Lawsuits should be last resorts. They devour time, money, and energy. And lawsuits -- even the small claims variety -- tend to polarize disagreements into win/lose propositions, making mutually beneficial compromise difficult.
Before filing a lawsuit, it almost always makes sense to look for a solution out of court. This is particularly true in situations where the other party is someone you'll have to deal with in the future, such as:
- a neighbor
- a former friend
- a relative, or
- a good customer.
For example, an orthodontist who depends on referrals for most new customers will want to think twice before suing a patient who has refused to pay a bill, if the patient is genuinely upset (whether rightly or wrongly) about the services received. Even if the orthodontist wins in court, this is likely to turn the former patient into a vocal enemy -- one who may literally bad-mouth him from one end of town to the other.
Offer to Compromise
Start by attempting to negotiate a compromise with the other party. Before you reach for pen and paper, try to negotiate directly with the person, preferably in person.
Know that any offer of compromise, made either orally or in writing, does not legally bind you to sue for that amount if the compromise is not accepted. For example, you could make an oral or written demand for $20,000, then offer to compromise for $15,000 and, if your compromise offer is turned down, still sue for the $20,000.
Come Up With a Starting Settlement Amount
If you are the potential plaintiff: Start by offering to shave about 20% off your original demand, in exchange for a settlement. Any less and you won't be taken seriously. Any more and you're giving away too much too soon.
If you are the potential defendant: If the plaintiff probably does have a decent case, start by offering about 50% of what is demanded. This should be enough to start negotiations. Many plaintiffs will ultimately agree to knock as much as one-third off their original demand to save the time and trouble of going to court.
Consider the time at stake. To arrive at a compromise offer, consider how much it's worth to you to eliminate the time and aggravation of going to court. One good approach is to put a dollar value on an hour of your time and then multiply by the number of hours you estimate that going to court will take.
Weigh your chances of winning a lawsuit. Take into consideration the chance that you might lose, or get less than you ask for. In a recent study of 996 small claims cases that actually went to trial:
- only 32% resulted in the plaintiff receiving 100% of the amount claimed
- 22% resulted in the plaintiff getting between 50% and 100% of the amount claimed
- 20% resulted in the plaintiff getting less than half; and
- in 26% of the cases, the plaintiff got nothing at all.
Source: "Small Claims and Traffic Courts," by John Goerdt (National Center for State Courts).
To help you arrive at a good compromise, here are a few sensible negotiation techniques.
Money isn't always at the root of the problem. If you pay close attention to the other party's concerns, you may find that the key to arriving at an agreement can be found elsewhere. For example, a print shop might agree to refund a customer $2,000 on a disputed job in exchange for an agreement to continue to work together and speak well of each other in the future.
The patient negotiator has the edge. Many Americans are in a hurry to arrive at a solution and, in their haste, will concede too much. Take your time. If the other person gets mad and hangs up, you can always wait a few days and call back.
Good negotiators rarely change their position quickly, even if the other side does. Instead, they raise or lower their offer in small increments. For example, if you are the plaintiff and your opponent counters your offer of a 20% reduction in your demand with an offer to pay only half of what you're asking for, don't jump to accept. It will often make most sense to counter by reducing your original demand a little bit more (to 30% or 35% of the original demand). If you do, there is a decent chance that your opponent will further improve his or her offer. And even if not, you haven't lost anything, since once your opponent has made an offer, he or she is unlikely to withdraw it.
Make a Written Settlement Agreement
If you talk things out with your opponent and come to an agreement, it's key to write down your agreement as soon as possible. Oral settlement agreements, especially between people who have little confidence in one another, are often not worth the breath used to express them. And writing down an agreement gives the parties a chance to see if they really have arrived at a complete understanding. You can find a settlement agreement form in 101 Law Forms for Personal Use, by Ralph Warner and Robin Leonard (Nolo), or in the form kit, Settling Legal Disputes, available at www.nolo.com.