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4 Key Considerations When Evaluating the Potential for Business Litigation

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Whether an individual or another company is interfering with your market activities or your company is facing civil allegations from a third party, deciding on an appropriate course of action requires a strategic assessment of the various business, legal, and practical implications involved. While prolonged litigation may or may not ultimately serve your company’s best interests, you likely have viable alternatives available as well. It is wise to consider pursuing a strategy focused on protecting your company as cost-effectively as possible.

As both a plaintiff and a defendant in business litigation, it is critical not to lose sight of the fact that settlement is almost always an option. Even when a compromise seems implausible at best, there are legal tools and strategies available for pushing a counterparty toward a desired outcome. Finding ways to gain leverage is key. This means using practical considerations or the relevant legal principles to your advantage, or pursuing an aggressive litigation strategy that takes advantage of the discovery and other pre-trial stages of the process.

In order to assess your company’s options in business litigation, there are some fundamental questions you will need to answer. These questions include the following:

1. What Does Your Contract Say?

If your dispute involves a party with which you have a contractual relationship, understanding what your contract says (and what it doesn’t) will be a critical first step. You must start with a clear understanding of your contract to assess the viability of any potential claims or defenses your company may have available. In a typical scenario, the provisions that are most likely to play a central role in contract-based litigation include:

  • Payment and Performance Provisions. Did the performing party meet (or substantially) meet its obligations? Regardless, what does the contract say about when payment is owed?
  • Specifications and Service Level Agreements (SLAs). Was performance completed to specification? Are the specifications clear? Are there binding SLAs that have not been fully satisfied?
  • Intellectual Property (IP) Ownership and Licensing. What does the contract say about ownership of IP rights? Is it clear which party is to own work product and deliverables?
  • Confidentiality and Non-Competition. What are each party’s respective confidentiality obligations? Does the agreement include an enforceable non-competition covenant?
  • Default, Cure, and Termination Rights. What constitutes a material default under the agreement? Does the agreement include cure provisions? Does it include express rights of termination?
  • Representations and Warranties. What are the relevant representations or warranties (if any)? Is the language clear, or does it leave room for disagreement?
  • Indemnification. Is one party required to indemnify the other for the issue in dispute? Does the contract language raise questions of interpretation or mutual indemnification obligations?
  • Dispute Resolution. Are disputes subject to mandatory mediation or arbitration? Does the agreement specify jurisdiction and governing law?

2. What Are Your Non-Contractual Rights?

Regardless of whether there is a contract at play, you will need to assess your company’s non-contractual rights and obligations as well. Typical non-contractual claims in business litigation include:

  • Breach of Fiduciary Duty. Fiduciary duties can exist under a variety of non-contractual scenarios. Did your company owe (or was it owed) a fiduciary duty? If so, has there been a breach that justifies committing resources to litigation?
  • Defamation. Defamation includes written (libel) and unwritten (slander) false statements that cause harm to a company’s business reputation. The damage from widespread defamation can be substantial, and companies must often take swift and sweeping action to mitigate the harm.
  • Fraud. Fraud can take a variety of different forms. And while business contracts often include “integration” clauses designed to prevent many fraud-based claims, contract and non-contract disputes still regularly include fraud allegations.
  • Intellectual Property Infringement. Infringement of trademarks, copyrights, and patents can cause severe economic and reputational harm, and pursuing legal action can be critical to preserving the value of a company’s IP. Assessing possible instances of infringement requires a critical analysis focused on the unique facts and circumstances at hand.
  • Tortious Interference. Tortious interference with a business or contractual relationship is a claim that is often misunderstood, but which can also provide critical protection for a company’s hard-earned goodwill. These are state law claims that involve consideration of a list of factors focused on the nature of the interference and the extent of the alleged harm.
  • Unfair Competition. “Unfair competition” is an umbrella term that encompasses a broad range of unlawful market activities. False advertising, defamation, IP infringement, misappropriation of trade secrets, tortious interference, and other practices that skew the market can all potentially support claims for unfair competition.

3. What is Your Potential Exposure?

As both a potential plaintiff and a potential defendant, when contemplating litigation, it is necessary to have a clear understanding of your company’s potential exposure. If you file suit, is the defendant likely to counter-sue? If so, are you aware of any potentially-valid claims? Is it possible that civil litigation could trigger a whistleblower claim that could lead to federal prosecution? If you engage in litigation and the case appears to be destined for trial, are you willing to accept the risk of an uncertain outcome? Or, if you wait too long to settle, will you be backed into a position where the potential outcomes of trial give your counterparty the leverage needed to force an unfavorable settlement?

4. What are the Practical Costs and Benefits of Litigation?

Finally, in addition to assessing the legal viability of any claims and defenses, it is important to consider the practical costs and benefits of litigation as well. For example, if the litigation becomes publicized, will this harm (or help) your company’s public reputation? If you invest in extensive pre-trial discovery, will this work to your advantage; or, does your counterparty stand to learn sensitive information that is better kept confidential? These are just two examples of numerous practical considerations involved in evaluating potential business litigation, and companies must ensure that they consider all of the relevant factors in order to make informed decisions at each stage of the litigation process.

Contact the Business Litigation Attorneys at Oberheiden, P.C.

If your company is facing potential litigation, we encourage you to contact our experienced team for a complimentary case assessment. To speak with an attorney on our business litigation team in confidence, please call (888) 452-2503 or request an appointment online today.

Orange County 714-294-2000
Los Angeles 310-873-8140
Detroit 313-888-8807
Nationwide 888-452-2503