Picking Your Battles

Let’s face it — dealers get sued for a lot of things; sometimes it’s justified, sometimes not. The savvy dealer knows this and takes steps to manage risk accordingly.

One risk management tool that doesn’t cost much is using your good sense to know how to pick your battles. Sometimes it makes sense to go into defense mode with guns blazing when a claim makes it to your doorstep. Other times, it makes sense to just write a check — or at least make that offer. Sometimes the best offense is a good defense.

There’s an old adage in the litigation business (or so my litigator friends tell me) that says the first check a defendant writes to settle a claim is usually the smallest. If your customer comes in with a legitimate claim, it is generally a good business practice to make things right. That may involve fixing something on the car or writing a check to make the customer whole. After all, a significant percentage of your business comes from repeat customers and their referrals. So, it may be a small price to pay in the long term. And fighting legitimate claims may end up costing you more than the claim itself, because you certainly will have to pay your attorney’s fees. And if you lose you may have to pay the plaintiff’s as well. Ouch!

On the other hand, your customer may just be a crazy person with ridiculous claims. In that case, by all means, fire away (if that’s what your counsel advises). But often, whether you are liable for a particular claim may be a hard call for both sides. In these instances, your attorney may suggest making an “offer of judgment” to pressure the plaintiff into a settlement.

An offer of judgment is essentially a poker ploy designed to force the plaintiff’s hand. It can be particularly effective when the recovery being sought by the plaintiff bears little regard to the damage he may have suffered. It requires him to realistically evaluate his claim and pressures him to settle if your offer is reasonably close to what he thinks he’d be awarded by the court. If he turns down your offer and continues to litigate, he may be required to pay your legal fees and court costs if he’s awarded an amount that’s less than your original offer. So when you make an offer of judgment, it puts the heat on the plaintiff to be objective and rational.

Let’s say Betty Buyer sues Danny Dealer under the Magnuson-Moss Warranty Act for breach of express and implied warranties in a situation where Danny’s liability is, at best, de minimus. Being a prudent businessman who loves and admires his very competent and highly skilled attorney (Strata G. Towin), but who is not at all enamored of his billing rates, Danny, in consultation with his attorney, makes an offer of judgment to settle the claim for $1,500. Betty, whose attorney Ima Nept is as money grubbing as they come, declines. So both parties putter off to the courthouse for trial where Judge Bud U. Luze presides.

Ima presents an impassioned case, strong on the suffering of her client but short on the facts tending to prove Danny’s liability. Judge Luze finds in favor of Danny and awards Betty “zippo.”

Because he made the $1,500 offer of judgment, Danny makes a motion to Judge Luze to recover Strata G.’s fees and costs from Betty under the state’s offer of judgment statute. Because Betty recovered nothing in her lawsuit, Judge Luze follows the law and rules in favor of Danny. In addition to the similar bill she’ll receive from Ima, Betty must also pay Danny’s attorney fees (about $27,000) and court costs (about $3,000). So, all in all, a $60,000 bill for Betty because of the good defensive plays by Danny.

I don’t know one business owner who thinks litigation is a good use of resources. But when you find yourself in litigation that you didn’t start, a rational and realistic evaluation of the merits can lead you to effective decisions that mitigate your liability while forcing the plaintiff to do the same. No defendant is ever really a winner (the lawyer has to get paid and there’s time away from your business), but knowing which battles to fight can keep you from being a loser.

Michael Benoit is a partner in the Washington, D.C., office of Hudson Cook LLP. He is a frequent speaker and writer on a variety of consumer credit topics. He can be reached at [email protected]. Nothing in this article is intended to be legal advice and should not be taken as such. All legal questions should be addressed to competent counsel.