What types of business disputes are often resolved by the threat of litigation?
Steven Mirsky explained that many disputes never make it to court because the threat of litigation alone can be enough to resolve the issue. For example, companies with significant lines of credit must be careful not to default under material contracts. A default on one contract can trigger a violation of credit agreements with their primary bank. In such cases, a litigation threat or notice of default often forces business teams into action to avoid breaching critical covenants. For well-run mid-sized businesses, this threat is a powerful tool that often settles disputes before they escalate.
What is a demand letter and what makes it credible?
A demand letter is a written notice that sets out what one party wants, the reasons for the demand, and the supporting rationale. Typically three to five pages in length, a demand letter outlines the factual and legal arguments for why the sender is entitled to relief.
According to Mirsky, demand letters serve two key purposes:
- Creating a record for potential future litigation or defense. Since demand letters are admissible evidence, they help frame the dispute.
- Testing opposing counsel’s caliber. The quality of the response often reveals how professional or competent the opposing team is.
For a demand letter to be credible, it should briefly cite relevant legal authority and present arguments clearly. This not only strengthens negotiations but also signals readiness for further action if necessary.
What pre-litigation tactics can companies use?
Mirsky outlined several pre-litigation strategies that carry significant weight in business disputes:
- Temporary Restraining Orders (TROs): These are highly effective tools that maintain the status quo and can lead to preliminary injunctions. Courts are cautious in granting TROs, but they are common in trade secret disputes where departing employees join competitors.
- Draft Complaints: Attaching a prepared complaint to a demand letter signals seriousness and shows the company is ready to file if negotiations fail.
- Regulatory Referrals: Depending on the industry, regulatory agencies (such as the FCC or state licensing boards) can be engaged to investigate counterparties. While attorneys cannot use regulatory threats as leverage, filing a complaint and negotiating concurrently is permitted.
These tactics provide leverage, frame the dispute, and often bring the opposing party to the negotiating table.
How do attorneys decide whether to litigate or preserve business relationships?
When advising executives, Mirsky stressed the importance of analyzing the facts, harm, and business objectives. If damages are minimal and litigation costs outweigh potential recovery, pursuing a lawsuit may not be worthwhile. Strategic considerations also matter, such as:
- Financing rounds: Active litigation may discourage investors or complicate fundraising.
- Exit strategies: Business owners planning to sell may prefer to resolve disputes quietly rather than jeopardize deals.
Ultimately, decisions hinge on whether litigation aligns with broader business goals and whether the potential outcome justifies the expense and risk.
What risks do companies face when bluffing in litigation?
Mirsky emphasized that he does not bluff, as bluffing undermines credibility. Litigation is about control and initiative—who drives the process and dictates tempo. If a company threatens litigation but fails to follow through, it risks losing the initiative and giving the other side an advantage.
For instance, if a company sets a deadline and fails to act, the opposing party may seize control of the dispute. While some attorneys rely on bluffing, Mirsky’s approach is to act decisively, ensuring that every move is credible and strategically sound.
How can litigation readiness serve as a proactive business strategy?
Litigation readiness, Mirsky explained, is like keeping an earthquake safety kit—you hope not to use it, but it must be ready. Companies should not overuse litigation, as it may damage relationships with suppliers, customers, or partners. However, executives benefit from having a trusted attorney or legal team who understands the business and can act swiftly when needed.
This proactive readiness allows businesses to leverage litigation strategically in dealmaking, restructuring, or as part of a competitive strategy, without overcommitting or appearing overly litigious.