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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

 

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

 

This is the first in a three-part series.

When a small business gets sued or contemplates litigation, the first call is generally to the lawyer who handled the company’s start-up or advises it on daily corporate affairs. The transactional lawyer should be cautious advising clients in the specialized area of business litigation. Nonetheless, there is an important role for the transactional lawyer to help the client achieve the best outcome in a commercial dispute. This may include helping the owner/manager cope with the emotional toll of litigation. For the owner-managed business, litigation is personal. While the corporate counsel may be a trusted advisor and friend, when a lawsuit is likely, the client requires a litigator. This first article will include tips one through three of our top ten tips for the transactional attorney to understand and work with a litigator in order to help the client survive business litigation.

1. The Pre-Litigation Intake Is Key to the Client’s Ultimate Satisfaction with the Outcome

Commercial litigation is expensive and time consuming, often involving large numbers of documents. The regular outside counsel is in a good position to know how sophisticated the client is when it comes to litigation matters, but the pre-litigation intake should be handled by an experienced business litigator. If the client is a litigation novice, the client needs to be prepared for the road ahead. Once you start down that highway, there are long stretches without off-ramps. Without proper pre-litigation counseling, even a “good” result (from the lawyer’s perspective) may be viewed as loss from the client’s perspective. This could be because the client had an unrealistic expectation as to what could be achieved in the litigation.
Other reasons for dissatisfaction include costs and the length of time taken to resolve the matter. Litigation moves at a snail’s pace compared to most business transactions, with “simple” cases taking one to two years (or more) to resolve.

Other important subjects to discuss upfront include: whether the fees and costs may outstrip the amount at issue; the collectability of any potential judgment; insurance coverage for defense costs or the judgment amount; and possible cross-complaints. Although a budget is often a good idea, litigation costs are unpredictable and to some extent beyond the control of the client and his counsel. Costs can increase dramatically based on the litigation conduct of the other side.

2. The Fine Print on Contracts

Few clients care about the contractual boilerplates – until their business dispute hinges on these terms and conditions. The transactional lawyer should explain the relevant terms now that a dispute has arisen. The forum selection clause may dictate where you need to hire litigation counsel. Look for remedy-related terms such as “limitations of remedies,” “waiver of damages” and “indemnification.” Did the parties waive a jury or court trial, and if so, what will that do for the prospect of recovering significant compensatory damages?

If there is an attorney’s fee provision, think carefully how that will affect the lawsuit. Often an attorney’s fee provision will cause a party to become entrenched in its position and make it difficult to settle a relatively low-value dispute. The party who is convinced he’s right may not mind spending $100,000 in fees on a $50,000 dispute because he expects to recoup them. Also pay attention to contractual procedures for notice. Many contracts require written notice and an opportunity to cure any claimed breach. Failure to follow these procedures may jeopardize the claim.

3. Where You Sue (or Get Sued) Matters

Your client may have a choice of courts in which to bring a claim or transfer one that has been filed against the client. Should you choose state or federal court? Which county or state or judicial district? These choices matter because of differing procedural rules, local procedures, and jury demographics. For example, federal court requires a unanimous jury to reach a verdict (even in a civil case), but only 9 jurors out of 12 are needed to reach a verdict in state court. Since hung juries are more likely in federal court, a defendant may have a good reason to remove a case from state to federal court. The transactional lawyer may not be versed in such nuances, but can explain to the client why good trial counsel is worth the expense.

 

The March issue will include tips on litigating the small business matter, writing demand letters, and how to get that “secured” feeling about your claim.


 

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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