To Sue or Not to Sue – Evaluating Small Business Litigation

To Sue or Not to Sue – Evaluating Small Business Litigation

The small business owner considering litigation, or being sued, should at the outset take what I refer to as a “metaphysical” overview of the problem. The two constants of litigation are that it is time-consuming, expensive and the outcome is uncertain (any lawyer who guarantees you will win a case is exaggerating or inexperienced).

A civil law suit can easily take over a year and has to go to various lengthy stages.  There will be initial court papers, answers from the defendant, investigation of each party’s evidence (discovery), pre-trial testimony (depositions), special pre-trial requests to the court to make decisions about the case (motions), numerous appearances and conferences and finally the trial.  This takes a lot of time and legal fees.

Thus, before you launch, it is important to know what you are trying to accomplish and if it makes financial sense.

If someone has breached a contract with you or otherwise inflicted some legally recognizable harm, as a matter of thoroughness and due diligence you should always consider the option of doing nothing.

If someone caused you $7,500 in damage, which was a one time situation and won’t repeat, it won’t encourage anyone else to do the same, and it will cost $15,000 to litigate, it may be good economics to walk away. On the other hand, legal harms which may result in the destruction of, or significant ongoing harm to,  your business, such as someone wrongfully appropriating a major project or client, may leave you no choice but to litigate.

If you are being sued, the “metaphysics” is similar. There is a subset of cases which can be settled for a few thousand dollars, would cost more to litigate, and cause no reputational or other ongoing harm if you settle, regardless of whether you believe you are liable or not.

In both situations, you owe it to yourself as a rational businessperson to know what your goals are. Litigation, as unusual or even extraordinary as it may seem, is a tactic that businesses use to achieve goals, so, just like a marketing campaign or other large expenditure, it should have an objective business reason. If you can say, “if we don’t sue, we will have no business left” or  “we will take a significant hit to revenue because our subcontractors will learn they can cut us out of the loop”, these are potentially sound business motives. If, however, the reason you arrive at is “I am angry” or “I want to teach that idiot a lesson,” you should think twice before going ahead.

Finally, you always have to have an eye on the collectibility of a judgment in your favor.  If the defendant has no assets, a judgment is worthless.  You may be able to glean some clues about the defendant’s financial affairs by searching for other law suits against it, getting a business credit report or doing some asking around in the defendant’s business circles.

About Jonathan Wallace


Jonathan Wallace is a business litigation attorney and a 1980 graduate of Harvard Law School. He is admitted to various federal and appeals courts, including the Supreme Court of the United States.

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