Friday, May 02, 2008

Important Lesson Learned For My Business Clients

So I have been litigating this case. And we went to mediation today. And we had to settle the damn thing for less than it was worth. The end result was that the other side ended up with a huge windfall.

Now why may you ask did they do that?

Because my client, had signed an agreement. This agreement had been created by my client. Without the assistance of any in-house counsel. Without the assistance of any counsel period. From what I can tell, they got the basics out of some book. Cost of the book and forms (taking Nolo prices as an example) about $40.00. Cost of not having a lawyer consider what went into the contract: thousands of dollars.

Yes, lawyers are expensive. On the other hand, its an investment in your business' future. For a reasonable fee, the lawyer could have reviewed the contract, pointed out the omission, and made sure your interests were protected.

Lets take a hypothetical. Say you run a small business which provides a service. You sign a contract to do that service for a big corporation. The contract is valued at less than $40,000. Now for your small business, that might represent a fairly large contract. On the other hand, for the big corporation, it is just a cost. And if the relationship goes sour, it is conceivable that they could simply try to cancel the contract illegally.

Now, in civil cases, simply because something is illegal (i.e. failing to pay on a contract) does not mean that you are automatically going to get your money. That is because you have to go through the civil process to get your money. And at that point, you will need to get a lawyer invovled.

Why? You mean you think you can represent yourself? Well... it is conceivable that a sole proprietor could represent themself in court. However, with the exception of small claims court, any corporate entity must be represented by a member of the bar. Otherwise, the person representing the corporation, who is not a lawyer, will have to explain to someone why they are practicing law without a license.

So now your little company is invovled in litigation with the big corporation. And they are stonewalling you. Why? Because they can. There is a calculation that has been performed by the big old corporation. Below roughly $50,000, it is cheaper for the corporation to defend a breach than to own up and pay what they promised to. Why is that? Because if there is no attorney's fee provision in the contract, then all they have to worry about is their own costs.

Could they lose at trial? Of course they could. But that is more than a year down the road. In the meantime, your small company will have to retain counsel; be sent out to a mediation session which you will have to split the costs on (and the minimum that I have found for a mediator in the Bay Area is $250/hr with a minimum of 4 hours); then foot the costs for discovery; then the costs at trial.

Diminishing returns. And the large corporation gets away with it because they have the resources to do so.

However, if you slip a little attorney's fees provision into an agreement, it may change this calculus. When faced with having to pay the other side's fees. a party is less inclined to want to run that risk. Why fail to pay $30,000 owed under a contract and stonewall (which will cost them about $15,000 or more for their own attornies, not counting the amount that they will have to pay for your attorneys).

Now, this blog does not create an attorney-client relationship between the author or the readers, and is meant solely for me to express my opinions on things. So my opinion, which I will share forever more with anyone who does retain the services of the Law Offices of the Angry Bell is this: put the damn attorney fee provision in the frakking contract!!!!!!

Protect yourself. The other side surely will not.

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