"Heather" was at her desk, reviewing accounts receivable reports. She grimaced as she saw the unpaid invoices from HiSpeed Technologies, Inc. She had done great work for them, and they continually praised her efforts - but what started out as a rough cash flow patch for them was turning into one excuse after another. Just as she wondered how she would ever collect the debt, there was a knock at the door. It was a process server, handing her some official-looking court documents. Her heart dropped into her stomach as she saw the names on the papers. Hi-Speed was suing her! Frantic, she wondered, "How can I make this frivolous lawsuit go away quickly"? Unfortunately for Heather, there is no "magic pill" to prevent people from suing for seemingly baseless reasons. However, you can hit back hard - hard enough that your litigious opponent thinks twice about proceeding further.
The first step is to understand how these kinds of claims can arise. They are often the knee-jerk response to avoid your claim for nonpayment. Deadbeat defendants frequently play several cards in their deck. They'll claim they were dissatisfied with your services or products. Plus, they may claim that the damages they suffered for your unsatisfactory work far outweighed whatever "paltry" sum you may be trying to collect. In addition, deadbeat defendants will delay - delay paying you, delay prosecuting the lawsuit -- as much as possible. Their strategy is often a war of attrition: can they drag out the lawsuit long enough to make the matter financially painful? Would paying them something - anything - even if undeserved, get rid of the dispute and thus be a more attractive option? That's what they bank on.
Your best strategy is to immediately launch counterclaims and all possible defenses. Consult you attorney to see if you can demand monetary sanctions or penalties against your client and their attorney. Just as much as they are dragging this out, your strategy is to speed it up as much as you can. Check into the possibility of bringing about a summary (court) proceedings to avoid having to go to trial to bring this small business dispute to a close. Litigants in a frivolous lawsuit often back down when faced with an aggressive defense and will more than likely call their claims off or agree to a "nuisance value" settlement.
An intelligent way to handle the situation is to make it painful for the other side to sue you for trumped-up claims. The most important step you can take is to have written contracts with all new clients. Here are a few terms that you'll want to include:
- A clear plan of accountability. This includes detail about the services provided and tracks the services to expectations of payment. No payment, no services.
- "Boilerplate" concerning legal fees and costs. Legal fees are almost never awarded in contract disputes . . . unless your agreement provides for them. Provisions like those go a long way to encourage an amicable resolution of disputes without the need for litigation. It most almost certainly will dissuade someone with a knowingly frivolous claim.
- Arbitration provisions. Arbitration can be faster and less expensive than litigation. In most cases, you can set an arbitration date months, even years, before you might get a trial date in court. Because arbitrator's awards generally cannot be appealed or set aside, there's no "prolonging the agony" through an appeals process. Speedy resolution at lower cost, in front of an arbitrator who should be able to sniff out frivolousness quickly - all of these are the bane of those whose game is delay.
Every business owner should take pre-emptive steps to protect themselves against frivolous claims with written agreements. However, if you are served with a nuisance suit, act immediately. Seek counsel from an attorney who will speedily and professionally resolve the issue for you.
Copyright (c) 2009 Ask The Business Lawyer
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