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July 2011 eNews

dealing with legal disputes in a tough economy

Bjorn C. Green, Esq.

The current business climate, weakened by the recession and made worse by the crisis in mortgage lending, has hit the construction industry particularly hard. Many of our clients are family-owned and run businesses that have been around for generations, and they are struggling. Sons and daughters are doing what their parents and grandparents did before them – proudly helping build homes, schools and businesses for their communities. The knowledge and experience that these people bring to the table is irreplaceable, and the quality of their products is unparalleled, but the demand for construction materials and services, while slowly increasing, is still well below levels seen five or ten years ago.

While business is down in the construction manufacturing and service industries, business is up for lawyers. With more limited options as a result of financial instability, many are taking their disputes to court. Lawyers, many of whom make their living by the billable hour, are happy to take on the role of advocate or defender for often-desperate clients with limited knowledge of the system, and the longer a dispute drags out, the more money the lawyers on both sides of the fight make – win or lose. While there might certainly be spirited debate on the topic, many lawyers would argue that they too need to earn a living and, by fighting every last battle to the finish, they are just following their clients’ instructions.

Please don't misunderstand. Not all lawyers are sharks. Many of my best friends are attorneys, and I have tremendous respect and admiration for the integrity, work ethic and passion they bring to the table in the representation of their clients. These people make the headaches of their clients their own. They lose sleep at night figuring out solutions to their clients’ difficult problems, and take wins and losses as personally as if they were the ones whose livelihoods were on the line. Sometimes, disputes are so heated and the parties are so polarized that there is no other way – you need a smart, experienced, aggressive lawyer with a big stick to beat the other side down.

As appealing as the "club" approach to litigation might be, however, there is usually a better way, especially when money is tight. Litigation is not only expensive, but it is emotionally draining. Parties involved in court battles usually take things very personally, and big lawsuits can become all-consuming. Given the economic realities confronting those in the construction industry today, time, energy and money invested in a lawsuit are things that many can ill afford. Unfortunately, the person those in need of help turn to for advice about how to confront a difficult legal situation can be the person who stands to gain the most from a long, drawn-out lawsuit.

Set forth below are a few things worth considering both before and during a dispute:

• Is a lawsuit really the best way to go? Litigation is an expensive and inefficient way to resolve many small and medium-sized disputes. Parties can fight for years and spend as much (or more) on lawyers than the case is worth and, after all of the money and heartache, the case gets settled, leaving everyone unhappy. Rather than wasting years and scarce resources fighting past the point of diminishing returns, think about mediation as a means of quickly settling things early on. Perhaps compromise seems less satisfying than suing someone, but would you rather spend years and tens of thousands of dollars (or more) waging war, only to reach the point that you are so fatigued and cash-strapped by the process that you settle anyway? Most cases settle, so why not get it over with so that you can move on?

• If you can't reach a compromise or are not interested in mediation, think about arbitration or a private trial. Lawyers or retired judges are available to serve as triers or fact, and, if you need someone to decide who is "right" in a dispute, an arbitrator (or panel of arbitrators) or private judge can serve in that capacity, and can probably get you a result much faster than the court system. A word of caution, however: while arbitration or judicial reference might enable you to resolve a case more quickly, it is not cheap, and your rights to appeal if things don’t go your way are limited.

• Before embarking on the prosecution or defense of a lawsuit, make sure you have a complete understanding of contractual defense and/or indemnity provisions, or applicable insurance variables. While material or product suppliers may be less entangled in contractual requirements than contractors or subcontractors, litigants need to comprehend the import of the “small print” contained in contract documents. Language contained in many contracts can fundamentally affect your exposure and change the outcome of lawsuits. Many don’t realize that an indemnity obligation might force you to pay the attorneys’ fees of another party, even if you are ultimately found to be without fault. To a lay person, this defies common sense, so figure this out at the beginning of the process, rather than being told at the end that you have won the battle but lost the war.

• Understand your insurance picture. Do you have a deductible? Self insured retention? How much is it? Are their coverage limitations for things like "your work" or "your product"? Is it worth it to get the insurance carrier involved? If they deny coverage, should you challenge that denial? What are your options and remedies when the carrier you thought was supposed to take care of you fails to do so?

• Pick the right lawyer. Ask around. Interview a few. Get references. Have they tried cases, or are they specialists in working a file for years and then advising the client to settle? Do they have experience with the issue you are confronted with? Ultimately, the lawyer you hire will carry at least part of your financial well being in his or her briefcase – you had better trust them.

While the attorney's job is to provide counsel and representation to a client, the client needs to be informed about the process, the risks and benefits of participating in a lawsuit, and what the costs (financial and emotional) of litigation are likely to be. In today’s business climate, we need to work together to resolve our differences, because the outcome of all-out war is probably not going to be what is expected or desired by either side.

Bjorn Green is a partner in Demler, Armstrong & Rowland, LLP, a Long Beach, California civil litigation firm. Over the course of his seventeen year career, he has represented hundreds of contractors, subcontractors, product manufacturers, and material suppliers, and has been selected as a Southern California "Super Lawyer" by his peers for numerous consecutive years.

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