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Business conditions today are demanding, and cost control is more and more important to any successful business or professional practice. Litigation can seem completely unpredictable and impossible to control. Many businesses and families simply "hope for the best". While this may work, the consequences can be devastating if it doesn't. While these materials are not legal advice, they may help you identify important issues.An average Superior Court case costs $50,000 to $100,000 to litigate through trial (excluding any appeals and the cost of any judgment you may have to pay). Since litigation involves at least three "sides" (you, your opponents, and the court) and you control only one, your costs can be significantly increased by people you do not control. In addition to costs, significant lost time, lost privacy and worry almost always result from litigation. The best litigation plan is usually not to litigate at all.
The major litigation hazards for most business and professional people include:
Every business person or professional needs to understand what litigation hazards exist and which ones pose the biggest threat to their particular operation. Unfortunately, an avoidance method which works well against one hazard may be almost useless against another, and the law changes constantly: a litigation area that is dormant today may become active tomorrow.
The best defenses against litigation are always care, caution and good judgment, but none of us is perfect and anyone can file a lawsuit, even one with little or no merit. Everyone needs to review their litigation "profile" and their litigation defenses before the moment of need.
A. Insurance
Good personal and professional insurance coverage is a must in the 90's, but how many of us have read (much less understood) our auto, homeowners, or business liability policies? An attorney can review your policies and coverage limits for "gaps" which may expose you to legal costs. Insurance will not keep you out of court, but it may pay your legal costs and the amount of any judgment against you.
B. Written Contracts
Almost all of us sign contracts, and many of us prepare and negotiate them. Regularly used "form" contracts and of large, one-time contracts involving financial or legal exposure need to be reviewed for potential "litigation bombs" which can trigger or lengthen litigation. Some contracts are lawsuits waiting to happen.
C. Arbitration
Arbitration agreements in contracts take disputes out of the slow, expensive and unpredictable civil court process and put them before a mutually agreed neutral. Contracting parties can set up everything about the process, but once the agreement is in place, nothing can be changed without mutual consent. Arbitration should always be considered, particularly in contracts where insurance probably will not cover litigation. If arbitration is elected, great care needs to be given to defining the scope of the arbitration and the process for selection of the arbitrator.
D. Prepaid Legal Plans
Most of us have heard of these, and some of us may have them. Typically, they will not cover more than a small fraction of the cost of a major lawsuit, although they can provide important services. Any litigation attorney can review a plan with you and discuss benefits and limitations;
E. Bookkeeping and Accounting
Good accounting will help keep you out of tax trouble. The special powers granted to the IRS, the FTB, and other tax entities by law make them dangerous litigation opponents.
F. Employee Management
Those with employees should be sure that their employment contracts (written or oral) and personnel manuals reflect the latest law, and that everyone, especially managers, has received documented training and materials warning against illegal harassment, discrimination, and other potentially costly conduct. Wage and overtime issues, and claims by independent contractors that they were really employees can also have costly consequences.
G. Real Estate Problems
Problem lease or sale provisions, third party criminal conduct, injuries to workers or contractors, environmental contamination, and disputes with neighbors or utilities are only a few of the causes of expensive real estate litigation. We recommend to our clients that all business real estate documents (and perhaps personal real estate documents) be reviewed by an attorney before they are signed. We also suggest that competent safety and security people look over your business operation; some insurers will provide these services.
H. Business Structure Issues
Businesses can be corporations (several kinds), partnerships (general or limited), sole proprietorships, and now limited liability companies, and, for attorneys and CPAS's limited liability partnerships. Taxes, insurance, asset exposure and business control are all affected by which is chosen.
I. Other Areas
There are (unfortunately) many other things that can send you or your business to court. A little prevention can save really substantial money and aggravation.
Lawsuits vary depending on what the issues are, who the parties are, and where they are filed. A typical civil lawsuit will go through up to six major stages:
A. The Pre-Filing and Pleading Stage
Lawsuits begin when someone decides to involve the courts in a grievance. The prospective plaintiff hires an attorney, who may try to settle before filing the complaint, and who should review documents and conduct investigation to determine whether the case has merit, who the defendants should be, what cross-complaints might be filed and what evidence will need to be obtained. At this point, the complaint is drafted, filed, and served, and the defendants respond, usually in about four to six weeks. If cross-complaints are filed, further responses may be required.
B. The Discovery Stage
Each side has the right to force the other to respond to written questions, produce documents, and appear for testimony in person, and each side may force third parties to provide information as well. Disputes often arise about how fully each side must respond to the other sides' demands. Discovery can last from six months to a year or more.
C. The Case Management Stage
Sooner or later, all courts try to gather information about pending matters so that they can push for a settlement or find out what needs to be done to move the case down the pipeline toward trial.
D. The Pretrial Stage
In the final two or three months before the trial, the trial plan must be refined and the trial team chosen. Expert witnesses will be chosen, prepared and deposed, exhibits and graphics prepared, jury instructions, pretrial motions and opening arguments prepared, and any final settlement push made.
E. The Trial Stage
Not all cases go to trial on the original trial date, and it can cause a frustrating and lengthy wait if a case is postponed. How long the trial will last (and what it will cost) depends largely on the nature of the case, which judge you are assigned to, and what the other side does.
F. The Appeal and Collection Stage
Cases rarely, if ever, end neatly. Post trial motions, costs claims and disputes, and threatened or actual appeals may consume time or money or be used by the loser to pressure the winner into giving up money or some other advantage. Even if there is no appeal, collection activity may be required to force payment from the loser, and bankruptcies, questionable transfers or other maneuvers often take place.
Legal costs are unnecessarily mysterious to many. Attorneys, even litigation attorneys, must keep clients fully informed about costs, and keep costs reasonable. YOU ARE ENTITLED TO KNOW WHAT YOUR WORK WILL COST AND WHY BEFORE YOU AGREE TO HAVE IT DONE.
Even litigation (where unpredictable opponents and courts mean unpredictable costs) should never begin without a litigation budget, explaining what needs to be done, why it is needed, and what it will cost: this should be updated throughout the lawsuit.
While nothing here is legal advice, I hope it has clarified some of the litigation hazards facing business people in their professional and personal lives.