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Fire by Trial?

August 12, 2016

 

It's August. It's hot. So let's talk about forest fires for a minute. And then we'll come back to commercial rights, negotiation, and litigation. 

 

After one hundred years of policy experimentation, it is clearer than ever that forest fires are a normal, and healthy, part of our natural landscape.

 

Triggered by a series of frequent forest fires in the late 1800s, policy makers in the early twentieth century made prevention and suppression key objectives for forest fire management. Timber was a crucial national resource, and -- so the thinking went -- enough men, and the right equipment, were needed to protect our resources from the destructive effects of fire.

 

It was not until years later (in the mid-1960s) that we learned the effects of prevention and suppression policy: in many forests, these policies had the opposite of their intended effect: rather than protecting the forests and our timber resources, prevention and suppression led to a build up of fuel in the forests, and thus to more intense fires when they occurred. The result was fundamental change, not just to the character of many forests, but also to the quality of the timber those forests produced.  

 

Since then, we have become educated on the natural cycles in fire ecology, with government taking a more deliberate approach to managing the effects of forest fires. This includes the practice of conducting "prescribed fires," which operate on the principle that "the right fire at the right place at the right time" can "benefit natural resources and reduce the risk of unwanted wildfires in the future." It is a far cry from the practices of a hundred years ago, when the mandate was to spend "whatever necessary" to combat fire at all costs. It is now clear that not only is it impractical to suppress every fire, but fires can have a rejuvenating effect on the forests. (time lapse photography!)

 

So what of this, to litigation? Well, in business, it is easy to employ a policy of "prevention and suppression," at all times and in all matters. Nobody likes the cost and inconvenience of litigation. Nobody wants the reputation of being a litigious business partner. And -- if not managed appropriately -- is easy for litigation to spiral out of control, to devour the very resources that a company or an individual need to preserve and protect. For business leaders, it is easy to take the approach that "with enough people, and all the right equipment, we can simply avoid commercial disputes."

 

And yet, not every conflict can be suppressed forever, and avoiding disagreement today can result in a "hotter," more damaging dispute tomorrow. Moreover, the exercise of commercial rights can be transformational, creating the opportunity to unlock operational or monetary value, or set the table for a termination or renegotiation that positions the company for growth and renewed vitality. It can be counterproductive to avoid litigation at all costs.

 

These are the lessons of forest fire management, as applied to commercial disputes. One of my early managers -- years before I became a lawyer -- told me that "If you aren't getting sued once in a while, you probably aren't doing your job." But the inverse, is true, too. If you aren't thinking creatively about your rights against the existing business landscape -- the potential for a "prescribed fire," if you will -- then you are probably leaving value on the table for your business.

For example (and for ethical reasons, the facts have been anonymized), in one recent case, I assisted a growing company going through an expansion. As a consequence of that expansion, one of the company's leases was no longer efficient. The lease, however, had a long term and a large termination fee. To terminate the lease would thus have entailed a significant cost. And even to open a negotiation would have been to telegraph weakness, against a counterparty who had already demonstrated a willingness to take advantage.

 

The solution was to build a case for asserting breach by the counterparty, knowing that this assertion of rights would trigger a dispute. Going into this dispute, we had determined that the dispute could be resolved more advantageously with the negotiating leverage created by going on the offensive. In the end, executing on this strategy, we set the "prescribed fire," saving the company roughly 60% against what it would have cost to terminate under the provisions of the lease.  And I'm quite confident we did it more efficiently than had we gone through a protracted negotiation seeking a voluntary dissolution.

 

It is not every instance that is susceptible to a rights-assertion strategy -- and there is wisdom in the advice that litigation should generally be used only as a last resort. However, sometimes disputes are unavoidable, such that suppressing them causes them only to burn hotter. And the exercise of commercial rights can create opportunities for superior managed outcomes.

The challenge is to find a partner who can <ahem> help you see the forest, and not the trees. 

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