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A Slim Settlement Is Better Than a Fat Lawsuit

When we think of lawsuits, we think of attorneys, courts, judges and. But how often do we think of settlements? In the eyes of many, the settlement is underrated. Personally, I am a huge proponent of settlement, even before going to court. Court is expensive for both parties and litigation can lead to sour feelings between parties to an already sour situation. Additionally, it is common that even after winning a lawsuit, the winning party is so marred by the litigation process that winning no longer feels satisfying.

So what is the best way to settle? Start with a demand letter to begin the negotiation process. Demand letters contain little risk in that they cost relatively little for a potentially large payout. Here are some tips that I am sharing from my experience over my years of practice:

  • Analyze and research your position, goals, strengths, and weaknesses.

Any good negotiator will tell you that a good negotiation largely consists of the work you put in before coming to the table. Accordingly, know the strength of your claims, both from a legal and factual perspective, and really ask your self what your goals are. Would you be satisfied with a 50% settlement? It’s also equally important to get a good understanding of your best alternative scenario if a settlement does not materialize. If your best alternative is the status quo and your situation is likely to be improved by rejecting a settlement offer or counteroffer, then litigation may not be a bad idea. If a 50% settlement is significantly more than what you would gain from a lawsuit after attorneys fees, then despite 50% being a “low” settlement deal, when you analyze it with your best alternative scenario, 50% is actually pretty good. Make those decisions up front.

  • Analyze the other party’s position, goals, strengths, and weaknesses.

Equally important is the other party’s position. It is admittedly more difficult to know what someone’s inner thoughts and goals so tread carefully in making assumptions. But some factors to consider are the other party’s reputation value, to what extent is money a concern, and the strengths and weaknesses of their defenses.

  • Make your demand clearly and firmly but kindly.

I like to make the initial demands with a firm tone and offer as many factual statements and, if applicable, legal evidence, to support my client’s claims. However, initial demand letters tend to run no more than three pages so keep your letter to the point and only include what is necessary. It’s always a good idea to end the demand letter in a conciliatory tone so as to make clear that you are open to discussion and settlement.

  • Do not immediately respond to a demand response.

The opposing party’s response to your initial demand may be jarring. They may deny all allegations, flat-out reject your settlement, and offer no counteroffer, or even offer evidence for a potential counterclaim. (Don’t worry, many responses to demand letters can go equally well). It may be tempting to respond with a knee-jerk reaction, but it’s best to put it aside and sleep on it for a day or two before assessing as to how you want to respond. It’s also a good time to remind yourself of your best alternative scenario make a decision based on your initial research.

Although demand letters are usually unwelcome, they are a powerful yet cost-effective tool to attempt settlement and to get an idea of the opposing party’s position. By starting with a demand letter, you open the door to more options, specifically settlement, and potentially save yourself thousands of dollars and years of stress.

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