Demand Letters: The Action Plan
One of the most stressful events for a business owner is receiving a demand letter from a lawyer. Often times, these letters contain strong language full of accusations about wrongdoing, combined with a specific statement of what the lawyer expects and when. In Texas, for example, a letter may refer to the Deceptive Trade Practices Act or to Chapter 38 attorney's fees — things most business owners thankfully are not familiar with — and may even state a specific dollar amount required to settle a dispute.
For any business receiving this kind of letter, there are clear steps to take from the first moment:
- Don't Panic. Many of these letters contain a laundry list of wrongdoing and include accusations of breach of contract, fraud, individual responsibility by the business owners, and even threats to shut down operations. Recognize that these allegations may be over-the-top and may not have any factual support whatsoever. Take a breath, understand that the actual conflict may be much less serious, and make a firm decision to approach the issue calmly and responsibly.
- Contact an Attorney. Many business owners are tempted to call the author of the letter, or to call the business or individual which hired the lawyer. Don't do this. Your first call should be to your counsel of choice, who will request a copy of the letter and any other materials you may have received. By making contact directly with the other side, you may inadvertently say or do something which could hurt your position down the road. Calling your own counsel doesn't mean you have to get involved in a knockdown litigation, or that you will have to spend thousands to even figure out where things stand. It is simply making a calculated business decision to ask an experienced professional about your risks and options.
- Take a Snapshot. Rather than rush to make changes to any operations or practices, wait until you receive specific guidance from your counsel of choice. As you go through that process, be certain to maintain a snapshot of where things were when you received the letter. Does it pertain to your website? Create a backup archive of the site as it stands. Is it related to a contract? Be certain to retain all documents related to that contract, including negotiation emails, notes, drafts, and final signed versions. Is it an accusation of monies owed? Save copies of bank statements, transactional records, cancelled checks, and any associated records. In short, you want to be able to look back later and understand exactly where everything stood when you received the letter and before you took any further steps or made any changes to your business.
- Notify Key People. There is no need to tell the world about the letter you received, but you may want to rope in those who will be directly involved. After contacting your attorney, consider speaking with your chief of operations, your internal financial officer, or any other individuals necessary to take the snapshot discussed above. You may be required to notify your insurance provider, but hold off on doing so until you speak with your attorney. Don't forget your spouse! Legal matters can be a source of significant stress which can affect your family — don't keep it to yourself.
- Don't Panic. Did we say this already? You can address this issue in a calculated, responsible way, which will allow you greater freedom in choosing options to resolve a dispute. Call your attorney, leave your cellphone number if they need to call you back, and go for a walk. Grab a coffee. Hit the gym (with your phone nearby). Let the initial wave of surprise pass, and then work with counsel to develop a plan.
Any unexpected letter from an attorney can disrupt your business, but following these basic steps can reduce stress and help you determine the best path forward.