and the decisions are rendered by human beings.  There is no sure thing in litigation, and you should know that going in.
  • If You Go, Go All In.  As I have said already, there are situations that require litigation.  In most cases, it is a system that works, and justice prevails. But if something is worth litigating, then it is worth the time, money and thought that good litigation strategy requires.  Don’t sell yourself short.

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