Filing a lawsuit should be a last resort. Lawsuits devour time, money, and energy. And lawsuits—even the small claims variety—are a win-lose format, which makes compromise more difficult.
Before you file a lawsuit, consider an out-of-court solution first. This is particularly true in situations where the other party is someone you'll have to deal with in the future, such as:
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.
Start by attempting to negotiate a compromise with the other party. Before you put anything in writing, try to negotiate directly with the person, preferably in person.
You are not limited or bound by your offer to compromise. For example, you could make a verbal or written demand for $20,000, then offer to compromise for $15,000. If your compromise offer is rejected, you can still sue for the full $20,000.
To reach a fair compromise you'll need to understand the facts of your case, the legal merits of a potential lawsuit, the minimum amount of money you're willing to accept to give up your legal claim, and the maximum amount of money the other side is willing to pay to avoid court.
The first step in negotiating a compromise is to accurately value your claim. Calculating a reasonable settlement amount typically starts with an understanding of "damages."
Once you've estimated the value of your claim (a lawyer can help with this), start by offering to shave about 20% off the full value of your claim, 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 have a decent case, you can expect the other side to respond with an offer to pay 50% of what you're asking. This should be enough to start negotiations. You'll have to decide how much you're ultimately willing to knock off your original demand to save the time and trouble of going to court.
To arrive at a compromise offer, consider how much your time is worth and how much you want to avoid the uncertainty and hassle of going to court. One good approach is to put a dollar value on an hour of your time and then multiply it by the number of hours you estimate your lawsuit will take.
Take into consideration the chance that you might lose, or get less than you ask for. In a study of 996 small claims cases that actually went to trial:
Source: "Small Claims and Traffic Courts," by John Goerdt (National Center for State Courts).
To accurately assess your chances of winning a lawsuit you have to understand the legal merits of your case and the relevant legal rules. Talk to a lawyer if you have questions about how the law applies to the facts of your case.
To help you arrive at a good compromise, here are a few sensible negotiation techniques.
If you pay close attention to the other party's concerns, you may find that the key to reaching an agreement isn't dollars and cents. 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.
Many people are in a hurry to arrive at a solution and, in their haste, give up too much. Take your time. If the other person gets mad and hangs up on you, you can always wait a few days and call back.
Good negotiators tend to raise or lower their offers in small increments. For example, if you are the person threatening to sue don't jump to accept your opponent's first offer. Say you said you would accept 20% less than what you think your case is worth and the other side offers to pay 50% of what you think your case is worth. You can counter with 30% or 35%. If you do, there is a decent chance that your opponent's offer will improve.
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.