Business Litigation

Businesses today are faced with a raft of litigation risks from shareholders, consumers and others. Businesses are spending greater time and resources responding to these litigation risks. In today ever changing world, the nature of litigation and liability risks faced by businesses are also changing.

According to Attorney Govind Chirayil a Wall Street Attorney, an increasing number of small businesses are resorting to Alternative dispute resolution (ADR) to settle disputes. Alternative dispute resolution is a term generally used to refer to informal dispute resolution processes in which the parties meet with a professional third party who helps them resolve their dispute. While ADR is not a solution in all cases, the authorities encourage small businesses to consider this approach, as a first step in resolving most civil disputes. In fact a few states require most business contracts to have an ADR clause. Attorney Chirayil adds that small businesses are increasingly opting for an ADR clause in their contracts because can cut lawyers' fees, keep you out of court, and resolve issues faster than a trial.

 

Two common methods are by using a mediator or an arbitrator to resolve legal disputes.    Arbitration is a process in which both sides present arguments in front of a neutral third party, the arbitrator. The arbitrator needs to be agreed upon in advance by both parties, who typically agree to abide by the arbitrator’s decisions. The arbitrator reviews the arguments of both sides and renders a decision which considered binding. The decision whether arbitration will be binding or not must be agreed upon in advance, though binding arbitration is part of most contractual agreements. In mediation, a neutral third party tries to find common ground on which to bring two sides of a dispute to the table to talk. Mediation is generally used in employment disputes and helps open the lines of communication between the parties. The mediator establishes guidelines by which the two parties will meet and oversees settlement discussions. But, unlike arbitration, the mediator does not make a ruling - no legal decision results from mediation.

Rafi Rasul, Partner of Rasul & Associates, a New York based law and CPA firm, forum shopping is another developing trend in small business litigation. In forum shopping, the plaintiff looks for a court that is deemed likely to render a favorable result. The party which files the first complaint in a case makes the first choice of which court is to be the forum. This may be a state court or a Federal District Court. The defendant may try to move the case to a different court. The great majority of plaintiffs elect to file trademark and related unfair competition cases in the Federal Courts for a number of reasons. It is recognized that the Federal Courts, for historical reasons, have far more experience in adjudicating trademark cases than do the state courts. Plaintiffs frequently have to sue defendants in places where the defendants are located but where the plaintiffs have no local ties.

 

The US trademark law is largely developed in Federal cases and there is a greater chance of predicting a result especially in a Federal Circuit with a rich collection of precedents and experienced trial and appellate judges. Further, plaintiffs recognize that, even if they file complaints in state courts, the defendants may, and often will, remove them to Federal courts. Some courts have become notoriously famous for giving favorable verdicts. The district court for the eastern district of Texas in Marshall, TX is a favorite with plaintiff in patent lawsuits. Mr. Rasul further adds that the trend of forum shopping has made it difficult for businesses to prepare themselves for litigation. The advantages of forum shopping can include access to faster or slower outcomes and to particular remedies that may not be available elsewhere.

Another increasing trend according to Attorney Chirayil is the rise in third party funding of litigations. In third party litigation funding, a third party offers financial support to the claimant (plaintiff). In return the third party generally gets a share of damages if the plaintiff is successful. The third party could be anyone – an insurer, a wealthy individual. The rise in third party litigation funding has seen a rise in litigations. The easy availability of funds encourages lawsuits that would have otherwise been considered too expensive, or too risky, to pursue. Attorney Chirayil says that third party litigation funding is set to grow. For one thing, the investment opportunities it provides are potentially independent of economic conditions, since the prospects of winning a case depend on its merits, not the economy. This may be especially attractive to capital in current economic conditions.

From a small business’s stand point, the risk of litigation is ever increasing. The present economic climate has only added to the woes. Today, a business can be sued in any corner of the world. Physical presence has become almost redundant. Liability insurance has become a must these days. Again, any finding of fraud by the court in a suit filed against the business will void the liability insurance. There is no prescribed plan to handle litigation. While a small business can do all it can to reduce the chances of any liability, there is no way to predict where and how a lawsuit will be filed against the business. Small businesses might find it difficult to defend lawsuits with huge claims filed in a jurisdiction where the business has no physical presence.

 

Personal jurisdiction, the power of a court to issue a judgment ordering a named defendant to do or not to do a specified act or to pay a money judgment, depends, in broad terms, on where a defendant resides or is incorporated, or does business, or caused the harm for which a plaintiff seeks relief. Venue, the location of the court in which a case will be heard, is a different and separate question. More than one Federal District Court may have personal jurisdiction over a defendant. Third party litigation funding is here to stay. There isn’t much a business can do to prevent third party litigation funding. Presently third party litigation funding is perfectly legal.

These trends are the present trends. However they will change as years go by. Until then, one can say for sure that consumer lawsuits, forum shopping and third party litigation funding are here to stay.