Should You Sue Your Client or Customer?

Business owners, executives and managers are well aware of something more frustrating than rush hour traffic: clients or customers who don’t fulfill their obligations.  So, what are your options?  One option is to take legal action against your client or customer.  However, before you do so, consider these 6 steps.

1. If you have a written contract with the client, review it closely

If you have a contract with your customer, before you toss around accusations you should review it to see what your client was legally required to do, while evaluating your obligations and remedies under the contract.  For example, some contracts contain provisions which dictate how any disputes must be resolved (e.g., arbitration versus litigation), and where such disputes must be resolved.

2. Evaluate whether you are totally blameless

Before suing a client, you should assess your own performance and management. 

• Did you carry out your end of the deal?
• Did your client raise any concerns about your performance?

Asking yourself these tough questions can help avoid a messy lawsuit in which your client files counterclaims against you for breach of contract.     

3. Attempt to reach an informal resolution

If you have a dispute with your client, working out the problem informally can lead to prompt resolution, or at least a resolution which saves you the cost and time associated with a legal dispute.

Find out why your client is not paying or otherwise breaching the agreement. 

• Is your client unhappy? Do they have genuine complaints? Evaluate their position. If you believe the client’s displeasure is not warranted, then proceed to evaluate the other issues raised in this article. 
• Does your customer lack the ability to pay? Set up a payment plan. A little effort and empathy can go a long way. Get their obligations reduced to writing with consequences (e.g., reimbursement of attorney fees if they do not comply with the payment plan).  

4. Get active

Between assuming all is lost and filing a lawsuit, there are some additional steps to consider:

• Have an attorney send your client a letter. Sometimes this alone is enough to motivate them.
• Follow up with your client (resend invoices and/or copies of contracts) and have the individual in charge of the account check in with them.
• Offer a discounted payment as a one-time-only offer. Have an attorney assist you in drafting related documents, such as a release of claims to be signed by the client to ensure you have no issues with the client in the future based upon past performance.

5. Evaluate the implications of filing a lawsuit

If you do not have documentation of the client’s failures, or evidence exists of your own failures, it’s likely that you should not pursue legal action. 

For a defamation case, there should be evidence of statements that are:

• Untrue
• Maliciously or negligently made
• Harmful to business

If you do have adequate documentation, ask what a lawsuit would do to your business.  Suing a customer may not only result in a loss of future customers, it might also damage your brand.  Assume a lawsuit will generate a great deal of negative press.  Even the most tactful publicity director will have difficulty wiping away the image of “strong corporation bullies small-town client”.  Evaluate the chances of winning your case, and engage in an intensive cost-benefit analysis.  You should never invest more than you are owed into small claims court.  While the process is not typically expensive, you should calculate the exact cost.  If your customer owes substantial fees, maybe a lawsuit is best.  If you can’t identify your claim or will spend more than the bill in order to prove your case, steer clear from legal action.  

6. Damage control

The absolute last thing you want after dealing with a bad payer or bad review is another bad payer and bad review.  You’ll need all hands on deck to help your company’s image, regardless of whether or not you pursued legal action.  Again, evaluation of your needs is key.  Oftentimes poorly-written, public replies to disgruntled clients tank businesses.  The simple question is what course of action is vital?  A one-size-fits-all statement backing up your commitment to service?  An overhaul of your employees’ customer service training?  The implementation of a more intensive client background check?  These are questions that you and your legal counsel can answer.  In the end, only take actions that are calculated and necessary.

For questions about filing a lawsuit against a client or customer, contact an attorney at Goosmann Law Firm today to help you navigate the process.