I met with prospective clients recently and their situation was intriguing. They bought some commercial property that had a number of tenants. Almost immediately after they closed the deal, they discovered that one of the tenants had left either the day of the closing or the next day. They then proceeded to sue the tenant for breach of the lease and they relied upon an estoppel certificate purportedly signed by the tenant. An estoppel certificate is a document which, in effect, says “everything’s fine, I’m a happy tenant and I don’t have any problems with either the lease or the current landlord [that is, the seller]“.
In defence of the lawsuit, the tenant (now defendant) said “I never signed that document, it must be a forgery.” OK, so their lawyer sued the seller and the lawsuit is now, basically, “we don’t care what happens, one of you has to pay us – either the tenant because the estoppel certificate is valid and therefore the tenant is liable on the lease OR the seller because the estoppel certificate is a forgery and you lied to me to get me to close the deal.”
The problem, though, is that the claim as against the seller is completely dependent upon being able to prove that the estoppel certificate is forged. The potential clients asked their current lawyer a while back, “so what happens now?” The answer was basically that they sit back and let the two defendants point fingers at each other and, in essence, “who cares? You’re going to win against someone.” Completely true. But the flip-side of this is that they are definitely going to lose against the other party.
It is not uncommon to see “sue ‘em all and let God (or the Judge) sort it out” approaches to litigation. And I am not saying that this is not a good practice – because sometimes you really just don’t know who is ultimately to blame for whatever happened. BUT what the potential clients never asked, and their lawyer doesn’t appear to have explained (or explained well enough) is the question: “OK, but what’s my downside?” If they had asked this, then they would have known that winning against one party means almost automatically losing against the other and you want to ensure that whomever you win against will net enough money to cover whatever you have to pay to the other party for its legal costs. If you end up having to pay the party you couldn’t prove the case against more than you received from the party you won against, then you’ve lost money on the litigation and it probably wasn’t a worthwhile venture.
The potential clients never asked this question and by the time they came to me the question was raised. It’s not that it’s too late, but it will certainly give them a different perspective on how to proceed with the litigation. But this is a question that should be asked by all litigants at the very beginning of any lawsuit. For example, a lawyer may say to you “I’ll take your case on contingency and I’ll pay all court costs, etc.” and then some will even add “You don’t pay anything until you win”, or “You don’t pay anything unless you win.” Ask yourself if this is true. For example, the standard rule is that the loser pays some of the winner’s costs. If you don’t win and you don’t (or can’t) settle, you could have to pay some of the winner’s legal fees. When you are told that you don’t have to pay anything – OK, but to whom and for what? To your lawyer or the courts? Fine, but what about to the other side? Is your lawyer going to pay the other side’s legal fees if he/she cannot settle or doesn’t win the case? If the answer is “no”, then you are the one on the hook for these costs. Then the next question should be “what is the likelihood that I have to pay the other side?” Often, the risk is relatively small – for example, the other side may be willing to settle and not seek costs from you. But, this isn’t always the situation.
Litigation is not a 100% guaranteed endeavour. Even when it is 100% guaranteed, it’s not quite that simple. As the other lawyer said to the clients, they are going to win – and I agree with that. But even with this 100% guarantee, the question still remains of against whom are they going to win. In asking this question, then, you get to the bigger question of what is the downside of proceeding against both defendants or if a settlement should be made with one side or another.
I’ve said before that litigation is sometimes like gambling and, in that sense, you should always ask yourself “what am I prepared to lose?” Similarly, asking “what’s my downside?” will allow you to decide how much you are prepared to lose if the litigation doesn’t go your way.
Something to think about.