Business Litigation

September 24, 2009

Avoiding Litigation – Part One

Litigation! The word has many connotations, most of which are pejorative. The “litigation happy” label is ubiquitous. In the business world, “litigation” has a much more pragmatic import. It remains a useful tool for San Diego business seeking legitimate recourse but simultaneously is the source of unease. While a full proof method of avoiding litigation may be impossible, there are six simple practices businesses of all sizes can follow to reduce the risk of litigation. The first three pre-conflict practices are set forth below. The remaining three post-conflict practices are set forth in Avoiding Litigation – Part Two of this article.

Get It In Writing. Ideally a contract attorney will assist with the drafting and negotiation of all contracts. However, this may not be practical for many businesses, especially for new and growing businesses or those that routinely contract with vendors and customers. If an attorney is cost prohibitive, drafting basic instruments yourself to memorialize your agreements is a pragmatic alternative. The internet provides a wealth of helpful instruction, sample contracts and anecdotal information from other business owners. The paramount concern is mutual understanding. Although you may not recognize all the legal complexities of contracting, a writing that memorializes your agreement at the very least reminds each side of the representations made. Be sure that everything discussed orally is in writing. Don’t take anything for granted. If the person you are contracting with is resistant to a detailed agreement, there is reason for concern (see “Use Common Sense” below). Faced with a written agreement, even the most difficult of parties will often concede critical points. Getting it in writing without the assistance of an attorney can be a pragmatic alternative which is better than no writing at all. However, consultation with a contract attorney remains the best way to ensure that an enforceable contract is in place to protect your business’ interests.

Use Common Sense. Learn to recognize repeat problem areas either with customers or vendors. If a vendor is repeatedly late with deliveries or a customer owes you money or either is constantly complaining, it’s generally a sign that those types of problems will continue. Don’t ignore obvious perils. When your gut tells you something is fishy, it’s probably not worth the frustration to go forward no matter how appealing a customer’s business or how economical a vendor’s products or services may be. These are the folks that are more likely to create conflict with you and others. If you offer a service or invite customers into your place of business, don’t be oblivious to hazards. No matter how busy you are, immediately address anything that might cause even the slightest mishap. There is no substitute for common sense. There is no rule book for you to follow. Your job is to be aware.

September 15, 2009

Managing Business Litigation Costs

by Donald Oder

Most San Diego businesses, regardless of their size, try not to think about the potential for litigation. They cross their fingers and move forward concentrating on day to day operations and marketing. They are aware of possible contract disputes and potential liabilities but put their faith in the good nature of their customers, clients and business associates. The prospect of litigation scares them and for good reason. Past experience has taught them that anything involving an attorney is excessively expensive, and inevitably leaves them feeling frustrated and dissatisfied. Attorneys have proven unresponsive to their needs, difficult to communicate with and often apathetic leaving them with little confidence that they are being billed fairly or that their case is being handled economically. Instead, they walk away believing, without really understanding why, that attorney hours and costs are inflated and that their case has probably been drawn out longer than necessary with little or no effort towards early resolution.

Billable 2.jpg Today, skyrocketing legal costs have even the largest corporate executives second guessing themselves. While the billable hour has been under attack as of late, it is still pervasive. This is because in a large number of scenarios it seems the only practical way to bill clients for attorney time. Yet the practice is fraught with inefficiencies and disincentives (see our article on the “billable hour” setting forth just some of the reasons why this is so). The solution for those faced with the inevitable hourly billing that comes with litigation is twofold. First, a frank and open discussion with your attorney about the firm’s billing practices (including how costs are incurred) minimizes any misunderstandings and ensures that your expectations are realistic. If a law firm is resistant to this type of discussion, it’s a clue that the firm is likely wedded to the “billable hour” freight train. This article distinguishes between the typical “billable hour” mentality and a litigation attorney‘s practical need to charge by the hour. The former is part of a firm culture that rates attorney performance by the number of hours billed while the later looks to client satisfaction. Second, once a clear understanding regarding billing is reached, monitor your attorney’s bills with close scrutiny. While it is almost impossible to recognize every inefficiency, close scrutiny of billing provides a general impression that is valuable to you as the client. This includes looking at costs. Your law firm will recognize your attentiveness, and will be forced to pay better attention to attorney hours and costs incurred (i.e. consider reducing attorney hours charged for a new associate’s work on a motion that could have been finished faster by a more experienced lawyer or consider three or four star accommodations the next time they travel for a deposition).

This may be second nature to smaller businesses concerned with escalating legal costs. It should be of greater concern to larger businesses and corporations who seem to accept skyrocketing legal costs as the cost of doing business. Businesses of all sizes should not be afraid to put their current law firm on notice that it expects efficient and cost effective representation. Nor should they be afraid to take their business elsewhere should closer scrutiny of billing evidence a pattern of inefficiencies and excessive costs. Your power rests in your ability to hire another litigation firm if you are unsatisfied.

June 4, 2009

Billable Hours – San Diego Businesses Should Ask How Much Is Too Much?

by Donald Oder

San Diego businesses should be asking themselves how the “billable hour” law firm culture affects their bottom line. A recent article about a patent holder’s defense of a patent infringement action focused on the business’s desire not to cave into the demands of what it believed was a patent pirate despite the knowledge in advance that the legal fees would exceed the $400,000 licensing fee sought. Although the battle itself was inspiring, one can’t help but be awed by the last paragraph telling the story of the corporation’s victory and it’s new battle to recover over one million dollars in attorneys’ fees.

One million dollars in attorneys’ fees! Presumably, this is independent of costs necessary to defend the case. A sole practitioner has to shake his head at the staggering amount. Even experienced litigators prosecuting or defending multimillion dollar cases involving multiple parties and hundreds of attorney hours have to wonder. Law firms will undoubtedly counter that their rates are competitive and that a patent infringement case can easily reach into the 1000 hour range or higher. This is is not unheard of. Five weeks of deposition, five weeks in a document review, law and motion practice, other discovery and a six week trial can easily exceed 1000 hours. A six week trial with multiple attorneys working on the case could alone involve more than 500 attorney hours. Undoubtedly, the stakes are high and corporations are willing to pay big dollars for the right legal representation. Some may feel there is no substitute for the big firm experience. But one million dollars?

Billable 1.jpg Each case is different of course and will have varying levels of complexity. At the heart of this discussion rests two key components: efficiency and incentive. The two components are interdependent. Law firms typically hire young associates who are first and foremost expected to bill a minimum number of hours per year (billable hours). The “billable hour” is the benchmark by which their performance is rated. They are most often raw inexperienced practitioners with little or no practical understanding of the complexities of the cases assigned to them, the procedural time lines important to litigation or the ultimate evidentiary effect of their decisions. Combine this inexperience with the “billable hour” and you have a recipe for inefficiency. Inexperience or not, minimizing attorneys’ fees for the client and maximizing billable hours in the real world are mutually exclusive.

Continue reading

May 4, 2009

Basic Contract Principles Should Guide San Diego Businesses and Their Lawyers In Any Negotiation

by Donald Oder

On December 22, 2008, the California Supreme Court ruled in Patel V. Liebermensch that the parties had entered into an enforceable option contract for the sale of real property despite the absence of terms specifying the time and manner of payment. The controversial decision was widely reported by the media and in attorney blogs and the moral of the story appeared to be that parties could forego the inclusion of contract terms setting forth the time and manner of payment (at least for the purchase of real property in California). Although the decision is important, businesses entering into contracts should not be lulled into thinking exclusion of such terms is acceptable simply because their exclusion does not render a California contract unenforceable. Time and manner of payment is an important detail in any contractual relationship, and prudent business owners do not enter into contracts (for the sale of real property or otherwise) without knowing when and how they will be compensated.

The purpose of entering into a contract is set forth clearly and concisely the material terms agreed to by the parties and to affect a means of enforcing those terms should there be a dispute. A good attorney or other negotiator will ensure that all material terms are agreed to and that important factors such as the time and manner of payment are included in the contract regardless of any law or court decision that may appear to minimize their importance. Having a clear understanding of the contractual relationship is the best way to minimize potential misunderstandings and avoid future disputes. Whether a court will ultimately enforce the contract has little benefit to parties embroiled in a battle over when and how each side is to be compensated. The object of a good contract is to avoid these kinds of disputes in the first place. Such disputes are costly to businesses even with the long term prospect of prevailing in court. A business’ goodwill, reputation and bottom line all may suffer by the dispute’s mere existence. Too often, businesses and their lawyers lose sight of these practical aspects.

Of course, the Patel decision will impact the enforceability of many existing California contracts, particularly those executed by unsophisticated parties without the benefit of a contract attorney. In fact, the contract at issue in Patel was a short contract in the form of a proposal sent by fax. The point of this article is that while Patel may be the law of the land for California, San Diego businesses shouldn’t rely on it and similar decisions in place of common sense and sound contractual negotiation.