Settle or Fight: 6 Questions to Ask

There are many times your business needs to decide: should I dig in and fight, or is it time to cave (frankly) and focus our energies on the more positive aspects of our business? This dilemma could be big or small – as big as a “bet the company” piece of litigation, or as small as a customer who is stiffing you on a small invoice. And it could be a brand new issue, or something where you’ve already been in litigation for months if not years. In any of those contexts, there are some questions that will be common to all of these situations.

1. How strong is your legal position?

First of all, let’s dispassionately evaluate your position now – not after you’ve been fighting for a few months. This is not about how you feel, we’ll get to that. Too often I see companies start down a course in a dispute based on their emotional reaction without really taking a hard look at how likely they are to succeed when push comes to shove.

If the matter is of any consequence at all, get a lawyer to assess the matter for you – a lawyer you trust and who has the experience and intestinal fortitude to give you an answer you don’t want to hear if that’s the right answer.

2. What’s at stake?

This may seem obvious. It’s a $5,000 invoice, a $10,000 contract, or there is a number specified in a lawsuit. Make sure that’s all that’s at stake. Particularly in litigation, there may be less obvious things you could lose if things do not go well. For example, certain employment laws provide for the possibility of the employee’s legal fees being paid by the employer if the employee is successful.

Some contracts provide for the possible payment of legal fees (usually in the fine print). If you signed a form contract with a vendor, there is a good chance there is such a provision or other bad things lurking in there.

3. Might a settlement create precedent that will cost you later?

Sometimes a settlement might affect disputes other than the one in front of us right now. For example, in my world of representing employers, an employer might reasonably choose not to settle a small dispute because there are ten more employees who will have the same issue. If the employer gives in to the first employee, the others may not be far behind.

What about a confidentiality provision, where the first employee agrees not to share the details of the settlement? That might work, but experience tells us those other employees sometimes seem to find out anyway, and you cannot prove that the first employee violated the confidentiality provision. There are some things that even the best document might not be able to prevent.

There are plenty of disputes that are unlikely to have any precedential effect on future disputes, but this is a question you need to ask.

4. Is there a principle at stake, and what’s it worth to you?

OK, now to those emotions. There is nothing wrong with emotions; just make sure you are sorting out what is cold, hard analysis, and what is principle or emotion. Again using the employment law world as an example, sometimes an employer will say, “I would rather pay your law firm than pay him a nickel.” That’s a valid decision, just understand that that is the decision you are making.

If you are making a decision based on what you feel, or what you feel is right or wrong, I often recommend trying to quantify what that principle is worth to you. Of course that is not a number you get out of a calculator, but estimating what the number should be helps you analyze the options. You can plug that number in with other numbers and make the emotion part of an equation.

5. What might it cost to fight, and can you afford it?

This goes back to that lawyer you can trust and is willing to give you bad news. It is common to initially underestimate the likely legal fees for a dispute. Sometimes the increased fees result from unanticipated twists and turns in a dispute. But sometimes it is because it is hard to say to a small employer, for example: “If this lawsuit gets all the way to a jury, it will cost you at least $150,000 in legal fees.” It can be human nature to be unduly optimistic at this stage. Make sure you are getting an estimate of possible costs from somebody who is experienced enough to look ahead, and willing to give it to you straight.

Sometimes it is reasonable to “cave” just because you really cannot afford to litigate with a better funded other side. Common example: an individual with a noncompete who has a good legal position, but is not in a financial position to get into a legal battle with her former employer. In some contexts, perhaps a lawyer will take it on a contingency basis (they get a percentage of what you get), or there is litigation funding available to solve this issue.

6. How do you think the other side would answer all of these questions?

While it is important to critically evaluate your own position by asking all of the questions noted above, it is also important to try to make a reasoned analysis of what your adversary is up against. You cannot know with certainty how he would answer these questions, but at least work through these questions from his perspective as well as you can, as that might inform your next move.

Barnes & Thornburg LLP is a large, full-service law firm that seeks to take a more entrepreneurial and cost-effective approach both to client service and its own business.