Through a comparison of two equipment leasing companies, this article illustrates how a simple ethical choice — owning up to an employee’s mistake versus choosing to fight—can determine whether a business thrives or collapses.
This is a story about two companies who had similar legal problems. One chose the high road; the other, the low road. It is a lesson about ethics, morality, common sense and doing the right thing.
The backstory: two leasing companies faced the same dilemma. An overzealous salesman had verbally misrepresented the cost of financing on an equipment lease. The salesman had “left the building” and now there was no one at the company quite sure why it happened, and whether it was intentional. Since (operating) equipment lease agreements traditionally do not include interest rates, the lessee signed the documents. Later, the lessee discovered a discrepancy between the interest rate (or, if you will, implicit interest rate, in the contract) and what was orally represented to him by the errant salesman.
Analyzing the cost of the mistake, it appeared to be about $55k for Leasing Company A (“LCA”) and $35k for Leasing Company B (“LCB”).
Both companies asked me to assist. Of course, neither LCA nor LCB are happy. We discuss the reasons the customers are “100%” wrong and the available factual and legal defenses raise. For example, leases do not have interest rates; the salesman’s representation referred to the buy, not the sell, rate; the lease requires jurisdiction in California, not the lessee’s state; the lessee lied on its credit application. Blah blah blah.
My advice to both clients is admit nothing but offer to settle for the difference ($55k/$35k). It made economic sense because it left both companies with a reasonable profit margin, ended the problem quickly, and avoided the risk of an adverse judgment and reputational damage. LCA agreed with me and the dispute was resolved in a week. The attorneys’ fees were less than $1000 all in. Over and done.
LCB wanted to fight because, of course, they were “right.” And perhaps they were. But, the salesman was gone, without explanation. They do not want me to talk with him, another “mystery.”
I don’t like mysteries, unless it’s a book, a movie, or a tv show. Then it’s someone else’s problem.
In all fairness, the lessee in the LCB case was patently unreasonable and an incredibly annoying human being, probably exacerbated by LCB’s refusal to refund the $35k. It is unclear to me why that reasonable request was refused, but it happened before my involvement.
The next settlement request was for $2.5 million!
That was absurd for numerous reasons, none of which mattered to the plaintiff and its counsel. At the settlement conference, they lowered their demand to $1.5 million, and eventually to $350k.
We went to trial. Plaintiff won. Lo and behold, the judgment against LCB was for $35k (the amount plaintiff initially demanded, and which I urged the company to accept). But, by then, plaintiff had dug in, out of sheer spite and vitriol. Although the judgment was for only $35k, the parties, collectively, probably spent over $250k. A victory for the attorneys, you might say. Not in my book. For one, it was one of the most vexing cases I had ever litigated. The plaintiff was batsh*t crazy, his attorney a complete puppet, and my client . . . well, let’s just say they stiffed me for almost $40k. Now they are out of business. If they had only done things right from the start, like LCA, they might have settled the case, they could still be in business, and they might still have me for an ally. Instead, they lost the case, their business, and their attorney.
Bottom line, lying does not pay. If you make a mistake, fix it, don’t hide it. Everyone makes mistakes. That’s why pencils have erasers. Admit it, correct it, and move on. Or pay the consequences.
The characters referenced in this article are fictional. Any similarity between them and real persons is purely coincidental.
This article is presented by the Law Offices of Kenneth Charles Greene. All copyrightable text, the selection, arrangement, and presentation of all materials (including information in the public domain), and the overall design of this presentation are the property of the Law Office of Kenneth Charles Greene. All rights reserved. Permission is granted to download and reprint materials from this article for the purpose of viewing, reading, and retaining for reference. Any other copying, distribution, retransmission, or modification of information or materials from this article, whether in electronic or hard copy form, without the express prior written permission of Kenneth C. Greene, is strictly prohibited. The materials available from this article are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. Use of and access to these materials does not create an attorney-client relationship between the Law Office of Kenneth Charles Greene and the user or viewer. The opinions expressed herein are the opinions of the individual author.
