A Business Dispute Is Getting Serious. What Should You Do Next?
Everyday Legal Advice®: Practical Counsel for Growing Businesses.
Most business disputes do not begin with a lawsuit. They begin with an uncomfortable phone call, an unpaid invoice, a frustrated email, a missed deadline, a disagreement between owners, or a customer who suddenly starts questioning obligations everyone previously seemed to understand.
At first, the problem may not feel particularly serious. Business owners deal with conflict every day, and most disagreements eventually get resolved. But sometimes the tone changes. A longtime customer stops returning calls. A business partner begins communicating only through email. Someone starts requesting copies of old agreements. A vendor disputes an invoice in writing instead of calling to discuss it. An employee uses language that sounds unusually formal. Someone threatens to “get their lawyer involved.”
At that point, many business owners make one of two mistakes. Some ignore the problem and hope it disappears. Others immediately go to war. Neither is usually the best approach.
First, Stop Reacting and Start Assessing
Business disputes are emotional because they are rarely just about money. A customer you trusted may be refusing to pay. A partner you built a company with may be challenging your authority. A competitor may be interfering with an important relationship. Someone may be accusing your company—or you personally—of doing something you believe is completely false.
The natural reaction is to respond immediately. That is often when mistakes happen. An angry email gets forwarded to a lawyer. A text message becomes an exhibit. A threat eliminates the possibility of an easy resolution. Someone makes an admission without realizing its significance.
Before responding, determine what you are actually dealing with. What happened? What does the contract say? What does the other side believe happened? What documents exist? How much money is realistically at stake? Is the relationship worth preserving? Is there an approaching deadline?
Those questions are far more useful than asking who is right during the first ten minutes of a dispute.
Find the Contract
This sounds obvious. You would be surprised how often it is not.
When a commercial relationship begins to deteriorate, one of the first things a business should do is locate the complete agreement governing that relationship. Not the unsigned draft sitting in someone’s email. Not the template used for other customers. Not the version someone believes was signed.
Find the actual agreement, along with amendments, exhibits, change orders, purchase orders, statements of work, guarantees, and other documents that may have modified the original deal.
Then read it. Pay particular attention to payment obligations, performance requirements, notice provisions, termination rights, dispute-resolution procedures, attorney-fee provisions, limitations on damages, governing law, and deadlines.
A business owner may have a very reasonable understanding of what the parties agreed to while the written contract says something materially different. That difference matters.
Build the Timeline Before Building the Argument
Once a dispute becomes serious, everyone develops a version of what happened. Resist the temptation to begin with the argument. Begin with the chronology.
When did the relationship start? What was promised? What changed? Who communicated the change? When did performance begin to deteriorate? When did someone first complain? What happened afterward?
Create a timeline using documents whenever possible. Contracts, invoices, emails, text messages, meeting notes, photographs, accounting records, delivery confirmations, calendar entries, and other ordinary business records can turn a vague recollection into a much clearer picture.
The timeline may confirm that your initial assessment was correct. It may also reveal something you did not know. Both outcomes are useful. The purpose of an early dispute assessment is not to prove yourself right. It is to understand the problem before making expensive decisions about it.
Preserve the Evidence
This is one of the most important steps a business can take when litigation becomes reasonably foreseeable. Do not delete relevant emails because someone’s inbox is full. Do not allow potentially important text messages to disappear when an employee receives a new phone. Do not let surveillance footage automatically overwrite itself if it may relate to the dispute. Do not throw away project files simply because the job is finished.
And certainly do not attempt to “clean up” records because something in them looks unfavorable.
Preservation should be thoughtful and appropriately tailored to the circumstances, and counsel can help determine what needs to be preserved. The key is recognizing that ordinary document practices may need to change once a significant dispute is developing.
Sometimes the document everyone assumes is insignificant becomes the most important evidence in the case. You cannot use it if it no longer exists.
Control the Communications
When conflict develops, communication frequently becomes more dangerous at exactly the moment people become more emotional. That is a bad combination.
Employees who are accustomed to casually discussing a customer or vendor may continue doing so without realizing that those communications could eventually be examined in litigation. Managers may speculate about what happened. People may make jokes, assign blame, or send messages they would never write if they imagined a judge reading them later.
Leadership should establish who is responsible for communicating about the dispute and make sure relevant employees understand that the matter should be handled professionally.
That does not mean creating secrecy or telling anyone to hide information. It means avoiding unnecessary confusion and preventing ten people from giving ten different versions of the company’s position.
Understand What the Other Side Actually Wants
One of the most useful questions in a developing dispute is also one of the most overlooked: What does the other side actually want?
Money may be part of the answer, but it may not be the entire answer. A customer may want defective work corrected. A partner may want greater access to financial information. A vendor may want assurance that future invoices will be paid. A former employee may want a clean separation. A shareholder may want to leave the company rather than spend three years fighting over it.
Understanding the other side’s objective does not mean agreeing with their position. It means understanding the problem you are trying to solve. Many disputes become lawsuits because both sides spend months arguing about positions without ever identifying the interests underneath them.
Put a Number on the Problem
Business owners regularly make investment decisions using expected returns, probabilities, and risk. Litigation deserves the same discipline.
If the dispute involves $75,000, spending $150,000 proving a point may not be a good business decision. Conversely, a dispute involving a relatively modest amount of money may have implications for intellectual property, customer relationships, ownership rights, or future liability that make it strategically significant.
The analysis should include more than the amount demanded. Consider potential exposure, likelihood of success, legal fees, expert costs, management time, disruption, collectability, insurance, reputational considerations, and the value of preserving—or ending—the relationship.
Check Your Insurance
Insurance is another issue businesses sometimes address too late. Depending on the nature of the claim and the company’s coverage, an insurer may have obligations relating to defense costs or potential liability. Policies can also contain notice requirements and other conditions that matter.
Do not assume a claim is covered. Do not assume it is not. Review the applicable policies and consider discussing the issue with your insurance professional and legal counsel promptly.
Missing an important notice requirement because someone assumed “insurance won’t cover this anyway” is an unnecessary mistake.
Know When to Involve Counsel
Not every disagreement requires a lawyer. But there is an important difference between avoiding unnecessary legal expense and waiting until a problem has become significantly harder to solve.
Consider involving counsel earlier when the amount at stake is substantial, a critical business relationship is threatened, ownership or control is involved, someone has made allegations of serious misconduct, important contractual rights may expire, litigation has been threatened, evidence needs to be preserved, or the decisions you make now could materially affect your position later.
Early involvement does not necessarily mean filing a lawsuit. Often, it means the opposite. Counsel may help evaluate the agreement, identify risks, preserve evidence, structure communications, or develop a resolution strategy while everyone still has room to negotiate.
The objective should be to preserve options.
Do Not Confuse Aggression With Strategy
When business owners feel threatened, there is often pressure to “send a message.” Sometimes a strong response is appropriate. Sometimes it is exactly the wrong move.
The best litigation strategy is not automatically the most aggressive one. It is the strategy most likely to accomplish the client’s business objective. That may mean sending a demand letter, negotiating quietly, proposing mediation, ending a relationship, or, when necessary, filing suit.
The correct response depends on the facts, the law, the economics, and the objective. Litigation should be a tool. It should not be a reflex.
Decide What Winning Actually Means
Before a dispute gets any further, define success. This is more difficult than it sounds.
Does winning mean collecting every dollar owed? Keeping a customer? Protecting confidential information? Buying out a partner? Stopping a competitor? Preserving the company’s reputation? Getting out of a bad contract? Resolving the dispute quickly enough that leadership can get back to running the business?
If you do not define the objective, the dispute can begin defining it for you. A business owner may spend two years and substantial legal fees pursuing an outcome that no longer matters simply because no one stopped to ask whether the original objective had changed.
Your legal strategy should serve your business strategy—not the other way around.
The First 48 Hours Matter
You do not need to solve a significant dispute within 48 hours. You should, however, use that time wisely.
Locate the governing agreements. Identify the people with relevant knowledge. Preserve potentially important records. Notify the appropriate people inside the company. Review potential deadlines and insurance issues. Avoid emotional communications. Begin building the timeline.
Then decide what additional help you need.
Those actions may not resolve the dispute. They do something almost as important: they keep you from making it worse.
Final Thoughts
There is a period in many business disputes when the outcome is still remarkably flexible. No complaint has been filed. No one has spent six figures on legal fees. Depositions have not been scheduled. Positions have not completely hardened. The relationship may be damaged, but it may not be destroyed.
That window does not remain open forever.
The businesses that handle disputes well recognize that moment and use it. They gather information before making accusations. They preserve evidence before it disappears. They understand the economics before spending money. They define their objectives before choosing a strategy.
Most importantly, they resist the two reactions that cause so many unnecessary problems: ignoring the dispute and overreacting to it.
A serious business dispute deserves attention. It also deserves discipline. When litigation may be coming, the decisions you make before the lawsuit can be every bit as important as the decisions you make after it begins.
Address the Problem Before It Becomes the Lawsuit
If a contract dispute, ownership disagreement, customer issue, vendor conflict, or other business problem is beginning to escalate, early strategic advice may create options that disappear once litigation begins.
The Skeen Firm’s Business Solutions Counsel helps businesses evaluate developing legal risks, strengthen contracts and governance, and address disputes with the larger business objective in mind.
Everyday Legal Advice®. Practical Counsel for Growing Businesses.
