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How to Avoid Ruinous Business Litigation

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Author: Cole Silver, Esq.

The U.S. has the highest number of lawsuits in the world with 94% of the world's lawsuits being filed here. It has been estimated that the legal system now costs Americans an estimated $300+ billion a year.

With the explosive number of regulations impacting business, it's no wonder we have so many lawsuits. We have too much law, too many lawyers, too much spending on legal services, too much litigation, an uncontrolled activist judiciary, and an obsessively contentious population enthralled with adversary combat.

The international law firm of Fulbright & Jaworski LLP recently released its annual Litigation Trends Survey. Highlights include:

• 26% of all companies were hit with at least one lawsuit with more than $20 million at issue;

• 30% of large companies faced more than 50 lawsuits last year;

• More companies expect litigation trends to increase;

• Smaller companies reported at last nine cases pending with an average dispute totaling around $178,000;

• Half the companies surveyed had at least one class action pending;

• The greatest increase in cases concern employee matters like wage and hour claims, firings and layoffs, discrimination, and privacy issues; and

• Two thirds of companies believe that new federal rules on e-discovery have compounded the problem.

Anyone involved in litigation knows that the time and costs of litigating a dispute poses a heavy burden. Legal fees and other indirect costs negatively affect your business and your profits. Just as significant, these costs, discovery expenses, damage awards, and related matters will divert you and your management team from more important strategic and tactical business activities. In many instances, companies will feel the need to "recoup" their losses by cutting operating expenses, acquiring new customers or expanding their services to existing customers, as well as additional hiring. All of this is exponentially compounded when you're personally named in the suit, which is happening more frequently than ever.

Once embroiled in litigation, the legal costs spiral beyond your control. Most law firms charge by the hour which makes these fees open-ended and difficult to predict or budget. Not only are the direct per hour costs expensive, but the legal meter seems to keep running for extended periods, all contributing to the fees and costs. And worse, after the lawyers have been paid, actual results in numerous cases fall far short of expectations. Even if you win the case, the costs and aggravation make it seem as though you actually lost the case. And with the threat of never ending costs and fees, punitive damages, and run away juries, most parties simple "settle" just to end the pain.

The issue for you as an executive is what steps you should take to avoid being sued to protect your business from claims by creditors, vendors, employees, customers, governmental agencies, or other third parties. In a stressed economy, you simply can't afford the financial loss and diversion that comes from protracted litigation where the impact can be disastrous and wipe out years of business success.

A litigation audit and review performed by an experienced attorney would help. Someone to review your policies, procedures, contracts, and insurance limits in the areas of general torts, contract claims, creditor exposure, officer and director liability, environmental, compliance, regulatory, intellectual property, employment liability, and general economic risks would be highly beneficial.

Preventative risk and litigation avoidance strategies are the only way to reduce your overall exposure. There is a lot you can do…but waiting until you're sued is not the preferable course. By then, it's too late.

About the author: Cole Silver is an experienced General Counsel who for over 30 years has been protecting executives and companies effectively manage risk, avoid litigation and maximize revenues. He can be reached at (609) 306-8098.

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