To Sue or not to Sue - That is the Question

Copyright (c) 2008 Law Offices of Jonathan Cooper

In a prior article, I discussed the criteria that should be analyzed before deciding whether you should or should not sue for your customer's breach of contract. In this article, I have modified the factual scenario so you can see how just a few "minor" changes in the details can completely change this analysis.

In this case, you are still a manufacturer of specialty labels who has worked with customer "C" for over three years, and you have filled several orders for them, including one for over 300,000 units, which netted your company a profit of over $60,000. 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 not retained another vendor, but since their bank called in their line of credit, they are in financial distress.

Before this last order was filled, you wisely spent a few thousand dollars to have an attorney draft your standard sales forms and update your company's procedures for confirming customer approval of all sales orders before they are filled. Thus, you are confident that a Court will side with you in a lawsuit against C, and, since the contract provisions are clear, you do not anticipate that this lawsuit would be long or expensive. This should be the end of the analysis, right? Guess again.

Although you would likely win in Court, you may very well end up with a pyrrhic, or empty, victory, because your award may not be collectible. Stated differently, you must remember that the entire purpose of a lawsuit in this scenario is to recover what you are owed. Since C may be unable to pay any verdict or judgment that you get, suing may net you nothing other than having to pay out additional fees to your small business lawyer.

That being said, and even if C is in financial distress, it may still be worthwhile to pursue at least limited legal action to collect on your bill, particularly if it appears likely that C will be filing for bankruptcy protection. In this fashion, you will at least preserve your rights as a preferred creditor against C.

As you can readily glean from the above, the proper decision as to whether you should - or should not - sue is very fact-specific, and should be discussed in full with your attorney before embarking on a course of action. It almost certainly will save you time and money.