How to manage a dispute to avoid the expense of protracted litigation Featured

7:48pm EDT November 30, 2012
How to manage a dispute to avoid the expense of protracted litigation

The costs of litigation can quickly escalate, especially if you’re facing a motivated and well-funded plaintiff who seems intent on aggressively pursuing litigation. Dealing with litigation can create a big burden upon management to respond, collect documents and be available to give a deposition, testimony or consultation.

“If you have experience with lawsuits, then you understand the cost and time pressures associated with them,” says Stephen L. Ram, Attorney with Stradling Yocca Carlson & Rauth. “That’s why attempting to come to a resolution with the other party ahead of reaching the courts makes sense for both parties.”

Smart Business spoke with Ram about resolving disputes without litigation and the legal protections that exist around conversations undertaken to come to an agreement outside the courts.

What are kinds of disputes do companies become aware of before a lawsuit is filed?

There are a number of common disputes that can come from vendors, contractors and shareholders that stem from some dissatisfaction with your business relationship. Most often, a company is made aware of them through a demand letter sent from counsel, or, as with many vendor disputes, a sales representative will be aware that some looming frustration is becoming more than a trifle and should be a concern for the company.

How do you approach a solution when one or both parties are emotionally charged?

It’s common to have a powerful initial emotional response to a dispute when it arises, particularly when a party makes substantial or possibly outlandish monetary demands. Understand that emotional reactions are natural, but consider what is best for the company and its shareholders and find a suitable resolution. Recognize that the other side has different pressures and emotions to which it’s reacting. Step back and be dispassionate and objective because a measured, discerning approach makes it easier for you to facilitate a resolution. Also consider the applicability of any insurance coverage and notify the broker or carrier after receiving a demand.

What needs to be considered when unequal information is causing or adding to the dispute?

Disputes generally arise because one party speculates the other has done them wrong or has done something suspicious. While there may be a grain of truth to the gripe, the other party’s speculation is usually accompanied by a lack of information or a misunderstanding regarding what actually transpired. Naturally, you will undertake your own formal or informal investigation into the basis for the dispute. There is an opportunity before this dispute boils over into a lawsuit to be open to what the other side needs and wants from you, and you can consider your willingness to share information from your own internal inquiry. Being open to this type of dialogue makes it easier to work toward a resolution.

When should a representative begin talking with the other side?

The decision of when or how to open a dialogue is unique to each situation. Most times, the initial dialogue should be between counsel to ensure confidentiality protections and avoid a blindsided attack. The first step is to gauge and engage the other party, which involves acknowledging the other party’s monetary or other demands. However, you also need to be clear that you do not intend to cave to those demands to manage their expectations, but state your willingness to work with them to reach a fair resolution.

Next, establish parameters for future dialogue. If the other side is requesting information or you would like to voluntarily provide information to correct misunderstandings, legal counsel can assist in determining what documents to provide, what level of detail to share, or perhaps to make a company employee available to tell the story of what happened or answer questions.

If you are going to make a member of management or another company employee available, the third step is preparation. Preparation involves understanding the parameters for the dialogue, understanding of the relevant facts and your story, and that person’s ability to bring back conversations that go astray, or refrain from going beyond the scope of the conversation. This conversation can be as simple as a phone call or as structured as mediation.

Are you putting yourself at risk by engaging in this type of dialogue?

There are legal protections for communications that are undertaken for the purpose of reaching a settlement of a dispute. These protections, available under state and federal law, dictate that what you say during these resolution conversations is not admissible in court to prove liability. This means you can share information that might legally amount to admitting to a breach of a contract, for example, in an effort to reach a compromise.

To invoke the protections of these statutes, you just need to tell the other side you are having the conversation in order to resolve the dispute. But for added protection, talk with outside counsel about what you’re planning, that you’re serious about reaching a resolution, and ask for a confidentiality or nondisclosure agreement. Convince the other side to put this protected dialogue in place, as well. The confidentiality under these statutes and a binding agreement offer comfort to both parties and help facilitate conversations. Still, there may be situations where it’s not advisable to share or only share limited information.

If a resolution cannot be reached, how should  you proceed with management of a lawsuit?

Keep an open dialogue and don’t entrench yourself in an emotional reaction or overly rigid position. Allow the other side to see that you’re serious about defending or prosecuting, but hopefully cooler heads can prevail and a resolution is reached, especially if there is an ongoing relationship. An early resolution is usually far less costly and disruptive than one reached after protracted litigation.

Stephen L. Ram is an Attorney with Stradling Yocca Carlson & Rauth. Reach him at (949) 725-4102 or sram@sycr.com.

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