Should you have a litigation 'war chest'?

It is common for businesses of all sizes to be mindful of the constant threat of litigation. Unfortunately, we live in a litigious society, so the specter of being dragged into a lawsuit is a legitimate concern. As the old adage goes, the more time you spend litigating a matter, the less time you spend making money. Because of that alone, litigation should be viewed as a last resort.

Nevertheless, lawsuits are an unfortunate part of doing business. It is not uncommon to have suits that are based on questionable legal grounds or threatened with ridiculous demands. Some may bring these suits based on the assumption that you would rather settle for a fraction of the amount demanded, since litigating the dispute (and prevailing) will cost just as much as paying the demand up front.

If this sounds like extortion to you, you’re not alone. In fact, this scenario occurs every day; especially when small businesses are confronted by larger businesses with a litigation budget and nothing to lose.

So what is a small business to do?

Of course, maintaining solid relationships with customers and suppliers can help. But having a litigation “war chest” can help in withstanding frivolous lawsuits and attempts at “legalized” extortion. After all, having resources to pay experienced business litigation attorneys to make bogus lawsuits go away is better than paying “legal ransoms.” Not only could this make litigants think twice before suing you with the expectation that you’ll cave, it may be used as a taxable expense.

The preceding is not legal advice. For questions about defending (or bringing) lawsuits, we invite you to contact us. 

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