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Always Maximize Pre-Litigation Settlement Efforts

As anyone who has been involved in litigation knows, there is almost always communication between the parties and their attorneys before a lawsuit is filed. This is usually at the point when emotions are running high. One party feels that it has been wronged and demands payment or other conduct in lieu of filing a lawsuit. The other side usually disagrees that its conduct caused the harm or argues that the amount of harm was less than the amount being demanded. As a result, often times, the dispute will lead to a lawsuit being filed.

However, it is important to consider the value of resolving the dispute during pre-litigation negotiations. The negotiations can be creative and oftentimes fashion results that are not available in the context of court proceedings. If a settlement is not reached and litigation ensues, one party may later wish it took a more serious approach to the pre-litigation settlement efforts. Consider the following real life example.

I represented a contractor who submitted a bid for a lighting project. The owner of the facility accepted the bid and the parties entered into a written contract. Shortly after this, the contractor began taking all steps necessary to perform the project. However, prior to performing the work, the owner told the contractor that he was cancelling the contract and was not going to pay any amount. The owner claimed that he was not required to pay because the contractor had not yet performed the work identified in the contract.

Prior to filing suit, the contractor consulted me and we made efforts to settle the dispute. Although in litigation we could legally pursue the full amount of lost profit as damages for the owner’s repudiation of the contract, we agreed that $6,000 would be sufficient to compensate him for the time spent and to resolve the dispute without incurring substantial costs. I prepared a demand letter requesting $6,000 from the owner. Rather than negotiating the amount due, the owner responded that he was unwilling to pay anything. Therefore, we filed an arbitration claim, which was required under the contract.

At the arbitration hearing, rather than seeking the $6,000 to compensate for the time spent on the ComEd application and preparation work, we sought the full $45,000 in lost profits that would have been earned on the project, in addition to all attorneys’ fees and costs incurred in enforcing the contract. The arbitrator ruled in favor of the contractor, awarding $45,000 in lost profits and $15,000 in attorneys’ fees and costs, for a total award of approximately $60,000.

After recovering the arbitration award, the owner still refused to pay the amount awarded. So, we attempted to settle the dispute again. We sent correspondence to the owner, this time offering to accept $50,000, instead of the full $60,000 award, to settle the dispute without further litigation. This offer would have not only resulted in the owner paying $10,000 less than the total award, but it also would have stopped his attorneys’ fees and costs from increasing. However, the owner again refused to negotiate.

Accordingly, we filed the necessary pleadings to confirm the arbitration award in court, have a judgment entered and collect on the judgment. After the award was confirmed and judgment was entered, an Illinois statute provided that the judgment began accruing interest at the rate of 9%. As a result, while the owner continued to fight payment of the judgment, the amount of the judgment continued to increase as interest accrued. In the end, we collected nearly $65,000 from the owner when he could’ve settled the case for as little as $6,000 by negotiating.

Let this be an example to always consider the value of resolving a dispute prior to litigation. Not every dispute can be resolved by negotiation. However, whenever a dispute arises that has the possibility to result in litigation, you should consult with your attorney to discuss all possibilities and benefits of resolving the dispute before the litigation commences.

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