When Do You Really Need a Lawyer?

New Mexico Business Journal, June, 2001 by Shawn Shepherd

Well before you have a problem, attorneys say, so that you don't have a problem later. Courtrooms are fine, but you wouldn't want to be summoned to one.

NOT A DAY GOES BY WHEN THE press doesn't headline the collision between business and the law. Discrimination suits. Breach of contract. Stockholders suing the management team. Wrongful termination. Copyright infringement. Intellectual property. All are regular news items and all point to the fact that, in today's litigious society, business owners have become a target.

"Things have been very busy for most law firms here in town," affirmed Joe Werntz, managing partner for Moses Dunn Farmer & Tuthill PC, "we have seen a fair amount of cases to work in both litigation and transactional matters. I think business has been steady...because we do have a lot of people moving into the state, and that increases our population of workers and possible issues. Another factor is the increase in regulations relating to business and employment matters."

Lawsuits are a reality in today's business climate, coming from both inside and outside a company. Internally, the four most common claims by employees are for wrongful discharge, claims for unpaid leave and overtime, defamation, and discrimination and sexual harassment. Externally, the most common issues resulting in lawsuits are accounts receivable problems. Attorneys also site the regulatory climate, particularly in New Mexico, as a source for legal action.

The Commission on the Future of Worker-Management Relations, an advisory board appointed by former President Clinton that analyzed data regarding federal lawsuits filed during the period from 1971-1991, found that the total number of employment law disputes had increased 430 percent in that two-decade period. And the Commission's report was issued before the passage of the Civil Rights Act of 1991, the Americans with Disabilities Act, and the Family and Medical Leave Act -- all of which have generated even more litigation. The Civil Rights Act has particularly advanced litigation because it opened the door for large compensatory and punitive damage awards for violations of employment discrimination statutes. The Act also created a jury trial right for the same issues, a procedural change that has increased damage awards by more than 40 percent in the last decade.

"There are times people have disagreements," said David Buchholtz, a member of the executive committee and chairman of commercial practice at Sutin Thayer Browne in Albuquerque. "I would strongly urge people to think to go to lawyers for counseling and instruction so that they can avoid litigation.

"Don't try to enter into a contract on your own, for example," Buchholtz continued, "you need help to think about what kinds of things might happen in the relationship. If you don't have that thoughtful preparation ahead of time, what you come to see is that people never had a meeting of minds."

In employment matters, attorneys can provide businesses support by assisting in the preparation of employment handbooks and manuals, and objective performance review and pro motion materials, all of which can ameliorate the cost of claims.

"One of the things that I see a lot of is that business people are very cost-conscious -- they tend to shy away from involving professionals like account ants and attorneys on the front end of matters," said Werntz of the Moses Law Firm, "this is particularly true when entering into employment agreements and then [the company] ends up with bigger expenses on the back end when the documents or agreements aren't effective."

In addition to the traditional issues of employment law, Werntz says the tight labor market means there is a need for greater legal protection. "With increased competition for employees, someone will leave one employer to go work for another and that's when issues of solicitation of prior customers and protection of confidential business information comes into question," he said. "Any business that has some sort of niche or unique product or service and method of delivering that product or service has created something special and it's important to protect your investment. It took a lot to build your business to where it is, and you want to protect that."

It doesn't take much to ruin a business financially and legal issues can be devastating, according to Gordon Rowe III, a managing partner in the Rowe Law Firm PC. "In the Albuquerque market the deal makers are used to a 'handshake' arrangement and generally structure agreements themselves," he said, "and the problem with that is [the agreements] haven't been tested out before. In the new high-tech sector, or real estate ventures, it often comes down to an 'our camp thought it said this' and 'their camp thought it said that,' and we end up in a dispute.

"The real problem you see for a lot of businesses is the capital cost of the legal business," Rowe said, indicating that to create a venture capital agreement can run anywhere from $5,000 to $25,000. And possible litigation costs escalate from there. Rowe also contends that New Mexico's regulations involving the recovery of attorney's fees further complicates matters. Unlike the surrounding states of Texas, Colorado and Oklahoma, New Mexico does not allow civil suit plaintiffs to recover attorney's fees if they win the case. "My view on this is that it enables a business owner who has a legitimate claim to be able to afford to pursue a case," Rowe said, "and it also allows a smaller company to take on a bigger company. In New Mexico litigation, larger companies know that from a defense standpoint they are going to be able to drag the case out with a slow and complicated motion and hearing system and...there is no pre-judgment available in New Mexico.