Yes, you can. Remember, a demand letter is not a lawsuit. Think of it as a first warning that you might soon be headed to court. It’s a sign that the situation has escalated and you need to handle it seriously. A demand letter is often the precursor to a lawsuit, and it often means that the other party would like to avoid this before it goes to court. It is a threat, which means it is a negotiation. They also think they can make a deal with you. But they want to try, before they actually waste their time (or, more importantly, the court’s time) on a lawsuit.
Most demand letters look about the same. You will find the creditor’s version of what happened, which often doesn’t match yours; the legal claims they think they have; and then the actual demand: what the creditor wants.
What Your Goal Should Be
Before you respond, consider what your business is attempting to do and whether you have the time or resources to litigate a case. Settling the case depends on your own circumstance. For example, if you have a buyer for your company, it might be best to resolve the matter promptly so that they can move on with their purchase. But on the other hand, perhaps this latest letter is just another chapter in an ongoing battle with the creditor, and they have finally turned the case over to the lawyer. In that case, a lawsuit may have been inevitable all along. But either way, those factors inform what your goal should be.
Where a Lawsuit Would Be Filed
Then think about where a lawsuit would be filed. Where the suit would be brought can change how much it would cost to defend, how long it would take, and even possibly what law firm you would hire to help defend. If the debt arose out of a contract, the contract may specify where a lawsuit must be brought. The letter itself may specify where the creditor intends to bring any lawsuit. But this is not necessarily the end of the story. Your lawyer may advise you that your business can only be sued in your own state, or that federal court or a special business court is more appropriate for your business. Being aware of these possibilities could impact your response.
Knowing where the suit is likely to be filed can also give you a sense of cost. If the creditor is in California and your business is in North Carolina, there will be legitimate travel expenses, and even if the suit is filed in-state, the lawyers will most likely still need to fly to California to conduct depositions. And of course check to see if any of your company’s insurance policies could help cover the costs of a defense. Some policies will have a notice requirement, such that you will need to notify the insurance company as soon as the initial demand is received.
Some debts arise from contracts, which may have a provision for the prevailing party to recoup attorneys’ fees and costs. So you could end up collecting attorneys’ fees if you win the suit, but you might also end up paying the creditor’s attorneys’ fees if you lose.
Lawyers are expensive and a legal fight over a debt could drag on for a while. Once suit is filed, both parties will tend to dig in and it could take many expensive lawyer bills before anyone thinks about settling. That is why a response to the demand letter might be the cheapest option. The creditor sent a letter instead of a lawsuit, which suggests it does not want a legal fight either. And if you don’t, maybe you can work something out.
Trusted Attorney
If you don’t have a trusted attorney, you should consider what exactly you want out of a lawsuit, your budget for the suit, and where the suit will be filed. Once you have the answers to those questions, it will be easier for you to determine which firm would be a good fit for you.
Whether you are looking for a quick and low settlement or you’re getting ready for a hard battle, a lawyer can be an important person to have on your side when you send that letter. Yes, a lawyer costs money. But a lawyer can prevent you from writing something that doesn’t seem like a big deal at the time, but which could cause real legal trouble later. Yes, the letter probably made you very angry. However, you should leave all of that anger out of the letter, because what you write could come back to haunt you later in court. Also, a lawyer can explain what Federal Rule of Evidence 408 has to do with settlement offers, and how it reduces the risk that what you say to the creditor will be admissible evidence at trial.
Even if you negotiate on your own, you may see the negotiations stall and have the demand ripen into a lawsuit. Some states, like North Carolina, do not allow a business to represent itself in court, so you may need counsel at some point, anyway. In addition, having the lawyer with you from the beginning will have another benefit. If you have each employee write down what they know, their statements may become part of the lawsuit and subject to disclosure. If you rely upon an attorney to interview employees, generally the interview should be protected by attorney-client privilege or the work product doctrine.
Your lawyer can assist you in uncovering counterclaims. Perhaps the letter says you breached a contract by refusing to pay $50,000 for a service. Now let’s say you refused to pay because the work was defective and your business lost money as a result. Not only can you defend yourself, but you can counterclaim and get back the money you lost because of the poor work. That type of counterclaim might give you some leverage when it comes to negotiating the claim before a lawsuit is filed.
When you know that there’s likely a lawsuit, or if it’s in the process of being filed, then your company likely has an obligation to preserve anything related to it, even if they don’t say so in the letter. Which could be a lot. Office computers. Laptops. Cell phones. Tablets. Email. Office network drives. Cloud drives. Files. Notes. All of it. And if anything is deleted, lost or damaged after the letter, the court might find that you destroyed evidence. Again, this is where having a lawyer could help you out.
But some lawyers skip the demand letter and just sue you, and the business on the receiving end is in litigation and doesn’t know what hit them. Your company got a letter - you have a shot at negotiating and possibly avoiding litigation. At the very least, you can prepare yourself for the possibility of litigation. So it’s not necessarily good news, but at least you haven’t been sued yet.
About Delancey Street
Delancey Street is a premier, and award winning, business debt settlement company that helps business owners nationwide. Our goal is simple: help you escape debt in a safe and legal manner. Based out of New York, we can help in 49 of 50 states. We tell you how it is; because your business and future is on the line.
