Are lawsuits bad for business?


Litigating commercial disputes is generally considered a necessary evil by some and a waste of time and money, by others. I have never heard anyone except trial lawyers say that they are truly happy about being in a good lawsuit.

Most commercial enterprises attempt to avoid litigation at all costs. As a result, the majority of business disputes are resolved short of the courtroom door. Given the current complexities of the litigation process, the costs of litigation and the enormous distraction and waste of time for management and staff, many businesses look for alternatives to a civil lawsuit. These include: arbitration, mediation and other forms of alternative dispute resolution (ADR). Some just do not bother to sue at all. While it is true that most commercial disputes settle, some cases simply cannot and should not be settled.

The trial of a commercial dispute should not be considered a bad thing. Going to trial does not necessarily reflect a failure by the parties and/or the lawyers to act reasonably, or to find a business solution to the dispute. Sometimes the parties can have an honest and legitimate disagreement with respect to their legal obligations. There can be real issues regarding the interpretation of a contract or the ramifications of representations made by the parties, both before and after a contract have been signed. Sometimes trials are necessary because one side is being unrealistic and is not prepared to settle on a reasonable basis.

What is wrong with having a judge and/or jury decide such a case? Why should the parties not have the benefit of an independent judge ruling on their dispute? Why should a party accept a settlement that it believes is less than fair and reasonable?

From my point of view, there is another very important reason that we need to continue to have commercial trials. Without trials, the law is stagnant and does not develop and respond to new circumstances. While the world of commerce changes rapidly, the laws that affect that commerce move very slowly. And even though commercial activity is significantly regulated by statutes and regulations, it is important to have judges interpret those statutes and regulations and provide guidance and direction as to how they are to be applied. Commerce is significantly impacted by judge-made law, known as the common law. For example, the law that applies to contracts is rooted in the common law. Without trials the common law does not develop and that is simply bad for business.

Even ADR does not provide an answer. While there are many benefits associated with ADR, the costs are not necessarily less than litigation. While ADR will give you a specialized decision maker and can usually move matters forward much more quickly than litigation, the bottom line is that ADR does not create new law.

This is not to suggest that all disputes should be litigated or tried. Most commercial disputes can and should be resolved. However, some disputes must be determined at trial.

Properly conducted litigation can provide not only a fair and just resolution of a commercial dispute that benefits not only the parties to the dispute but the world of commerce as a whole. So the next time someone says that lawsuits are bad for business, think again.


Topics:  Arbitration, Business Development, Mediation, Trials

Published In: Alternative Dispute Resolution (ADR) Updates, Civil Procedure Updates, General Business Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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