United States: So Your Business Received A Demand Letter, Now What?

Last Updated: June 21 2017
Article by Marla Bowman

If your business has received a demand letter, I have some good news for you: Your business has not been sued (yet). However, a lawsuit could be in your business's near future.

A demand letter often precedes a lawsuit and usually represents an opposing party's desire to resolve a dispute before involving the court system. A demand letter likely will include an alleged series of facts, followed by potential legal claims, and a demand for specific action or payment in response to the alleged claims. Your business should consider the following when deciding how to respond to a demand letter. These considerations may determine whether the demand evolves into an actual lawsuit.


Because litigation can be draining on your business's resources, it's important to know your business's goals before deciding how to respond to a demand letter. Depending on the circumstances, your business may adopt a strategy that is pro- or anti-settlement. For example, if your business is on the verge of being acquired, it may be in its best interest to resolve the dispute as quickly as possible. In contrast, the demand letter may represent an escalation in an ongoing dispute between your business and the demanding party, who has now involved counsel to resolve the matter. As such, the demand letter may represent an inevitable next step in a lawsuit your business has been expecting. All of these factors could impact your business's objectives.

Location, Location, Location

It's never too early to start considering how location may affect a prospective lawsuit. The location where a lawsuit is filed and tried will impact costs, timing, and most likely the law firm your business decides to hire. If the demand letter involves an alleged breach of contract, the contract may identify a specific location where lawsuits to enforce the contract must be filed.

A demand letter may even state where an opposing party intends to file a lawsuit. But the demanding party's selected location may not necessarily be controlling. For example, your lawyer may determine that your business should not be subject to suit outside of North Carolina. Your attorney also may advise that federal court or North Carolina's Business Court would be the more appropriate forum for a particular lawsuit. Knowing your business's location and forum options for a potential lawsuit may influence your response to a demand letter.

Budget and Costs

Knowing the possible locations for a prospective lawsuit should help your business better evaluate costs. If the party threatening suit is located in California and your business is in North Carolina, you must be prepared to incur significant travel expenses. Even if the lawsuit is filed in North Carolina, attorneys likely will need to travel to California to depose witnesses involved in the case.

When evaluating costs, it's also important to think about any company-held insurance policies that may defray those costs. These policies may require your business to notify the insurer upon receipt of a demand letter.

If the demand letter involves a contract dispute, the contract may have a provision that allows for recovery of attorneys' fees and costs. But remember, these provisions are usually double-edged swords. While your business may be able to recover attorneys' fees if it prevails in the lawsuit, your business also may be responsible for the demanding party's fees if instead that party wins the lawsuit.

Most importantly, a demand letter may represent the least expensive means to resolve a business dispute. As such, it's worth considering what your business is willing to spend to make the dispute go away. Litigation often lasts years, and once it begins, parties typically are driven further into their corners, making resolution difficult until significant legal expenses are incurred. By sending a demand letter, the demanding party is strongly hinting that it's not super gung-ho on filing a lawsuit. If your business isn't eager for a legal battle either, it may be worthwhile to work with the demanding party to resolve the dispute outside of court.

Hiring an Attorney

While an attorney certainly can help guide your business through the issues addressed in the three previous sections, if your business does not already have a trusted legal advisor, it's worthwhile to consider those issues before hiring an attorney. Your business's goals and budget and the prospective location of the lawsuit likely will influence which law firm you decide to hire.

Regardless of whether your business's objective is to pursue early resolution or prepare for a lawsuit, legal counsel is important when responding to a demand letter. Attorneys can help businesses avoid making seemingly innocuous statements in a response letter which could create significant legal issues down the road. While a demand letter may spark a visceral, knee-jerk reaction, emotions should be excluded from any response letter on the chance that such communications could later be used in court. An attorney also can advise your business on the protections afforded to settlement communications under Federal Rule of Evidence 408 so that responses to a demand letter are less likely to be used as evidence at trial.

Even if your business plans to make a settlement offer in response to a demand letter without the aid of legal counsel, settlement communications may fall apart and the opposing party's demand may turn into a lawsuit. North Carolina requires businesses to be represented by an attorney in court. So at some point, hiring an attorney may be inevitable.

One of the benefits of hiring an attorney after receiving a demand letter is the protection afforded to communications with an attorney. For example, if after receiving a demand letter your business requests that every employee write down everything they know about the possible case, all of those notes may be discoverable by the opposing party during litigation. In contrast, if your business hires an attorney, that attorney can interview relevant employees and management about the matter and then those communications should be protected by the attorney–client privilege or work-product doctrine.

Attorneys also can help your business determine counterclaims that may be asserted in response to a demand letter. For example, maybe your business has received a demand letter claiming breach of a contract by your business's refusal to pay for services worth $50,000. If your business has refused to pay because the work performed under the contract was faulty, and your business suffered damages as a result, then not only can your business defend the claim, but it can also counterclaim to recover the damages it suffered as a result of the opposing party's breach of the contract. Notably, counterclaims can be quite useful as leverage in pre-lawsuit settlement negotiations.

Preservation of Evidence

Once your business has notice of a possible lawsuit, it likely has a duty to preserve evidence which could be related to the lawsuit, whether the demand letter from the claiming party addresses that issue or not. The amount of evidence in need of preservation can be fairly daunting. Your business probably has information that may be relevant to a lawsuit stored on office computers, laptops, cell phones, tablets, email accounts, internal drives, and cloud accounts, not to mention paper files, handwritten notes, and more. All of this needs to be preserved. If this information is deleted, lost, or destroyed after receipt of a demand letter, a court may issue an adverse ruling related to the spoliation of this evidence. This is another instance where attorney guidance can help your business after it receives a demand letter.


Some lawyers file lawsuits without first trying to resolve a dispute through a demand letter, leaving an unsuspecting business immediately embroiled in litigation. In contrast, a business in receipt of a demand letter has an opportunity to avoid a lawsuit altogether or at least prepare for an upcoming lawsuit. While receiving a demand letter may not be the best news for your business, at least your business hasn't been sued (yet).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions