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Bar Association of San Francisco Member Benefits: Publications

Ten Tips for Transactional Lawyers to Help Their Small Business Client Survive Litigation/ Part Three


By David B. Newdorf and Vicki F. Van Fleet, Newdorf Legal


In the first two installments (part 1 and part 2) of this series, we discussed substantive and procedural issues that the transactional lawyer should keep in mind to assist his or her small business client facing litigation. We finish our list of the top 10 tips for the transactional attorney with three common mistakes your small business clients may make (and how to avoid them) and suggestions for the role of the transactional lawyer when litigation is imminent.

7. Not Taking the Lawsuit Seriously

This is a common mistake. Your client may believe that he did nothing wrong, so why should he spend money on lawyers? Maybe he’s right, but the worse thing in litigation is not taking the lawsuit seriously. Even frivolous lawsuits can pose large risks if ignored or treated as a low priority. In litigation, if the defendant does not put time and resources into the case at the outset, he could end up spending much more later. It takes time and money in the early stages of a lawsuit to gather documents, interview witnesses, and develop a winning strategy. Without this foundation, your client will lack leverage to bring the lawsuit to an early and favorable resolution.

Failing to properly document the case is a common mistake. The temptation for any business is to avoid unnecessary expense and effort. However, business litigation requires extra diligence in maintaining records. Make sure the client maintains important documents, including electronic mail, so that you have a record of all communication with the adverse party in the case. A business litigator will advise on document and evidence preservation, including electronic records.

A frivolous lawsuit inflicts pain in the form of defense costs. But the pain will be worse if the client ignores the litigation because he is confident that he is right. When it comes to business litigation, the familiar adage is true: the best defense is a good offense.

8. “I’d Rather Pay My Lawyer Than the Liar/Thief/Good-for-Nothing on the Other Side”

This mistake also goes by the name “It’s not the money, it’s the principle.” This attitude may work for Microsoft or Warren Buffet with their army of lawyers on retainer. But even these business giants know that it’s sometimes better to pay an undeserving opponent than to get mired in costly litigation.
The flip side – being too eager to settle – can also be a mistake. Maybe your client feels that she did something wrong and the other side is in the right. That doesn’t mean the client can’t benefit from a vigorous defense. Sometimes a “win” means paying less than you otherwise might when you’ve done something wrong.

If a claim is asserted against your small business client, she likely will be angry. A good business litigator will help you and your client stay shrewd and unemotional. Since you must be able to consider your options with a clear head, strong emotions are your worst enemy. Understand the costs of litigating versus paying the claim, and develop a strategy accordingly. For business owners, litigation is personal. But don’t let your client’s emotions create an inflexible attitude towards resolving a lawsuit. Discuss mediation, arbitration and settlement early with your client.

9. Not Telling a Credible and Simple Story

In order to persuade the judge and jury, you must convey the facts in a clear and credible manner. One key to success is distilling these facts into a few simple themes. If your client’s case involves technical or difficult issues, a business litigator will help you translate them into understandable terms. If there are gaps in your evidence, explain those as well. A good business litigator can present your client’s story in a way that makes the trier of fact want to believe you and rule in your favor.

10.There Is a Role for the Transactional Lawyer in Litigation

The first lawyer every business needs is a corporate and transactional lawyer to create and register the business entity, draft operating agreements, issue shares, etc. That is often who the small business contacts first when confronting a commercial dispute. But that is seldom the right lawyer for a business to hire if it has been sued or has a dispute that may turn into a lawsuit. A business litigator is someone experienced in prosecuting and defending civil lawsuits for businesses, managers and owners. Just as in medicine, the days of the generalist lawyer are over.

In addition, as the transactional or corporate lawyer, you must consider whether you have an ethical conflict representing the client in litigation. If you negotiated the deal at issue, you are likely to be a witness. If you drafted the corporate or deal documents, one party could raise an issue as to the adequacy and competency of the work. If you represent the business entity, you usually should not represent one group of shareholders or partners against another.

What the transactional lawyer usually can and should do is help the client hire the right business litigator. Consider whether the case can be handled by a small firm or whether it needs an army of associates and paralegals to pore over voluminous documents. Another factor is specialization. Employment discrimination/wrongful termination, intellectual property, securities fraud, and construction defects (among others) are all matters for experts.

Does the lawyer have trial experience? More than 90% of business lawsuits are resolved through mediation or negotiation. Only a small number go to trial and verdict. Most cases should settle, but some need to be tried. These cases include “bet the company” lawsuits – if the client loses, it’s out of business. It’s best to find a litigator with jury trial experience.

Should the transactional lawyer stay involved in the case? Absolutely. The trusted legal advisor can be a useful resource for the client during the roller coaster of litigation. In addition, the transactional lawyer’s history with the parties and the deal will help the litigator understand the issues. This added value is often worth the cost to the client of keeping the transactional/corporate lawyer part of a litigation team.

David B. Newdorf is a litigator representing businesses and government entities. He is a frequent writer and teacher on litigation skills and sits on the Executive Committee of the Litigation Section of the California State Bar. Vicki Van Fleet is a Senior Associate. She is a graduate of the New York University School of Law, was Vice President and Senior Corporate Counsel with Charles Schwab & Co., Inc. in San Francisco, and has also practiced law firm civil litigation in both New York and Boston.

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