When Does a Contract Breach Justify Litigation? A Cost-Benefit Analysis

Not Every Contract Breach Warrants Litigation

Contracts are breached every day in business. Some breaches are minor, cause minimal harm, and are easily resolved. Others are material, cause significant financial damage, and require litigation to obtain compensation. Understanding when a breach justifies the time and expense of litigation is critical to making sound business decisions.

The Traditional Cost-Benefit Problem with Hourly Billing

Why Many Valid Breach of Contract Claims Go Unpursued

With traditional hourly billing, many businesses face an impossible equation:

This calculation causes many businesses to absorb contract breaches rather than pursue litigation. The wrongdoer faces no consequences, and you’re left with uncompensated losses.

The Hourly Billing Trap

Hourly billing creates several problems for breach of contract litigation:

Upfront Costs – Retainers of $30,000 to $75,000 before any work begins

Escalating Fees – Monthly bills of $15,000 to $50,000 throughout litigation

Uncertainty – No guarantee that fees won’t exceed damages

Cash Flow Drain – Resources diverted from business operations

Risk – You could spend $200,000 in legal fees and still lose the case

These factors make litigation economically irrational for many breach of contract cases, even when the breach is clear and damages are substantial.

How Contingency Representation Changes the Equation

Melmed Law Group’s contingency model eliminates these barriers. The lawyers at Melmed Law Group take on breach of contract cases on contingency, which means the firm’s compensation is tied directly to the results obtained for you. If Melmed Law Group recovers money through settlement or judgment, the firm receives a percentage of that recovery. If Melmed Law Group doesn’t recover anything, you owe nothing in attorney’s fees.

Contingency representation makes breach of contract litigation economically viable by eliminating upfront costs and financial risk.

Factors to Consider When Evaluating Breach of Contract Claims

Damages: Are They Substantial and Provable?

The first question is straightforward: How much money did you lose due to the breach?

Calculating damages:

• Direct losses (money paid and not received, goods not delivered, etc.)
• Consequential damages (lost profits, business opportunities, etc.)
• Additional costs incurred due to breach
• Interest on unpaid amounts

Generally speaking, damages must be provable with reasonable certainty. Speculative or uncertain damages are difficult to recover.

Minimum damage thresholds vary – Small breaches causing de minimis harm typically don’t justify litigation. Cases with damages under $50,000 should be carefully evaluated. Cases with damages exceeding $100,000 more clearly justify litigation, especially with contingency representation.

Liability: Is the Breach Clear and Provable?

Assess the strength of your liability case:

Strong liability cases involve:

• Clear, unambiguous contract terms
• Undisputed breach of those terms
• Written evidence of the breach
• No legitimate defenses available to the breaching party
• No contributory fault on your part

Weaker liability cases involve:

• Ambiguous contract language subject to interpretation
• Factual disputes about what occurred
• Potential defenses (impossibility, frustration of purpose, etc.)
• Your own potential breaches or failures to perform

The lawyers at Melmed Law Group carefully evaluate liability before accepting cases on contingency. If the firm takes your case, it demonstrates confidence in proving the breach.

Defendant’s Ability to Pay: Can You Collect a Judgment?

A judgment is worthless if the defendant cannot pay. Evaluate:

Defendant’s financial resources:

• Business assets and cash flow
• Personal assets (if personal guarantees exist)
• Insurance coverage
• Property that can be attached
• Ongoing revenue streams

Red flags that suggest collection problems:

• Defendant is insolvent or near bankruptcy
• Assets are minimal or hidden
• Business is closing or has closed
• Defendant has history of judgment avoidance

Melmed Law Group evaluates collectibility before taking cases on contingency because the firm only succeeds if recovery is actually obtained. If the lawyers at Melmed Law Group accept your case, the firm believes the defendant has resources to pay.

Available Evidence: Can You Prove Your Case?

Litigation requires proof. Assess your evidence:

Strong evidence includes:

• Written contract with clear terms
• Documentation of breach (emails, correspondence, delivery records, etc.)
• Financial records showing damages
• Witness testimony corroborating facts
• Expert opinions (if needed) supporting damages or liability

Evidence problems include:

• Oral contracts without written confirmation
• Lack of documentation about what occurred
• Destroyed or unavailable evidence
• Adverse witnesses
• Difficulty proving damages

The lawyers at Melmed Law Group assess available evidence during initial consultation. Strong evidence makes contingency representation more likely.

Comparative Fault: Did You Also Breach?

Generally speaking, if you also breached the contract, this complicates liability and may reduce recoverable damages.

Questions to consider:

• Did you fully perform your obligations?
• Were you excused from performance?
• Did your conduct contribute to the dispute?
• Can the other party assert valid counterclaims?

Be candid with the lawyers at Melmed Law Group about any potential comparative fault. The firm needs complete information to evaluate your case properly.

Contractual Provisions: Attorney’s Fees and Dispute Resolution

Review your contract for provisions that affect litigation:

Attorney’s Fees Clauses – Many contracts provide that the prevailing party recovers attorney’s fees. This can make litigation more attractive (you may recover fees if you win) or more risky (you may pay their fees if you lose). With contingency representation at Melmed Law Group, attorney’s fees clauses typically mean additional recovery potential if you prevail.

Arbitration Clauses – Contracts may require arbitration instead of litigation. Arbitration can be faster and less expensive, but forfeits some procedural rights and appeal opportunities.

Choice of Law and Venue – These provisions determine which state’s law applies and where the case must be filed, which can significantly affect outcomes.

Limitation of Damages – Some contracts limit recoverable damages, which affects the potential recovery.

Business Relationship: Do You Want to Preserve It?

Consider whether preserving the business relationship matters:

Litigation will likely end the relationship – Once lawsuits are filed, business relationships rarely survive. If ongoing business is important, explore settlement before litigation.

Sometimes relationship ending is acceptable – If the breach already destroyed the relationship, or if you don’t want to continue business with a party who breached, litigation may be appropriate.

Alternative Dispute Resolution Options

Before litigation, consider:

Negotiation – Direct discussions between parties to resolve the dispute

Mediation – Facilitated negotiations with a neutral mediator

Arbitration – Binding decision by arbitrator (if contract requires or parties agree)

These options may resolve disputes faster and less expensively than litigation. However, they require the other party’s cooperation. If the breaching party refuses reasonable resolution, litigation may be necessary.

When Breach of Contract Litigation Clearly Makes Sense

Litigation is most clearly justified when:

Substantial Damages – You suffered significant financial harm, typically $100,000 or more

Clear Breach – The breach is undisputed or easily provable with strong evidence

Solvent Defendant – The breaching party has assets or resources to satisfy a judgment

Good Evidence – You have documentation and proof to establish breach and damages

No Reasonable Settlement – The breaching party refuses to negotiate or offers inadequate settlement

Contingency Representation Available – You can pursue the claim without financial risk through contingency representation

When these factors align, Melmed Law Group can typically accept the case on contingency. The lawyers at Melmed Law Group take on breach of contract cases on contingency, which means the firm’s compensation is tied directly to the results obtained for you. If Melmed Law Group recovers money through settlement or judgment, the firm receives a percentage of that recovery. If Melmed Law Group doesn’t recover anything, you owe nothing in attorney’s fees.

When Breach of Contract Litigation May Not Be Worth Pursuing

Litigation may not be advisable when:

Minimal Damages – The financial harm is small relative to the time and effort required

Uncertain Liability – The breach is disputed and liability is unclear

Uncollectible Defendant – The breaching party lacks assets to pay a judgment

Weak Evidence – Proof of breach or damages is insufficient

Strong Defenses – The defendant has valid legal defenses that may succeed

Cost Exceeds Benefit – Even with favorable outcome, net recovery would be minimal

However, even some of these scenarios may be viable with contingency representation. The lawyers at Melmed Law Group evaluate each case individually to determine whether contingency representation makes sense.

The Cost-Benefit Analysis with Hourly Billing vs. Contingency

Example 1: $300,000 Contract Breach

Example 2: $750,000 Contract Breach

The contingency model provides superior outcomes because it eliminates risk and preserves capital while ensuring meaningful net recovery.

How Melmed Law Group Evaluates Breach of Contract Cases

The lawyers at Melmed Law Group consider multiple factors before accepting breach of contract cases on contingency:

Merits Assessment – Is liability clear? Is breach provable? Are damages substantial and calculable?

Evidence Evaluation – What documentation exists? Can witnesses corroborate facts? Is proof sufficient for trial?

Defendant Analysis – Can the defendant pay a judgment? Are assets available for collection?

Damage Calculation – Are damages sufficient to justify the case? Can damages be proven with reasonable certainty?

Risk Assessment – What defenses might the defendant raise? What’s the likelihood of success at trial?

Steps to Take When Contract Breach Occurs

Document Everything

Immediately begin documenting the breach:

• Save all correspondence with the breaching party
• Gather the written contract and related documents
• Document damages with specificity
• Collect evidence of the breach
• Preserve electronic communications
• Identify potential witnesses

Communicate the Breach

Notify the breaching party in writing:

• Identify the specific contractual provisions breached
• Describe the breach clearly
• Demand performance or compensation
• Establish a deadline for response
• Preserve this communication as evidence

Calculate Your Damages

Determine your financial losses:

• Direct damages (money lost, costs incurred)
• Consequential damages (lost profits, lost opportunities)
• Incidental damages (costs of finding alternative arrangements)
• Interest on unpaid amounts
• Any other contractual damages

Consult with Melmed Law Group

Contact the lawyers at Melmed Law Group for a free initial consultation. The firm will:

• Review your contract and the breach
• Assess the strength of your case
• Evaluate available evidence
• Determine whether contingency representation is appropriate
• Explain your options and potential outcomes

Remember: Melmed Law Group takes on breach of contract cases on contingency, which means the firm’s compensation is tied directly to the results obtained for you. You can pursue your rights without financial risk.

Common Breach of Contract Scenarios That Justify Litigation

Vendor Failures

Vendors who fail to deliver goods or services as contracted, causing business harm:

• Non-delivery of critical materials or inventory
• Defective products that cause losses
• Service providers who fail to perform
• Suppliers who breach exclusive arrangements

Customer/Client Breaches

Customers or clients who breach payment or performance obligations:

• Non-payment for goods delivered or services rendered
• Breach of long-term supply agreements
• Termination of contracts without cause
• Failure to accept contracted goods or services

Partnership/Joint Venture Breaches

Business partners who violate partnership or joint venture agreements:

• Failure to contribute promised capital
• Breach of non-compete provisions
• Violation of profit-sharing arrangements
• Failure to perform agreed obligations

Commercial Lease Breaches

Landlords or tenants who breach commercial lease terms:

• Landlord failure to provide promised services or maintain premises
• Tenant abandonment or non-payment
• Breach of use restrictions
• Failure to make required improvements

Employment and Non-Compete Breaches

Former employees or contractors who breach agreements:

• Violation of non-compete agreements
• Breach of confidentiality provisions
• Solicitation of customers or employees
• Use of trade secrets or confidential information

For all of these scenarios, Melmed Law Group may be able to provide contingency representation. The lawyers at Melmed Law Group take on breach of contract cases on contingency, which means the firm’s compensation is tied directly to the results obtained for you.