Efforts like legal project management and alternative fee arrangements have helped inside counsel gain control over litigation's costs and options. Still, the least expensive litigation is the litigation you avoid.

Inside counsel often have the opportunity to proactively guide their business clients in a manner that avoids litigation. When followed, litigation-avoidance advice can help mitigate litigation—even if it cannot be avoided. When that advice gets ignored, litigation is more likely to ensue—as is retention of outside counsel and the expenses they bring with them.

Sometimes it's better to be practical than right

Unfortunately in business decisions, common sense is still not so common. But businesses that use good judgment, stay calm and remain focused on their key objectives gain the upper hand in both the litigation they bring and the litigation they defend, not to mention the litigation they avoid. Being mindful of the following guidelines can minimize the chances that your business will become embroiled in unnecessary litigation.

1. Maintain good relationships. The best way to avoid litigation is to nurture good relationships both internally and externally. No one wants to sue a friend or someone he likes. But more importantly, good relationships are highly valued. Therefore, both sides to a good relationship are going to be reasonable and take steps to preserve and improve those relationships. Building up equity in the form of good relationships allows you to draw on that equity when needed. If another party takes an action that harms your interest, it is much easier, cheaper and more effective to pick up the phone and ask that an accommodation be made in light of your longstanding relationship. Likewise, if it is your side that has harmed another party, you will be much likelier to avoid expensive litigation if you have a history of valuing that relationship and the party can trust that you will do right by it.
2.  Pick your battles wisely. Not everything on a project or in a relationship is going to go perfectly. Try to evaluate the “must haves” from the “it would be nices” and act accordingly. A “must have” outlook on everything will ultimately end up in litigation—either you will have to sue to get what you want or you will be sued to show you that you can't always get what you want. Better to listen to the Rolling Stones than to have to learn that lesson through litigation. Even if you win, it will not always be worth the time or the cost.
3. Watch the tone. Tough decisions need to be made in business. And sometimes those decisions will cause people to be unhappy. But terminating a relationship or addressing an issue while sounding like a complete jerk is only going to escalate an already difficult situation. Striking a cordial, professional and perhaps even appreciative tone can help diffuse those situations. While we would hope that decisions of whether to litigate are made with good business judgment, the truth is that is not always the case. Emotion is not just found in family law; it can be as prevalent in the business world. If the tone you or members of your team take is unnecessarily abrasive or harsh, you are increasing your chances that your company will be sued. And if you are sued, you're not going to look good when those documents are pranced before the jury.
4. Don't retaliate. So you've taken the high road, watched your tone and the other side fails to do the same. Step back and honestly ask what your objective is and what action will drive that objective. Nowhere in that analysis should “But they started it” be a factor. You will rarely be satisfied if your primary goal in suing is to “punish” the other side. The only ones who win under this scenario are the lawyers for the two parties.
5.  Be careful when escalating the dispute. Sometimes out of frustration or impatience, business people will threaten litigation, thinking it will make the other side quickly capitulate. Often, however, it has the opposite effect and only serves to more deeply entrench the other side in their position, and perhaps even bring in their own attorneys to assess potential counterclaims. This in turn greatly increases the odds of litigation, when that might not have been the actual desire of the threatening party.
6. If there is a screw up, fix it. People screw up. It is usually done inadvertently and often it only is visible with 20-20 hindsight. But when it happens, fix it. That might mean paying someone for something that they did not receive, covering the cost of the resulting injury or disclosing more information to the marketplace. Sometimes it might even mean reporting the conduct to a regulatory or investigatory body. How to go about fixing the problem, however, should be decided with the assistance of in-house legal counsel—and possibly outside counsel as well. Often you may want to fix it without admitting wrongdoing, so work with your counsel to figure out the best way to do this. But if you can fix the problem, you can minimize the chances that the other party will try to fix it through litigation.

Conclusion

Sometimes it is impossible to avoid litigation. But if you have to litigate over an issue, do it because litigation was the best way to meet a business objection or was a last resort—not for a petty reason that serves no purpose.