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How to Avoid Costly Commercial Litigation

Posted in Commercial Litigation,News on November 30, 2012

Litigation may seem inevitable in the immediate aftermath of a conflict or major disagreement, but with forethought and planning, much of it can be prevented. By taking some simple actions, your business can avoid the protracted time at trial, distraction, financial exhaustion and brand damage typically associated with commercial litigation.

Over the years, the Murphy, Falcon & Murphy team has successfully represented a wide range of commercial clients, from major players like Microsoft, Johnson & Johnson and H&R Block to medium-sized and family businesses here in Maryland. With each of our clients, we work to ensure they are prepared for the future. We’ve learned that some of the most common areas of litigation can be avoided by employing some basic strategies that may seem self-evident, but are often forgotten or ignored:

Think Ahead

Transactional agreements among your partners are a necessary part of the day-to-day management and growth of any business, but they can expose your company to unseen liabilities. From inception to sale or dissolution, invest the time to thoughtfully craft comprehensive agreements to limit the potential for lawsuits.

For instance, every business should draft and implement buy/sell provisions among its owners, establishing the legal framework for continuation of the business if someone exits the company. These provisions typically deal with rights to buy or sell ownership of the business or its assets. They should include mechanisms for determining the value of the owner’s interest, and how to deal with any debt obligations. These agreements are useful if unanticipated ownership disputes arise, if a hasty separation becomes necessary, or if an owner should die and the business must deal with heirs or creditors.

You may also, at some point, seek financing to expand your business. If your business is closely-held, avoid personal guarantees of business obligations if possible, but, if you must, make sure that the risk is adequately spread among all major owners to avoid serious misalignment of interests.

Should your business morph or grow beyond its current capacity and you begin to think about a merger, acquisition or sale, carefully review and negotiate the operative transactional documents, paying careful attention to representations and warranties and other disclosures. These provisions are the most common source of litigation and can turn manageable disputes into nasty litigation.

The complexity of commercial transactions should not be overlooked. A few hours of polishing by a competent commercial trial lawyer could help you avoid serious problems in the future.

Disclose, Disclose, Disclose

Retaining consumer trust is an important part of business growth and your customers should be as comfortable and confident in your service or product as you are.

If a customer has a bad experience with your company, whether through ineffective or faulty products, breach of warranty, consumer lending practices or other issues, your standard disclosure statements are your strongest shield or weapon against litigation. These statements should be easily understandable, accessible to your consumer and include a comprehensive overview of the terms of the transaction and company policies.

Keep your Employees In-The-Know

Your employees are your greatest asset. They represent your company and its values, and their hard work is directly linked to the exceptional products or services you offer. Keeping them happy and lawsuit-free is therefore of considerable value.

Think consistency and documentation when navigating employment law. Make sure your company has an effective anti-discrimination and harassment policy that covers all of the necessary categories and characteristics. Continually update and train your employees with these guidelines.

Many companies use handbooks to communicate their important policies and guidelines. If not carefully written, these handbooks can cause confusion, or worse. Regardless of how you express your policies and procedures, make sure they are clear and applied consistently.

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Most importantly, don’t think of a lawyer as someone to call in an emergency, but rather as part of your ongoing management team. Form a relationship early with a legal team you can depend on to help you steer clear of avoidable trouble, and who will know you and your business well when the unavoidable kind arises.