I recently shared some ideas about why you may want – nay, need – to incorporate your business. Among other reasons, I suggested that lawsuits are a real threat to your financial health, especially if your business is not incorporated.
This week, I want to drill down deeper into this idea of lawsuits.
Beware the lawsuit, my friends.
There were a lot of things I liked about practicing law, but suing people sure was not one of them. My experience as a lawyer for over 20 years now is that lawsuits are an expensive, exasperating, exhausting, time-consuming way to “settle” disputes.
I learned to avoid them as a legal practitioner and you should learn to avoid them as a legal consumer.
In law school, we all vied for the best post-graduation jobs and I was fortunate enough to get a great one. It was a big firm in the big city making the big bucks. They treated us well and the work was interesting. But what I soon discovered was that because the firm emphasized litigation, I didn’t really fit in. Fighting for a living was not fun.
I left after a couple of years and opened up my own law firm, my first business.
Again, I liked a lot of it. Helping people in need, figuring out how to get clients, the intellectual challenge—it was (mostly) great. Being the owner of a new business meant that I had to scramble for business and clients, and so even though I already had an avowed distaste for litigation, I nevertheless had to take on a few of those cases during those years.
I recall one client in particular. Let’s call him Jeremy. Jeremy had a business partner who had done him wrong and he wanted to sue the bum. I told Jeremy what I am telling you – “Don’t do it. It’s not worth it. It will cost you a lot of money, take a lot of time, and your odds of winning are 50-50.”
Jeremy countered, “I think you are wrong Steve. The facts and law are on my side. No way we lose. My odds are definitely better than 50-50.”
No, they weren’t.
Now, don’t get me wrong. Jeremy did have a good case. Maybe you have a good case too. But I say that the odds are 50-50 at best for a few reasons. The main one is that when you sue, you are betting that a judge or jury will eventually side with you. Maybe they will, but maybe they won’t. You never know what a judge or jury will decide. Just look at O.J. Simpson. One jury found him not guilty, another found him guilty. Same facts. (Oh sure, one trial was criminal and one was civil, but you get the point.)
You never know what a judge or jury will do. Putting your fate in their hands is a crapshoot, and an expensive one to boot.
I didn’t take Jeremy’s case and forgot all about him until a few years later when I ran into him on the street and we had a stop-and-chat. “Man, I wish I had taken your advice Steve,” he told me.
It turns out that Jeremy found another lawyer who would and did sue. But what Jeremy didn’t account for was that his old business partner would sue him back. Jeremy became both a plaintiff and a defendant in the course of a month. The suit dragged on, the lawyers billed the heck out of the case (as we are wont to do), and in the end, Jeremy got a judgment for $25K, but spent more than $100,000 litigating it.
Are there are times when you need to sue? Of course. You bet. But you better be darned sure that you and your attorney are analyzing the situation correctly.
As a general rule, what I want you to know is that lawsuits are bad news for most small businesses. Your better bet usually is to look to settle if and when possible. While settling for less will be painful in the short-run, in the long run it almost always is worth it, both emotionally and financially.
© 2017, The Strauss Group, Inc.