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I often find myself reminding clients of the importance of performing at least some basic background checking on any person or party doing business with you (or vice-versa), particularly a new or unfamiliar name; far too often, the initial “vigor or excitement” of a prospective contract or transaction clouds better judgement. And with today’s internet-driven era, even lacking specific contract/legal-related skills or familiarity with basic resources like PACER, one can still simply perform old-fashioned word-of-mouth industry referencing, or a basic online search to find readily available information in the public domain. Analyzing established business practices, conduct and behavior, and any associated litigation, is one key example.
Does that mean if you Google someone and find evidence of a recent or pending legal dispute, there is an issue or problem? Certainly while that should bear further vetting, that is presumptuous and typically not the case, since at one point or another, most parties will find themselves involved in a dispute that may rise to filing thru our court systems. However, as I reminded a client recently, if you search an entity and a half-dozen or more recent or pending legal cases immediately appear, particularly for privately-held or small-to-medium scale businesses (or there is commonality amongst such cases), that should at minimum trigger a “Yellow or Red Flag” in racing parlance to “halt and evaluate further.”
By way of a past example, I had been asked to advise a client on a business asset lease they had identified and already done all of the preliminary work on, a situation that upon further review had many common hallmarks of transactions that can often subsequently go astray, including:
- New relationship
- Lack of client vetting other party
- Role of another commissioned, 3rd party
- Urgency to close transaction
- Reduced budget/pricing
- Preliminary issues with quality control and other asset/operator factors
- Poor communication including frequent debate amongst principals early in negotiations
Ultimately, I reported to the client that each of these of these issues individually warranted concern (although they are commonplace amongst many business transactions), but collectively they compelled reconsideration of an alternate strategy/plan. However, due primarily to time and budget constraints, they requested closing the transaction, which was done. And less than 18 months later… it terminated prematurely in dispute due to deficiencies with the asset, the other party proved to be extremely belligerent and unwilling to reasonably negotiate to mutually resolve the concerns, and my firm was then tasked with mediating a termination of the agreement and relationship – which RESOLUTION successfully accomplished with minimal further financial expense for the client and avoiding any formal legal action by/against the respective parties to benefit of both parties.
However, the client suffered significant direct and indirect subjective and financial losses from the entire matter. And unsurprisingly, upon my own subsequent further analysis of the other party, it turned out they were/are named defendant in numerous pending litigation with various unrelated parties nationwide… over the same basis of dispute (broadly speaking, condition/representation of asset). Whether they are guilty or not in each case will be left up to a settlement or ruling/verdict, but clearly there was a repetitive pattern of business conduct that warranted my original recommendation of an alternate course of action.
Just like any successful partnership – you and your doctor, a pilot and co-pilot or teammates on a professional sports team, business associates need to have a reasonable basis upon which to establish their mutual trust and confidence. So whether done yourself, thru retention of an independent business advisor like ResolutionMM, and/or a specialized financial, legal or other background analyst, employing an appropriate modicum of “due diligence” (or “Crossing the t’s and dotting i’s” as is our mission), can pay significant dividends downstream of any partnership or transaction in potentially saving significant stress as well as time and money – particularly if it involves a new or unknown party.
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January 4, 2019