It Isn’t Always a Good Idea to Negotiate Before Filing Suit

Litigation is time-consuming, is costly and, even in a business context, can be emotionally draining.  Thus, it makes perfect sense that in-house counsel and business people, alike, often try to implement mechanisms to avoid having to file or defend suits.  One such method, about which I posted earlier this year, is the use of a liquidated damages provision.  Another that has become increasingly popular is to include a requirement that the parties meet and confer before they can file suit. A typical version of such a clause that I periodically see in contracts is one like the following:

Before a party may file suit, it first must give the other party written notice of the dispute.  After notice is received, representatives of each party shall meet within 5 days in a good faith effort to resolve the dispute.  If the dispute cannot be resolved within 5 days after such meeting, suit may be filed.

At first glance, a provision likes this seems to make a lot of sense.  It provides a brief period of time in which the parties can both “cool off” and then rationally discuss a specific dispute or disputes.  As a result, such a clause virtually eliminates a scenario where a party files suit in a knee jerk reaction to something that its business partner did, only to realize later on that if the parties had simply discussed the issue, they could have resolved it amicably. 

While eliminating such situations, no doubt, are in all parties’ best interests, there are other ramifications of mandatory meet and confer clauses that can lead to real and significant detriments.  Imagine, for instance, a situation where your business needs to obtain a temporary restraining order or preliminary injunction on an expedited basis to prevent a contracting party from engaging in conduct that will irreparably harm your company.  Because, in order to obtain such relief, you first have to file suit, what are you going to do if your contract says that you can’t file suit until 5 days after you meet and confer with your adversary?

While you may be able to convince a judge to ignore a meet and confer obligation if you really do have a legitimate urgency to relief, being able to do so is anything but certain.  Thus, in-house counsel should think long and hard about including a pre-litigation meet and confer obligation in business contracts.  In doing so, consider as best you can (and even though you may not want to) possible scenarios under which disputes between your client and its business partner might arise. Doing so may very well reveal whether having a pre-litigation meet and confer obligation is likely to be beneficial or harmful to your client. Further, keep in mind that there is no reason why you could not have a meet and confer requirement that would not apply if a party is seeking injunctive relief.

The bottom line is that just like pursing litigation in knee-jerk fashion may be ill-advised, seeking to forestall litigation without a clear understanding of what may be in dispute can be just as costly.

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