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EFFECTIVELY MANAGING LEGAL COSTS

By:  Jeffrey E. Schiller

            In difficult economic times, successful businesses must look to save unnecessary costs wherever possible. One place to start is by doing all that can be done to reduce the risk of protracted, expensive litigation. Sometimes, a corporation is forced to prosecute or defend claims in the course of normal business operations, but certain proactive legal steps which can be taken at relatively lower cost can limit a company's potential exposure, both to attorney's fees, and to a bad result through the litigation process. A few of these are set forth below.

1.         Make sure that you document all transactions or obligations and have your attorney review the documentation before you sign them. Too often, businesses make agreements or alter them during client relationships without properly documenting them, or without consulting counsel, either because they want to avoid sending a signal that they don't trust their client or supplier, or attempt to save money on lawyer's fees. If the relationship later falters, however, nothing will drive up the cost of litigation faster than undocumented, incomplete, ambiguous, or amended and conflicting agreements between the parties. A few thousand dollars can rapidly morph into tens or even hundreds of thousands of dollars in litigation costs if clear, unambiguous agreements are not in place, or if non-lawyers try to change or add to such agreements by adopting a do-it-yourself legal approach.

2.         Have written procedures in place to deal with employee departures. Whether an employee leaves of his/her own volition, or is terminated, the consequences must be anticipated beforehand to minimize the risk of litigation. If a business has confidential information or a client base it wishes to protect in the event that an employee leaves and goes to a competitor, it should obtain written agreement from the employee to refrain from revealing such information, or soliciting such clients, and it must do so before or while the employee is employed. In addition, there are limitations on what can be protected, and the circumstances in which such a protection is binding and these must be complied with as part of the employer/employee relationship. If a business wishes to terminate an employee, the simplest way to avoid a suit for wrongful termination is to have regular, written employee evaluations and reviews, a manual or handbook pertaining to employee conduct, expectations, and job responsibilities, and written documentation of the employee's termination and any continuing obligations between company and former employee (whether that be confidentiality, severance, nondisparagement, etc.). Employment litigation can be extremely expensive, bitter and protracted. It is best to take all steps to avoid it, or at least to be able to have a route to quick judicial resolution, particularly in times where an out-of-work former employee may see little to lose from pursuing a claim.

3.         Inevitably, a governmental inspector will visit your facilities at some point in the future.  Whether that visit is by a federal, state or local agency, it is best to have all of the proper documentation organized and ready for inspection.  Unorganized and messy recordkeeping can be an easy target for inspectors and could very well lead to a more in-depth analysis of your business operations.  If you are unsure of all the recordkeeping requirements for your business, or just want to make sure that you are up to date on the current rules, your company may be well served by conducting an internal audit by an outside consultant and/or attorney knowledgeable in the various laws and regulations applicable to your business.  Additionally, the mere thought of having an inspector visit your facilities may seem stressful in itself.  Thus, take the opportunity (before any inspection occurs) to develop a protocol for how an inspection will be handled, including establishing the person or persons responsible for accompanying the inspector, what is and is not permissible during an inspection, and how to respond if the inspection does not go favorably.  While preparation of such an audit and/or inspection protocol plan will require an expenditure of funds, it may be money well spent in avoiding future fines, penalties and possible enforcement action.

4.         Include a clause in your contracts which allows the prevailing party in litigation to recover attorney's fees. Nothing dampens the ardor of litigants without a very strong case quicker than the realization that they will not only have to pay their own lawyers, but possibly your lawyers too. This is particularly true in expensive litigation between businesses, but it is also true in situations such as the employee termination setting described above, where plaintiffs often hire lawyers on a contingency basis, i.e., where they pay their lawyer a percentage of their damages recovery if they prevail, and nothing if they do not.

5.         Talk to your attorney about potential cost before getting into litigation and think with your head, not with your heart. Frequently, clients come to lawyers when they are angry at someone, wanting justice. Principles are important, but they must be balanced against economic consequences, especially in difficult times. Unless there are clear, recoverable damages to be obtained, or the strong likelihood of obtaining quick injunctive relief which will force the other side to come to the bargaining table, initiating a lawsuit can prove extremely expensive and a cost-benefit loser.  The only way to ascertain whether the potential reward of litigation is greater than the risk is to consult with a lawyer beforehand, get an estimate of approximate cost and possible recovery, and use those as guides in deciding what to do.  Of course, an honest and accurate assessment of the likelihood of success in litigation depends on the objective nature of the information you provide to your counsel.  One of the greatest values your lawyer can give you is objectivity.  Your lawyer is your advocate, but not your cheerleader.  You owe it to your business to provide your lawyer with complete and accurate information, so that the analysis you receive is likewise complete and accurate.

            There are many ways to reduce the risk of big ticket litigation costs. Doing so prudently will often require spending a little to avoid spending a lot.