Settling a claim may require brandishing “a big stick” or threatening a lawsuit.
By Peter Sanders and Michelangelo Macchiarella
Does one catch more flies with honey? Perhaps. But the stakes in business and civil litigation are much higher than flycatching, and in some cases, settling a claim may require brandishing “a big stick” or threatening a lawsuit.
When does the threat of litigating a matter need something more than “just a letter”? Here, we will explore the use and justification for attaching a draft of a Complaint to a demand letter to let your adversary know you mean business.
The New York State Bar Association issued an opinion on the subject (Opinion No. 1228 (08/30/2021), based on a hypothetical case in which an attorney represents a client with a potential civil claim against a business. Previous demand letters sent to the company generated no response. Nor did phone calls to the owner. Hoping to provoke a reply, the attorney proposes drafting a Complaint and sending it to the company and business owner along with a deadline by which they must settle or face the attached lawsuit. The attorney does not file the Complaint but intimates that failure to settle will prompt its filing—so becoming public record.
May an attorney threaten to sue as a negotiating tactic? According to the Bar Association, sending a demand letter prior to filing a civil claim in court is commonplace. Demand letters, the most common first step in resolving a claim, typically detail the allegations, frame the issues, and start the dispute resolution process—often without escalating to litigation.
While one cannot threaten to present criminal charges solely to gain an advantage in a civil matter (Rule 3.4(e)), one can threaten to file a civil suit in some cases, so long as there are no falsehoods or deceptions (see Rule 4.1 and 8.4(c)).
May an attorney threaten to sue even if their client has indicated that they do not intend to ultimately authorize litigation? At issue is potential misrepresentation that creates an impression of falsehood or deception. Sometimes a client authorizes an attorney to file only if the adversary does not respond in an acceptable manner. In other instances, a client will authorize a lawsuit only as a last resort once all other possible avenues to avoid litigation have been explored.
If your client has absolutely no intention of ever filing a lawsuit regardless of the nature of the response or any lack of receptiveness to the threat, and you still send the adversary a demand letter with a copy of the proposed suit or even the unsupported threat of a suit, that can rise to the level of a false statement of fact.
Are ‘lawyer letters’ even worth it? We routinely discourage clients from sending the often requested “just a letter” offering a pre-litigation settlement. Why? It rarely if ever has the desired effect, and it eliminates the potential advantages of surprise and showing that you really mean business. It may even telegraph your client’s disinclination to pursue their claims vigorously.
The acute awareness evoked by the service of the Summons and Complaint, along with the recognition of the need to engage counsel and expend resources before the deadline for an Answer, creates fertile ground to explore settlement. It creates a short window of opportunity before the defendant must commit substantial time and finances to submitting a formal defense. The pressure of that limited time frame presents an advantage for the plaintiff. The recipient, once merely party to an informal dispute, suddenly obtains the unenviable title of Defendant.
Letters, even from an attorney, don’t present the same level of threat. Sending “just a letter” outlining a proposed settlement previews your bottom line and may implicitly reveal a reluctance to fund litigation. For a party that has voluntarily not met its obligations to your client, thus leading to the dispute and your engagement in the first place, such a letter is often merely seen as a further sign that they can continue to ignore your client with impunity.
Last year, we settled a case for 100% of the relief demanded in a Complaint for Declaratory Judgment. We spent nearly a year trying the get the attention of the defendant corporation and its attorney with everything short of a lawsuit and were largely ignored. We ultimately persuaded our client to forgo further attempts to avoid litigation and authorize us to file the threatened Complaint. It worked! Having been served with a Summons & Complaint, the defendant and their formerly sleepy counsel quickly realized that our client meant business and was willing to put its money where its mouth was. Before the defendant’s time to file an Answer expired their attorney offered to concede our claims and, with minimal negotiation, stipulated to all of the relief we had requested in our Complaint. Our client was thrilled.
In that instance, we did not send the defendant the draft Complaint or even consider doing so, although in hindsight that may have been a possible option. The declaratory judgment action itself was our pre-emptive strike in a contract dispute where the defendants claimed our client owed them money, and that due to the nature of the contract, with a personal guarantee, the liability would increase monthly. To secure the best possible outcome for our client, we had two options:
(1) We could try to wait out the six-year statute of limitations at the risk of our adversary filing suit against our client, potentially as late as the month before it lapsed. However, that strategy would risk the accrual of 5+ years of mounting debt claims. That would weaken our negotiating position, should an action ultimately be filed, as well as create years of anxiety for our client in awaiting the possibility of such a suit; or
(2) We could take the offensive and preemptively seek declaratory judgment that their threatened claims were invalid.
Being “above the v” gave us and our client greater control over the vicissitudes inherent in any litigation. In pursuing this strategy, we demonstrated both our commitment to prosecute and the strength of our claims by reducing them to detailed allegations in a Complaint. Boilerplate conclusory Complaints don’t serve that purpose well. A fully framed and thoughtfully drafted pleading clarifies, for the drafting attorney and their client as well as their adversary, the strength of a client’s claims. It does so more effectively than general conclusory threats, whether in a letter or a boilerplate Complaint. It forces the opposition to consider whether the shot you’ve fired is a dummy warhead—or live ammo. A well drafted pleading reveals that it’s live.
So, should an attorney include a draft of a Complaint to get an opponent’s attention? It’s a question that one must traverse with care. Certain circumstances might warrant the threat and inherent time and expense. The attorney’s letter, or a phone call, relies on the hope that such efforts and expenditure of resources will be unnecessary. But how often does that actually bear fruit? And at what cost to the settlement value? Without a concrete threat, the up-front elimination of the costs associated with litigation are often baked into the terms of settlement, thereby reducing the return. A low investment, avoiding litigation costs, may result in a low yield. There is the danger, of course, either with “just a letter” or even one with a draft Complaint attached, that you may lose the first strike advantage. The defendant may potentially take protective measures or countermeasures, such as filing their own Complaint first or avoiding service of yours, or the costs of drafting a Complaint may have been incurred unnecessarily. But these possibilities all exist at any stage of litigation or with any strategy. The draft Complaint is one additional weapon to consider in a litigator’s arsenal.
Evaluate each ‘just a letter’ on its merits. Recently, the same client discussed the possibility of “just a(nother) letter” with me. While the conventional course of action is not to send “just a letter,” as we reviewed the situation, the new matter seemed to present another rare condition where such a draft Complaint may be considered an improvement over another “lawyer letter.”
In that case, the client had a solid claim. He was willing to accept a reasonable offer if it meant avoiding extensive litigation. Drafting a Complaint is not an insignificant investment—often too great to not actually serve it once drafted. However, in this instance, the investment was warranted. It signaled that the client was willing to fund the litigation and has shown a commitment to doing so. That can be a powerful bargaining tool.
Ultimately, in civil court, as in war, once you’ve demonstrated a successful test of a weapon, the odds of having to use it are greatly reduced. A draft Complaint can be a powerful tool.