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Start: Tony Wilson

Nasty legal letter? Don't despair Add to ...

The next few columns are designed for small-business owners who find themselves on the receiving end of one of those nasty letters from lawyers threatening action if “something” isn’t done immediately.

It may be about money. It could be about performance required by a contract. It might be a “cease-and-desist” letter, demanding that certain conduct must stop or “serious consequences” will follow that involve “going to court.”

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The letters sometimes end with the ubiquitous sentence “govern yourself accordingly,” which many of us in the legal community consider a three-word oxymoron and a tired cliché. Why lawyers continue to use it baffles me.

To those of you with such a letter in your hands: don’t despair too much. Unless it’s a bank or another financial institution, a big company oozing with wayward dollars to spend on lawyers, or a party exercising its security on your assets, sometimes it’s just theatre because the guy paying the lawyer to write the nasty letter isn’t prepared to follow through and go to court.

Lawyers are far too expensive. Court is too time consuming. The law is too uncertain. The facts are in dispute. The principal of the plaintiff is a bad witness. And it might take months if not years to get a trial date.

So in small commercial disputes, a lawyer’s letter may be “strategic bluster” more than anything else. Or it might be the opening salvo in a very expensive lawsuit. The key is to know which it is.

Let me explain, while emphasizing that these letters shouldn’t be ignored just because you read a column on the subject by a lawyer in The Globe and Mail. You’ll have to get your own lawyer who will give you advice based on the particular set of facts and how the law applies to them.

My goal here is to look at lawyer’s letters in some context for small-business owners who aren’t in the habit of receiving them.

First and foremost, a lawyer’s letter is meant to send a message. E-mail exchanges and unpleasant phone conversations may have gone back and forth between one party and the other to a point where a message must be sent. That message is: “We’re serious now. We’ve hired a lawyer.”

But sometimes, the message is really this: “We’re more serious than we were, and we‘re hoping that paying a lawyer $300 to write this letter on expensive legal letterhead will intimidate you enough to give us what we want.”

So while you’re waiting for your own lawyer to return your phone call or your e-mail, inspect the letter. Is the allegation or claim so generic and devoid of specifics that it looks like the lawyer “whipped it off” quickly to save the client money? Or is the claim so trumped up and exaggerated that the letter is laughable if it weren’t so annoying and time consuming to respond to?

Better yet, has the lawyer done his or her homework and identified you and your company or your business correctly? Mistakes in your identity or the identity of your business suggest appropriate corporate searches haven’t been done – perhaps because the other side isn’t prepared to pay for them.

What about the lawyer who wrote the letter? Google the lawyer and the firm, and you might discover the writer is a sole practitioner who doesn’t specialize in commercial disputes and doesn’t go to court. That lawyer would have to refer the file to another lawyer if the issue wasn’t resolved. Or you might discover the lawyer signing the letter has a reputation as a “take-no-prisoners pit bull” litigator, which is a useful fact if you’re doubting the other side’s resolve. The messenger may be part of the message.

How much is in dispute? If it’s $25,000 or less in provinces such as B.C., Alberta and Ontario, the claim falls within the monetary jurisdiction of the “small claims courts.” Those are descendants of what used to be called the Court of Requests in medieval England – the concept being that small monetary matters could be heard and resolved relatively quickly with an informal procedure that needn’t involve expensive lawyers. That is, parties are able (and indeed encouraged) to handle the claim themselves, saving legal fees.

My experience in B.C. is that some litigants will actually reduce a $30,000 or $40,000 claim to $25,000 just to be within the jurisdiction of Small Claims Court and handle the claim themselves, without using the expensive discovery procedures in the higher courts. The money they give up in the claim, they notionally save by not spending the legal fees they would have spent in the higher courts.

If the claim is for, say, between $60,000 and $100,000, it’s probably too much money for a plaintiff to reduce to fit within Small Claims Court’s monetary jurisdiction, but too little to justify the time and expense of full-blown trial in the higher courts, although there are expedited procedures in certain provinces that are meant to deal with these kinds of claims.

When amount of the claim is high (say, for argument’s sake, $300,000 or more), the plaintiff may think it makes economic sense to pay his or her lawyer vast sums of money to go to trial. And frankly, it may.

So legal economics, and what a plaintiff expects to “win” if successful, has a bearing on how much it uses its lawyer. And just because one side “wins” doesn’t mean that’s the end of it. The judgment could be appealed. And any judgment could be hollow, in the sense that the defendant may have little or no money to pay it.

But as much as you should see a lawyer when you get these sorts of letters, you have to put things into perspective. A few months ago I had a panicked meeting with a client who wanted to leave her franchise in year four of a five-year deal. She wasn’t making much money but she was paying monthly royalties to a franchisor that she believed wasn’t providing much value.

There wasn’t a lease to worry about, but she had received a very nasty letter from the franchisor’s lawyer threatening monumental damages if the client breached her contract (“we’ll sue you for everything you have” or words to that effect, were used). She was terrified of losing her house and her savings.

After I learned she had one year left in the contract, and that she only paid about $900 a month to her franchisor in royalties, I asked her if she had ever read any books by Douglas Adams. “Don’t panic,” I said, quoting from the Hitchhikers Guide to the Galaxy.

I told her she probably owed him something, as her grounds to get out of the deal weren’t that strong. But I told her all the franchisor could sue her for were the royalties he would have received for the 12 months left in the contract (his “damages”), which totalled around $10,000. This was the maximum amount of his claim against her, putting it solidly into the jurisdiction of Small Claims Court in B.C.

Better yet, the franchisor was in Ontario, and was required by law to bring the claim in Vancouver. So he’d likely have to fly to B.C. to participate in our Small Claims Court’s compulsory mediation program before trial, which might happen in a year or more. And he might well have to come to B.C. for the trial in any event and hire a local lawyer to deal with B.C. law.

So when I factored his costs to pursue such a small claim against the client, including his airfare, hotel and legal costs, time away from the office, inherent delays, the possibility the franchisor might not prevail, and the fact that even if there was a judgment, the franchisor still had to collect from my client, it seemed that the lawyer’s letter that brought my client in to see me was overstated, to say the least.

I said to her to send him a message: “So sue me.”

Although the franchisor was owed around $10,000, I suggested she offer $2,000 in exchange for him not having to sue her and for the “certainty” a settlement gave her. But rather than using me, she handled it all herself and agreed to pay the franchisor $5,000 over time, proving the old adage that 50 per cent of the time 50 per cent of the people will settle for 50 per cent of the money.

So the moral of the story is this: don’t be intimidated by lawyer’s letters and don’t be afraid to say to the writer “so sue me.” With the high cost and uncertainty of litigation, suing you might not be worth it.

But do see a lawyer, just in case it is.

Special to the Globe and Mail

Vancouver franchise lawyer Tony Wilson is the author of Buying A Franchise In Canada – Understanding and Negotiating Your Franchise Agreement and he is ranked as a leading Canadian franchise lawyer by LEXPERT. He is head of the Franchise Law Group at Boughton Law Corp. in Vancouver and acts for both franchisors and franchisees across Canada, many of whom are in the food services and hospitality industry. He is a registered Trademark Agent, an Adjunct Professor at Simon Fraser University and he also writes for Bartalk and Canadian Lawyer magazines.

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