Demand letter. Cease and desist letter. Lawyer letter. Nastygram. Howler. They have many names, but are one concept: a threatening letter that you receive on a lawyer’s letterhead demanding that you do X, Y and Z, or face the consequences.
What should you do if you receive a demand letter?
Receiving a demand letter means that you are now in pre-litigation. If the issue is not resolved or the record corrected, the likely next step is litigation.
The first step is to read the letter and take it seriously (at least at first). What is the letter demanding? How would one evaluate whether the allegations in the letter are true? What evidence exists or might exist? Does the letter ask for a response by a certain date?
After you evaluate those questions, you should have a better idea of the type of lawyer you are looking for. Will you need a specialist who knows about a particular area of law? Or will a general business litigator (like yours truly) be able to handle it?
Find A Lawyer. You next need to start searching for a lawyer. A lawyer will be able to translate the demand letter into English, evaluate the legal claims made in the letter, and develop a strategy for responding to the letter. Congrats, you already find yourself on the website of a Harvard-educated lawyer who may be able to help you if you are in California.
Fact Investigation. Your lawyer should promptly investigate the factual allegations in the letter and be prepared to respond to those allegations. Figure out who in your organization is best suited to respond to the allegations in the letter, and delegate more responsibility to that person. They are going to be a fact witness anyway so they might as well start being your company’s go-to person on this issue.
If you are an executive and not the one best suited to investigate the letter, you should think twice before getting too educated on it. Delegate that responsibility to someone else who is better suited to know the facts in the matter of course. Doing so will enable you to truthfully testify at your deposition about your level of knowledge, and to avoid being a key witness in the case. I hate to say this, but juries are not typically too fond of executives. If you are an executive, the way that you learn about the case should be mediated through an attorney. You may still be required to testify about what you know, as information does not become privileged simply because an attorney communicated it to you, but you will not have to testify about how you know it because that information is privileged.
Understand Attorney-Client Privilege, and Protect It. The lawyer should lead the fact-finding investigation. Any people knowledgeable about the incident should speak with the company’s lawyer and not with non-lawyers about the matter. Information should remain siloed to the extent possible. At a deposition, you can expect to be asked who you spoke with about the matter, what you said to them, and what they said to you. You will be required to answer those questions. However, conversations with a lawyer are protected from disclosure by the attorney-client privilege.
Legal Analysis. You should ask your lawyer to analyze the legal issues in the letter, if they are not doing so already. Ask them to evaluate the strength and weaknesses of the arguments. The instinct of many lawyers is to craft the best argument against anything they read in a demand letter, and not to think much about whether the argument will win. Asking your lawyer to predict which side will prevail if the case went to trial is an entirely different exercise, and will better inform you when you are making the strategic decision about what to do next.
Strategy Analysis. If the allegations are flimsy, a strong response backed up by evidence may make the whole issue go away. If the allegations are very bad and the evidence is damning, it may make strategic sense to try and reach a settlement before any lawsuit is filed. Once a lawsuit is filed, the allegations are in the public record forever.
A Demand Letter Demands A Response. You and your lawyer should prepare a response to the demand letter that includes evidence and legal analysis explaining why their demands are unfounded. Leaving a letter unanswered typically does not look good. It begs the question of why a response was not prepared. Perhaps the reason is that the allegations in the letter are true?
Prepare For Litigation. Responding to a demand letter may make the case go away, but that is unfortunately not the most likely scenario. Once a lawyer has gone through the trouble of preparing a demand letter, they are invested in the matter, and it is likely that a lawsuit will ultimately be filed. It is important to have reasonable expectations about what can be accomplished by responding to a demand letter. Responding to a demand letter can educate the plaintiff’s lawyer about the weaknesses in their case and make them reevaluate whether it is worth the trouble to bring the case. If the letter is particularly well-written, it can inform them of the lengths to which you are willing to defend yourself. Deterrence and posturing are the name of the game.
Preparing for litigation includes setting aside capital reserves to pay legal fees and court costs. These costs will start to rise as soon as your lawyer starts work on your case, increase after a complaint is filed, and last until the case is dismissed or resolved at trial.
Preserve Evidence. Demand letters may put you and your business on notice to preserve evidence. Destruction of evidence after receiving a demand letter, even if done in the ordinary course, could be construed as evidence spoliation and be held against you. Evaluate if your standard document and e-mail disposal protocols may result in the destruction of relevant documents and, if so, put them on pause for the duration of the lawsuit.
What should you not do?
Do Not Delay. If you do not respond in a timely manner, the other side may proceed and file a lawsuit. Then you would really need to find a lawyer in a hurry because you would either have 21 days in federal court and 30 days in California Superior Court to respond to retain a lawyer, investigate the matter, and respond to the complaint.
Do Not Call. You should not pick up the phone and call the lawyer or the lawyer’s client. Anything you say can be used against you. As a statement of a party opponent, those statements would likely be allowed into evidence under a hearsay exception. They may mischaracterize your words, in which case it becomes a “he said, she said” situation. My most foolish clients pick up the phone and try to talk their way out of it with the plaintiff’s lawyer. It never works unless you are willing to capitulate on everything.
Do Not Write. You should not email the lawyer or the lawyer’s client for a similar reason. A hearsay exception would apply. With a written response, the issue is less about the other side misconstruing your words, and more to do with you accidentally making admissions that you ought not or need not make. Legal writing is different from ordinary language. Who bears the burden of proof, for example, is something that a layperson may not think about when crafting a response to a demand letter, but that will be in the back of a lawyer’s mind as they respond.
Do Not Record. You should not try to record anyone. California is a two-party consent state, which means that it is illegal to record a conversation without the consent of all parties involved. This includes private conversations, telephone calls, and conversations where one party may reasonably expect no one else is listening.
What should I do next? Send me an email at [email protected] or give me a call, and we can start talking about what to do next. When you call, please be prepared to leave a brief voicemail in the event that I am attending to another matter. If it is something I can help you with, I am happy to help. If not, I can help point you in the direction of lawyers who can help you.