There’s a reason why companies send demand letters whenever they feel like their legal rights are being violated: no one likes being in a lawsuit. Besides the natural animosity that comes with bringing suit against an entity, the costs of litigation can be annoying at the lightest and devastating at the greatest.
One of the troubling things about lawsuits is that sometimes innocent companies (or rather companies with legitimate legal defenses) can get roped into a lawsuit simply because the cost of being right may be substantially more than being amicable. In other words, the cost of vigorously defending one’s legal position may be much more than settling the matter. This may leave a company and its principals believing that they are essentially paying a “legal ransom” in order to make the suit go away.
Unfortunately, many companies encounter this problem. The question is how to deal with them.
While these scenarios are not entirely preventable, having a litigation budget and a readiness plan can help reduce the possibility of a company being bullied into paying ransom to exit a lawsuit.
A litigation budget should not be based on whether a particular lawsuit has merit or not. Instead, the budget should be inspired by how much the business has to lose, how the lawsuit may affect important business relationships, as well as the viability of the business after the suit.
If you have questions about what your litigation budget should be, the attorneys at Shulman Bastian Friedman & Bui LLP can assist you.
The preceding is not legal advice.