Business Litigation Demand Letter

Unfortunately, disputes are inevitable if you operate a business for any length of time. While most disagreements can be resolved quickly and informally, you may find yourself dealing with a business dispute that requires the assistance of a business law attorney. Often, the first step your attorney takes is to send the other party a “demand letter.” Understanding the purpose and value of a demand letter can help you understand the steps taken to try and resolve your business dispute.

A demand letter is a formal, written communication sent by one party in a legal dispute to the other party outlining the nature of the dispute, explaining the legal basis for a claim, and providing the opposing party with an opportunity to resolve the matter before litigation becomes necessary. As the name implies, a demand letter typically “demands” that the recipient take specific action to avoid further legal action. Demand letters can be used in a wide variety of commercial disputes, including breach of contract claims, unpaid invoices, partnership and shareholder disputes, and employment-related disagreements.

A formal demand letter, written by an attorney, provides a party to a legal dispute with several important benefits, including:

• Notice: A demand letter puts the opposing party on notice that the dispute is serious and will not go away on its own. It can also serve to notify the appropriate individual within a business organization who may not have been aware of the dispute.
• Opportunity: A demand letter gives the parties an opportunity to avoid the time and expense of litigation by clearly identifying the issues and proposing a resolution.
• Good Faith: Sending out a demand letter allows a business to demonstrate that it made a good-faith effort to resolve the dispute before filing a lawsuit, which is looked upon favorably by courts.
• Documentation: A formal demand letter can help establish a documented timeline of communications regarding the dispute.

Although every situation is unique, most demand letters include several key components, including:

• Facts: The letter should provide a detailed explanation of the facts, including dates, communications, contractual provisions, and other relevant information that led to the dispute.
• Legal Basis: An explanation of why the sender believes the recipient is legally responsible. For example, the sender might claim that the recipient breached a contract or violated a non-disclosure agreement.
• Damages: The letter should clearly identify the losses or damages the sender has suffered as a result of the alleged breach, violation, or other misconduct.
• Demand: A demand letter “demands” that the recipient does something specific, such as pay the sender a specific amount of money, cease doing certain conduct, or perform according to the terms of a contract.
• Deadline: The recipient is given a deadline or a specific timeframe within which to comply with the stated demand along with notice that the sender will pursue additional legal options if the recipient fails to comply.

Ideally, the recipient of a demand letter immediately recognizes the validity of the claim and complies with the stated demand. When that is not the case, the demand letter may trigger negotiations that ultimately result in a settlement. If a favorable settlement is not forthcoming, your attorney will discuss further legal options available to you, including initiating a formal lawsuit.