Read how one client was able to quickly and inexpensively attain a profitable outcome to his business dispute, with our creative problem-solving…and why you should care.
Our client came to us after a trusted company officer decided to leave and start her own competing business. The departing officer had intimate knowledge of our client’s customer base, including knowledge of which customers were the most profitable. She also knew which company employees provided services to those customers. The departing officer also solicited certain employees to join her in her new business, which in turn resulted in our client’s loss of certain key customers with whom those employees had been working.
Before coming to us, our client had a Non-Disclosure Agreement in place with the departing company officer, but no non-compete agreement. The potential financial loss to our client from the loss of the key customers was enormous. However, the potential cost of full-blown litigation to enforce our client’s rights was also enormous. And, because of the strong California public policy in favor of free competition and the right to work anywhere one chooses, unfair competition claims are very difficult to win.
To keep our client’s costs down, we developed a strategy to resolve the dispute informally. The starting point was to prepare and send a strongly-worded and well-researched “cease and desist” letter to the competing company, laying out our position as to what the company had done, and why it was in violation of California law. The letter also put the competing company on notice that we would be holding it responsible for all lost profits and other damages resulting from its unfair competition. That in turn resulted in a written response from the competing company’s lawyers. While the opposing lawyers essentially took the position that their client had done nothing wrong, a line of communication had now been opened. Through a series of phone calls and e-mails with the opposing lawyers, we proposed a framework
for possible compromise: Subject to agreement on details, our client would consider a profit-sharing arrangement. For a fixed period of time going forward, the competing company would share with our client the net profits from the key departing customers.
The opposing lawyers responded immediately, and positively, to our proposal. In a spirit of trying to reach a business-based solution, it was also agreed that the principals of the two businesses would meet to negotiate the terms of a profit-sharing arrangement. The meeting was held in our client’s office, a series of joint sessions and separate caucuses were held (which was essentially a “mediation without a mediator”), and an agreement was reached on terms. The agreement was later formalized in a written settlement agreement.
Our client benefited by gaining a revenue stream from the departing customers, without incurring any costs of business to produce that revenue. The competing business benefited by keeping at least a portion of the revenue from the departing customers. Both clients benefited by bringing certainty to an uncertain litigation outcome; by saving the enormous legal fees that both sides would have incurred had they chosen to go down the litigation path; and by not having to embroil their customers in the dispute. This was a true “win/win” outcome – which only became even better for our client when, a few months after
the agreement was inked, the competing company went out of business and our client’s key departing customers came back!
THE TAKE-AWAY MESSAGE
Both sides to a dispute can benefit from early efforts at informal resolution, especially when those efforts include a business-based, creative compromise.
WHAT THIS MEANS TO YOU
If you need legal help with your dispute, or any with your business transaction or estate planning, contact me at [email protected]