To sue or not? Questions for you to consider

Business owners frequently are forced to ask the question "Should I sue to protect my rights in this matter?" The question may arise in connection with an unpaid invoice, a deficient delivery of goods or the non-performance of a contract. This article highlights some of the factors that business owners should consider in making this determination.

Knowing the true legal name of your prospective defendant is an important first step. You transacted business with "Bad Deal Business." One would think Bad Deal Business would be the defendant. That is not necessarily so. Bad Deal Business might actually by the "doing business as" name ("DBA") for another person or entity. You must check the Nevada Secretary of State's records to determine if your prospective defendant is a registered business entity. If it is not, you would then need to check the county's DBA database. If a DBA has been filed, the search will identify your true defendant. The process is not difficult, but it is a critical step. If you spend time, money and effort to sue a defendant that does not exist, your judgment will be worthless. Furthermore, knowing whether the true defendant is an individual or a business entity will help determine whether the defendant is entitled to exemptions (discussed below), which might affect your efforts to collect on a judgment.

The next consideration is cost. While the strengths and weaknesses of your case are very important, from many business owners' perspectives, the most critical factor is the cost of obtaining and collecting a judgment. The total cost of prosecuting a lawsuit cannot be predicted with certainty. Some standard costs (e.g. filing fees) are easily determined, but the total of all "other costs" will vary greatly. Your largest out of pocket cost will be attorney's fees. In Nevada, if your business is other than a sole proprietorship and your claim exceeds $7,500, you must have an attorney. (Even if your claim is less than $7,500, you may want an experienced lawyer to prosecute your case). Certainly attorney's fees are important, but when deciding whether to employ counsel, consider the non-monetary costs of advancing your own claim. You have a business to run. Do you have the time and energy to serve as your own attorney or would your time be better spent running your business?

A subset of costs is the possible disruption to your business. Even if you retain counsel, pursuing litigation could require serious time commitments for you and your employees. You and some of your employees might be required to attend depositions, answer written questions under oath and produce documents (think thousands of pages) and archived emails (think IT expenses) from years back.

Time is another factor to consider. Litigation moves at a glacial pace. Be prepared for a process that could take years not months to complete. Throughout the process your attorney (or you, if you choose to represent yourself) conducts and responds to discovery, attends various conferences with opposing counsel and the court and, ultimately, takes the matter to trial. Adding to the unpredictability of what it will cost to litigate your claim in terms of both money and time is the uncertainty of how a defendant will defend a case. It is possible a very aggressive defense could double the costs of advancing your claim. Even if you plan to spend as little as possible, the defendant might file numerous motions, causing you to regret your decision to file suit in the first place.

Assuming you could obtain a judgment against Bad Deal Business, you must also consider the process and probability of collecting the judgment. Judgment debtors rarely ask "To whom should I make the check payable?" And don't expect the judge to collect the judgment for you that is not the judge's job. The job of collecting on a judgment is that of the party who obtained it. Nevada's exemption statutes could present an insurmountable obstacle to your efforts to collect. These statutes provide substantial protections to individual judgment debtors. Nevada's exemptions include the judgment debtor's house, car, pension and retirement benefits, and many other property interests. Even if your judgment debtor is a business entity not entitled to claim Nevada's exemptions, your ability to collect your judgment requires that the judgment debtor have unencumbered business assets that can be seized (after a fair amount of effort) and sold to pay your judgment. Do you really know at the time you are considering litigation whether Bad Deal Business has sufficient assets to pay your judgment? You might need to hire a private investigator or utilize the county sheriff to obtain information about the judgment debtor's available assets. Additionally, if Bad Deal Business has money or assets available to pay your judgment, ask yourself, "Why is the account delinquent?"

If you believe Bad Deal Business has sufficient assets to pay your claim, is it possible it is not paying the bill because of some dissatisfaction with the products or services you supplied? You must consider the risk of being countersued if you sue. In litigation, as in many other circumstances, the best defense is often a good offense. If your complaint draws a counterclaim, you are not only on the hook for the expenses of prosecuting your claim; you may be at risk of having to pay the defendant for faulty goods or services. In addition, their counterclaim against you will be part of the public record.

This article highlights only some of the factors you should consider when deciding whether to sue or not to sue. There could be many more factors depending on the size and complexity of your claim. A good rule of thumb: The larger your claim or the more complex the transaction, the more likely you should seek legal advice sooner rather than later.

Shay L. Wells is an associate with Woodburn and Wedge practicing in the areas of commercial litigation and creditor rights. Contact him at 775-688-3000 or swells@woodburnandwedge.com.