Can You Afford (not) to Sue ?

Copyright (c) 2008 Law Offices of Jonathan Cooper

You're a manufacturer of specialty labels who has worked with this customer - we'll call them "C" -- for over three years, and filled several orders for them, including one for over 250,000 units, which netted your company a profit of over $50,000. Now, after filling C's latest order, which was for another 300,000 units, several months have gone by and you have not been paid; and although you've never had this problem in the past, they've stopped taking your company's phone calls.

You inquire through the grapevine that brought you this client to begin with, and you learn that C has retained another vendor through one of C's employees' family connections. While you accept that these things happen in business, that doesn't change the fact that C still hasn't paid you.

While most people's knee-jerk reaction is that you should sue them to recover your outstanding bill for services rendered, that isn't necessarily the right answer. The more reasoned and balanced approach would require you (and your attorney) to consider the following:

(1) What is the cost to me if I sue?

(a) Legal Fees - Although the old joke is that there are only 2 certainties in this world -- death and taxes - that is not entirely accurate; if you sue, there will be legal fees, and if the amount of any judgment you could possibly recover will either be nullified in its entirety, or approach the amount of the legal fees you will incur to recover payment, then suing is probably not the best option.

(b) Reputation - In addition, you should consider whether your other customers are likely to hear about your lawsuit, and if so, what their reaction to it will be: will they respect you for pursuing what is rightfully yours, or will they be turned off by a vendor who they view as litigious? Moreover, if you sue, chances are that L will defend this case by asserting that your products were defective - whether true or not - which will force you to defend the efficacy of your products in a public forum. Again, you should ponder whether having the quality of your product publicly questioned is likely to impact your bottom line.

(2) What is the cost to me if I DON'T sue?

(a) No Lawsuit, No Payment - On the other hand, if you don't sue, you are certainly not going to get paid what you are owed. Worse, your decision not to sue may lead other customers to view you as "soft," and start trying to force you to reduce your bills, which will negatively impact your bottom line.

(b) Reputation - In the same vein, your existing customers (as well as your prospective customers) may view your unwillingness to pursue outstanding debts as a concession that you don't really believe in the value of your product.

(3) What is the likely outcome if I sue? At the risk of stating the obvious, if your chances of prevailing at trial are outweighed by the anticipated legal fees to get there, you should not sue. For example, if you stand a 50% chance of winning the case against L, it will cost you $45,000 to litigate the case, and your best-case scenario is winning a $60,000 verdict, it does not make financial sense, on these limited facts, to litigate the case. In this scenario, the better course of action would be to try and negotiate a settlement before commencing formal suit.

In short, before you jump head-first into litigation, you should get the answers to these questions from your attorney. By establishing what the reasonable expectations for the litigation are, it will not only give you greater peace of mind, but will also give your attorney the financial framework within which he needs to operate, thereby saving you money down the line.