Legal matters require knowledge and skill. Legal fees are among the costs of doing business. As with other costs, the challenge is to get the most out of each dollar spent.
Businesses can save money both in how they handle lawsuits and in how they avoid them. They can also lose money separate and apart from the way their counsel performs the legal work. For example, an uncollectible judgment may not be worth the paper it is written on, and is even less likely to be worth the fees it takes to obtain it.
This month’s column discusses four basic business settings for legal fees and how to save money.
The four settings are:
1) collections
2) defense of tort claims
3) unusual transactions or events
4) planning ahead to avoid or lessen the risk of litigation
When a lawsuit gets filed it is often too late to do much to avoid legal fees. Fees can be kept down, however, if the business does its homework. First, invoices should be correct and in order to collect an account receivable, for example.
The standard form contract for the business’ most common income-producing transactions should include a clause that awards legal fees to the party who prevails if a lawsuit becomes necessary. If the facts and law of a case are clearly in favor of the business, this clause improves the chances for a net recovery on the claim. Including this clause in the company’s basic form contracts for its everyday work is the first “must” for saving legal fees.
The second “must” for saving legal fees is maintaining a policy of general commercial liability insurance. This can save a business from loss of money from a tort claim and can also save valuable time and resources when the insurer pays for defense counsel fees. When buying or renewing this insurance, the business should provide the insurance agent with a written statement of needs based on known risks. It is worth asking and learning what coverage can be bought because the agent can explain common risks some businesses have not even thought about. This can prompt questions about details for which the business can then add needed coverage.
The point to watch for here is that insurance companies exclude many actions businesses might want covered. It will be harder for the insurer to deny a claim if the business sends a letter stating any known risks sought to be covered before paying any premiums.
Nevada has some of the strongest laws in the country against bad faith by insurers. The costs are high for a business to enforce those laws, however, and the insurers strongly resist bad faith claims. When an insurance dispute does arise, counsel can advise what to do to get the insurer to pay covered legal fees.
When the business is a defendant in a lawsuit, sometimes the insurer cannot, or for some reason does not, promptly determine whether it will cover the loss if the business loses the lawsuit. In such a case the insurer sometimes pays for the business’ defense of the suit, but the insurer can also reserve its right to deny coverage at the end of the case. This happens when the insurer suspects that an exclusion may apply in the policy, so that the insurer may not have to cover the claim, if the facts are not clear at the start of the case.
Because the insurer that reserves its rights may have an incentive to deny coverage, counsel may have a conflict of interest representing both the insurer and the business if they disagree on coverage. Trusted business counsel can advise how to require the insurer to pay for the business to receive independent litigation counsel free of any bias toward the insurer. This helps with settlement negotiations, and it helps the business to have greater confidence in its own counsel, to best devise its strategy and to pursue its own business goals.
Third, unusual claims can have unusual business effects. For example, a breach of contract claim on a special project or on a special deal can be very unlike a case for a more common type of job that a company does every day. Such unusual claims or defenses do not fit a preset mold and may require special budget plans. It is, of course, best if the risk of such claims is factored in from the start of the unusual business event.
Knowing the risk involved on the claim at issue is vital to choosing what resources to use for the claim, If the claim involves an unusual type of event for the business, legal advice about the risk should be sought as early as possible. The business can then plan as needed to choose the steps to take to avoid or lessen the risk.
While assessing the risk of litigation and planning how much can be spent to address it, counsel can help plan to meet the business goals for the claim. Rarely is it just a matter of moral principle to pursue or defend a claim. Litigation is usually too expensive for game playing, such as proving who has the better business ethics. (Exceptions can include issues of public relations, employee relations and business survival.) If a principle is at stake, the price tag for the legal fees is no less than the price for legal fees on a claim for money alone. Sooner or later the pursuit or defense of all claims should have a business purpose, which requires teamwork with counsel to achieve.
Fourth, planning ahead with legal counsel can help save tremendous legal fees by avoiding litigation altogether. Any business transfer involving a transfer of land, for example, merits legal counsel’s review. Often, of course, businesses must be willing to decline opportunities if the risks are too great.
Most high legal bills stem from poor legal planning by the business or, more often, no legal planning at all. The business that uses preventive maintenance in hiring legal counsel for unusual transactions or events saves legal fees in the long run. That business also has a better plan to handle surprises that can come up in the form of a lawsuit. Most importantly, it is legally well advised.
Because business goals vary, no single plan will fit each business’ needs. Legal counsel can help address those needs. Corporate directors should review with counsel their basic contract forms and their special ventures on an annual basis or more often as their business patterns vary. Businesses should also train their employees to appropriately meet their legal responsibilities.
Too many are willing to pay legal fees only after their legal problems have grown large. Businesses should promptly seek counsel for their legal questions to avoid incurring larger bills later.
