Is Business Litigation Just Another Method of Negotiating?

Posted on August 20, 2009 by Gavin Craig

Clearly, parties can elect to negotiate through the litigation process. It happens everyday. But why would any reasonable person elect to use litigation as a negotiation method? Litigation is clearly much more expensive than just sitting across the table and negotiating. The reason parties are litigating is usually because they are already in a relationship. There is either a contract existing between the parties, or some other business relationship that makes one party feel that it has lost something of value by the actions of another party.

I think it is simplistic to just take the position that litigation is just another form of negotiation. I agree that it is, but it is also much more than that. There is an excellent post on the, "Settle It Now Negotiations Blog" that discusses this very point. In negotiations, each party can control the results. Each party can agree or not agree with any proposal. Each party can control whether there is an agreement or not. But once a case is filed in a court, the rules change: the parties lose control of the schedule, and to some extent the cost of the negotiations. If the parties fail to negotiate a settlement, they also lose control of the result.

I recommend the article in the Settle It Now Blog. The suggestion is an excellent one if the parties otherwise trust each other (which is unlikely) and have a desire to continue a business relationship. But, as the old saying goes, "It never hurts to ask!" Sometimes there are surprising results.

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The Worst Case for Corporations That Fail to Plan for the Future.

Posted on August 17, 2009 by Gavin Craig

Many companies start out with a couple people joining together to create an enterprise, and dividing their interest 50/50. They incorporate and all is well until one leaves the business for whatever reason, and the other "partner" continues to run the business. The now passive owner, or his family, may have very different objectives from the active owner. Once one owner has a free hand to do what he or she wants, sometimes the business is not run for the benefit of the passive shareholder.

When business founders pass away, the second generation is many times not interested in the business, or sells their interest to others. In an interesting case decided last April, one party left the business and transferred his interest to his son. Eventually the family owned the 1/2 interest. meanwhile the active remaining 50% shareholder appears to have run the business for his own benefit and ignored the other shareholders. Much or what can go wrong is set forth in the Rosenfeld v. Luccaro case. When the Rosenfeld family became passive owners, and Luccaro stayed active and ran the business, ignoring the interests of the other 50% owners. When the Luccaro family started asking questions and wanted to see the books, they were denied.

Luccaro, the sole remaining original owner claimed the stock had been sold to him, and that the family of the deceased partner had no stock interest. All these claims were without any evidence to support them. Despite the courts orders, Luccaro refused to provided the books and records.

The Rosenfelds brought an action to dissolve the corporation because the parties were, "hopelessly deadlocked." Luccaro wasted 1 1/2 years presenting defenses with no support. In the end he lost.

The New York Business Divorce blog has some interesting thoughts on how the prevent this result. The most important is successor planning and written agreements. I constantly find clients with no written agreements, and now in a dispute with an equal owner. The lesson is clear, it you don't want to leave your family a mess, do some planning.
 

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Fraud and the Attorney Victim!

Posted on August 12, 2009 by Gavin Craig

The other day I received an email supposedly from a Dr. Jia Boa, in Canada, asking me to to take a case to recover $370,000 paid for equipment purchased, but never delivered.

I asked a few questions and received very vague answers. Then I received the exact same email request from someone identifying himself with a different name, except that the second request wanted me because I practiced in a different state (which I don't.) Both of the requesters were supposedly in Canada, which I doubt, but who knows.

I earlier reported on some attorneys who had been victimized by scams, but I wasn't sure this was a scam until the facts got funny and the second identical request came in from another email address. They even provided me with a web address of the company that had their money, and the company is in Oregon. I don't practice in Oregon.

One of the bad things is that even if one out of ten thousand emails gets an attorney to go along, it is a problem. This is another reason to be diligent. Attorneys beware. Know your client.

 

 

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