When is it Time to Litigate? 10 Common Causes of Action in Business Litigation
Even in the most contentious of business disputes, the first step is typically to seek an informal resolution. In most cases, it will be in both parties’ best interests to avoid the burdens of litigation; and, with level heads, open minds, and sound legal advice, oftentimes disputing parties can find a way to come to terms and move on.
But, in some circumstances, litigation is unavoidable. Whether it is necessary to seek emergency relief or negotiations have reached an impasse, sometimes, the only choice is to take your dispute to court. While it should be noted that even these types of disputes can be (and often are) resolved via settlement, the following are among the issues that are most likely to require complex business litigation:
Contract and Commercial Disputes that Commonly Result in Business Litigation
1. Breach of Payment or Performance Obligations
Contract disputes are among the most common causes of action in business litigation. From disagreements about the scope of work to differing interpretations of delivery and payment timelines, numerous contract-related issues have the potential to end up in court.
2. Breach of Confidentiality
Confidentiality breaches by vendors, customers, and employees will often lead to litigation as well. Companies must often act quickly to curtail the distribution of their confidential information, and in many cases this means seeking emergency relief in the courts.
3. Breach of Noncompetition and Nonsolicitation Covenants
Noncompetition and nonsolicitation covenants are important contract provisions that protect companies from having their own goodwill, employee development, and customer lists used against them. However, there are limitations on the enforceability of these types of provisions – limitations which vary from one state to the next – and questions surrounding the enforceability of “noncompetes” in particular will often lead to litigation.
4. Misappropriation of Trade Secrets
Similar to a breach of confidentiality, misappropriation of trade secrets is an issue that will often require prompt legal intervention. Companies can actually lose trade secret protection if they fail to timely initiate litigation, so making the decision to file in court after a breach needs to be a top priority.
5. Intellectual Property Infringement
Intellectual property rights – trademarks, copyrights, and patents – are among many companies’ most-valuable assets. From the use of a confusingly similar trademark (or outright counterfeiting) to using a patented invention or copyrighted material without a license, there are a variety of intellectual property-related issues which can cause substantial financial harm that is more than sufficient to warrant federal litigation.
By its nature, fraud is an issue that has a tendency to end up in court. Companies alleging fraud are likely to have suffered substantial damages, and companies accused of fraud are generally not willing to admit to wrongdoing. While a settlement is a possibility, in many cases, the parties will need to get through the discovery process before they have a clear enough picture of the potential outcome in litigation. (Of course, this is the case in many other types of business litigation as well.)
7. Tortious Interference
Tortious interference is a claim against a third party for inducing a breach of contract or other improper act. Allegations of tortious interference are often joined by breach of contract, fraud, and other claims in complex multi-party commercial litigation.
8. Disputes Arising During the Sale of a Business
With millions – if not tens or hundreds of millions – of dollars at play, mergers and acquisitions have the potential to lead to high-stakes litigation. Disputes are common both during the transaction process and after closing, with parties often litigating over contingencies, ambiguous contract language, and other issues.
9. Shareholder and Partner Disputes
Even with the best-laid plans, parties that go into business together will often find themselves at odds. Common issues in partnership disputes and private shareholder litigation include misappropriation of funds, breach of fiduciary duties, conflict-of-interest transactions, financial issues, and disagreements over the direction of the business.
10. Breach of Warranties, Representations, and Indemnity Obligations
The “boilerplate” provisions in commercial contracts – including warranties, representations, and indemnification clauses – are often among companies’ strongest weapons in business litigation. The remedies for breaches of warranties and representations can be substantial, while indemnification clauses can provide for critical shifting of liability from one party to another.
To Litigate or Arbitrate? Check the Dispute Resolution Terms of Your Agreement
When discussing business litigation, it is also important to bring up the topic of arbitration. Arbitration is a form of alternative dispute resolution (ADR) that can be made “mandatory” by the inclusion of appropriate dispute resolution provisions in commercial contracts. If you are considering litigation, or if you are concerned that a counterparty to a contract may be preparing to initiate a dispute, it is imperative to discern whether litigation is an option or the dispute will need to be submitted to arbitration.
But, even when a contract includes a mandatory arbitration provision, this is not necessarily as easy as it sounds. This is because:
- Not all arbitration clauses are enforceable.
- Not all arbitration clauses are drafted clearly enough to avoid questions as to when arbitration is required.
- Not all disputes between contracting parties are contract-related.
In fact, in disputes between commercial parties who have supposedly agreed to mandatory arbitration, one of the first issues to be resolved is often whether arbitration is actually required. When one party wants to compel arbitration and the other prefers to litigate, the question of the enforceability of their arbitration clause can itself lead to litigation in state or federal court.
Contact Oberheiden, P.C. | Federal Litigation Attorneys for Business Disputes
Oberheiden and McMurrey, LLP is a litigation law firm with a multi-state presence that represents businesses of all sizes in complex commercial disputes. Our attorneys have decades of combined experience representing business clients in both state and federal court. If you are facing a dispute and would like to discuss your options with a skilled litigation attorney, we invite you to call (888) 680-1745 or get in touch with us online to schedule a confidential consultation.