Stop Writing Demand Letters & Start Managing Disagreements

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The temptation is to think of this title as some word game without substance. If you give yourself a chance here you may see something very worthwhile and you may even want to put your company on this regimen rather than what you now have/use.

Litigation management is currently thought by most companies to consist of having an in house ex litigator monitor and work with the company's outside law firm(s) to shepherd cases through their lifecycle, relieving management of that burden and trying to keep a lid on outside law firm litigation expenses.

It quickly becomes rather inbred in many dimensional facets that have negative or at best neutral implications.

That is a really costly way to proceed and promises no happier resolution of disagreements that what I am going to propose here.

The system was born of less than imaginative contract draftsmanship (in cases dealing with accused default behavior in contract settings).

Since the scope of this can be made rather large, I will confine this discussion, the first in an intended series, to business disputes arising out of contractual relationships and in some instances tortious behavior as well.

Franchising is full of these instances. The fashion world is full of these instances. Just about all licensing of technology and the performing arts are very similar.

(I would prefer at this point to exclude from this discussion the extremely large technology licensing dispute territory for the reasons that there we are usually talking about giant parties to which legal expenses are thought of as chump change, and that antitrust and market opening considerations are always hovering over every aspect of these disputes. They are in those respects somewhat different in their management profiles than "normal" business dispute management.)

Almost all substantial business agreements provide that in the event there is a claim by one party that another party is engaging in behavior amounting to a default, prompt notice must be given in writing by the complaining party.

To be sure, some of the personalities involved have already discussed the issues and failed to resolve them, which is why the contract requires trigger pulling.

In my never humble opinion the main reason why this trigger is so often pulled is that in this stage of dealing with the problem the specific management resources have no resort to expert dispute resolution assistance.

Very few companies can afford or justify having a dispute resolution management expert on the payroll, and almost none of their outside firms have anyone capable and prepared to perform that role.

Actually, it is much more profitable for the outside law firm for the situation not to be resolved quickly and amicably at that point.

The pulling of this trigger inevitably calls for the writing of a strongly accusatory letter to the opposite party setting forth the complaining party's position in rather aggressive terms.

This, of course, though professionally correct, is really calculated to throw down a gauntlet, the single worst thing that could be done at this moment. It also starts a quick clock in most instances within which one must sort it out or whip it out, as we say in Texas.

This is the standard of American commercial corporate law practice, taught in every law school and practiced by all the right law firms - and it is the worst approach that could be devised.

Obviously the parties may "grant" each other extensions of time to do this or that, but the tone has now been set.

They aren't getting ready to get this resolved.

They are getting ready to go to war over it. In any privately held company where the leader is spending his/her own money, unless there are giant ego issues, this should instantly be recognized as insane and the company's lawyers should be asked to explain why such a terrible regimen has been inflicted on the company by those believed to be protecting its best interests.

Just about every time I get called in to help with a bad situation, this nonsense is inevitably what I find has been done.

The standard reasons given for the terrible first letter is that supposedly if you don't laundry list every blemish on the opposing party's face you will be claimed to have waived what was omitted and to have ratified that omission as now a part of the working agreement in question.

Rubbish! It really is the obvious primeval gauntlet throwing.

What should be done, even in the presence of gauntlet throwing contract clauses, is for disagreements with third parties should be given professional attention as they arise.

That is the moment when management can most profit from professional expert guidance.

Since your company's current legal resources do not include this focused resource, it should be found and summoned for discussion re how best to proceed, and then a decision made whether the recommendation is worth pursuing.

If the decision is to go with this approach, the gauntlet throwing contract clauses can be finessed as the immediate situation dictates it be handled, hopefully prior to the name calling stage of the relationship, but even if it is already too late for that to be avoided. After all, if you have already called someone a sonofabitch, s/he has also done the same to you, so the books are balanced albeit not at the optimum level.

If you like what you see, retain the resolution expert and observe how this approach works as well as how it preserves everyone's right to revert to combat in the event it is not bearing fruit.

No positions are compromised when this is done correctly. There is no downside risk other than that you may miss out on an expensive fight.

(As odd as it may seem, some clients have actually received CYA letters from their outside law firms disclaiming responsibility if following my approach backfires and bites them in the ass.

That has never happened yet, thank goodness. This doesn't always work. When it doesn't work no rights, positions or leverage have been lost and very little money has been spent, comparatively speaking. When it does work, which is most of the time, it works wonderfully.)

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As always, you can call me, RIchard Solomon, at 281-584-0519.

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I have seen first hand what posturing and protraction have done to a dispute and my legal budget.

  • user-pic Daniel Rothfeld | April 17, 2014 8:41 AM | Reply
  • I concur with the approach presented. That said, moving forward and as alternative fee structures begin to take hold more and more within the legal profession, the traditional incentive that law firms had to drag out transactions and litigation, will be replaced with financial incentives which reward law firms for concluding transactions and litigation expediently and productively for the client. You can look overseas to see how this is now firmly entrenched.

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    About this Entry

    This page contains a single entry by Richard Solomon published on April 16, 2014 3:28 PM.

    When Should You Give Your Franchise Prospect a New FDD? was the previous entry in this blog.

    Steps 10 & 11: Execution of Agreements & Post-Sale Obligations is the next entry in this blog.

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