CEO Brodsky suggests that legal disputes rarely yield an ideal solution for either party. If you're prepared to be a little unhappy with the outcome, you'll reach an agreement you can live with.
Disputes are inevitable in business, but lawsuits aren't--provided you recognize that the best deal may not always be the one you're looking for
A few months ago I got into a dispute with one of my suppliers, a company that handles long-haul shipping for my delivery business. We were paying the supplier within 30 days, but--because of its billing procedures and banking arrangements--it wasn't actually getting the cash for almost 50 days.
The guy we were dealing with at the shipping company told us we had to pay faster. We said it wasn't our fault that it took so long for him to get the cash. If he needed the money sooner, he should speed up his billing process and change banks. We argued back and forth for a while. Then the guy announced that he was going to hold on to one of our shipments until we paid $6,700 that he said was past due.
I was furious. Understand, I'd been working with these people for a long time. I'd been a good customer. I'd sent them a lot of business. Now instead of negotiating a reasonable settlement to our dispute, they were holding my shipment hostage, forcing me to choose between paying their ransom and jeopardizing our relationship with a customer. That wasn't fair. When I tried to complain to the shipping company's owner, he wouldn't return my phone calls.
So I asked my people how much we owed the supplier altogether. It was about $13,000. I said, "OK, pay the $6,700 and get the shipment released. Then don't give them another dime. Let them sue us for it. We will never, ever do business with these people again."
Unfortunately, those kinds of disputes happen all the time in business. They go with the territory. Every now and then, someone--a customer, a supplier, an employee, a competitor, a partner--delivers a low blow that hits you where it really hurts, and you get angry. So what do you do? Call a lawyer, of course.
That's what I did for the first 20 years I was in business. I didn't think twice about suing people who'd done me wrong, or forcing them to sue me. Compromise was not in my vocabulary. Once you crossed the line, forget about it. You became the enemy. I was willing to duke it out in court no matter what the cost.
In the end it took a hard fall to knock some sense into me.
The lesson came in 1988, during a hearing to determine whether my bank would be allowed to put me out of business. Thanks to a series of bad acquisitions, my messenger company--which I'd taken from zero to $120 million in just seven years--had pretty much collapsed. I was in violation of my loan covenants, and the bank wanted out.
My only hope lay in the bankruptcy code. Under Chapter 11, I could petition the court to order that my arrangement with the bank continue as before, in effect forcing the bank to keep lending us money. With some 600 jobs at stake, I figured I had a strong case--so strong that I didn't even consider trying to negotiate a new deal with the bank. I was certain I would win.
The judge had a different idea. At the end of the first morning's arguments, she announced that she was leaning toward deciding in favor of the bank. I was shocked. I was panicked. I was about to lose my company. Out in the hallway, I went up to the bank's lawyers and offered to do a deal. They wouldn't even listen. "You heard the judge," they said.
That afternoon, there were more arguments--and the judge surprised us again. "At this point, I'm inclined to grant the plaintiff's motion," she said as we were getting ready to adjourn for the day. "We'll continue this hearing in the morning." On the way out, the bank's lawyers said they'd reconsidered and were ready to talk after all, but now I was in no hurry to settle.
The next day brought a repeat performance. I finally realized that the judge was sending us a message: she wanted us to negotiate our own settlement of the dispute. During one of the breaks, my lawyer and I sat down with the bank's lawyers and hammered out an agreement that neither side liked very much but that we both could accept.
Back in the courtroom, we informed the judge of the deal. She looked at me and said, "You understand now, don't you?"
I said, "I understand what you were doing, but I don't know why you did it."
"Then let me explain," she said. "The best deal in the world is when everybody walks away a little unhappy. You're not going to get what you want here, Mr. Brodsky, and neither is the bank. I could tell you what to do, but isn't it better if you work it out by yourselves?"
For me, it was a revelation. Why? Probably because she was talking to me at a point in my life when I was ready to listen. In any case, her words changed my entire approach to handling disputes. Prior to that day in September 1988, I must have been involved in 40 lawsuits, many of which went all the way to trial. Since then, I haven't had a single dispute wind up in the courts.
Good things happen when you accept the idea of walking away from a dispute a little unhappy. You stop letting your emotions dictate your business decisions. You don't get caught up in anger or revenge. You look for solutions instead of problems. You start to think about outcomes you can live with rather than trying to get everything you want.
In the process you save yourself a lot of money. I'm not talking only about the legal fees, either. Even more costly is the time you spend thinking about a lawsuit, meeting about it, worrying about it--not to mention getting deposed and sitting in court. When you look at the numbers, it almost never pays to use lawyers to resolve disputes.
Take the dispute I'm having with the long-distance-shipping company. The supplier's people say I owe them another $6,500. I say that by holding up a shipment, they violated our contract and damaged my relationship with a customer, and I shouldn't have to pay them anything. It will cost each side at least $10,000 to go to trial. When the dust settles, even the winner will be out several thousand dollars. Meanwhile, we will have endured months of aggravation and countless distractions from what we should be doing, namely, building our respective businesses.
Of course, the shipping company's owner may not get it. He's already hired a lawyer who's threatening to take me to court. I called the lawyer the other day and made a onetime offer to settle the case for $3,500. But whether or not my offer is accepted, I'm in control. After all, I can always pay the full $6,500--without incurring any additional expenses. Meanwhile, the shipping company has lost a good customer and run up a legal bill.
My guess, however, is that we will have reached an agreement by the time this column appears. I don't know yet what the final terms will be, but this much I'm sure of: we'll both walk away a little unhappy.
Norm Brodsky is a veteran entrepreneur whose six businesses include a former Inc. 100 company and a three-time Inc. 500 company. This column was coauthored by Bo Burlingham.