How AI Saved My Company From a 2-Year Litigation Nightmare

After 2+ years and a tremendous waste of energy and money, my firm Calm Company Fund resolved a lawsuit against us on very favorable terms.

What started as one of the most challenging periods of my life became an unexpected masterclass in using AI to level the playing field against well-funded opponents. If you’re an entrepreneur, especially one without a massive legal budget, this story contains lessons that could save your company.

The Delaware legal system is fundamentally broken for defendants. Due to the ironically labeled “American Rule,” even if you win, it’s extremely rare for the other side to have to cover your attorneys’ fees, much less compensate you for lost time and energy. The best case scenario is spending a small fortune to maintain the status quo of: not guilty of anything. By and large, the U.S. legal system seems to imbue people and companies with a strong right to file dumb lawsuits, even if they are mostly fabricated or based on incredibly weak claims.

And the legal costs to defend against a lawsuit all the way through trial can be enormous. $1 million is a reasonable expectation.

“But wait, if the lawsuit is truly dumb, won’t a judge just ‘throw it out’?“

This is the first question you get from anybody who has not actually had to interact with the U.S. legal system. And, yes, while there are two primary opportunities for a judge to throw out a case without it going to a jury trial, once you look at the basic details of each phase, you realize that they are pretty poor protection to defendants from the cost of a defense. Let’s look at the two of them.

Motion to Dismiss: This is usually what folks who don’t have legal experience are thinking of when they think of a judge throwing out a dumb lawsuit. That somebody will file a lawsuit with basically no actual supporting facts or evidence or founded legal claims, and a studious judge will look it over and say this is BS and throw the case out. It happens relatively early on in the process. And it’s true that if you win a motion to dismiss, you will be able to wrap the case up quickly without too much cost. But here is the standard in Delaware for winning a motion to dismiss, and the standards are pretty similar in other U.S. jurisdictions.

The court must accept all well-pleaded factual allegations as true, draw all reasonable inferences in the plaintiff’s favor, and dismiss the complaint only if the plaintiff could not recover under any reasonably conceivable set of circumstances.

Put another way, you basically have to accept almost all of the entire initial lawsuit as true, in particular, the facts being alleged as true. And then determine that even if all of this stuff was totally true, the case should still not proceed. This really only works if there are technical flaws in the lawsuit that render the entire thing invalid regardless of the truth of the matter. A classic example would be that this is a federal issue being filed in a state court, or vice versa, or that the statute of limitations has passed, or that the plaintiff does not actually have standing to bring this lawsuit even if what they say happened, happened. It cannot in any way look at the truth or falseness of the claims being made or at the real meaningful validity of the legal arguments being weighed. All of those have to simply be accepted as true, and otherwise you basically can’t win a motion to dismiss.

Unfortunately, if you can’t win a motion to dismiss, you will essentially be forced to move to discovery and several other shorter phases of the trial. But discovery ends up being an incredibly time-consuming and expensive process where you’re forced to hand over all sorts of internal documents and communications and all sorts of things that could potentially be relevant to the lawsuit.

There can be plenty of fights over what does or does not get included there, and you also typically have to involve third-party vendors to ensure that it is happening appropriately. And all this stuff is incredibly expensive, potentially to the tune of hundreds of thousands of dollars that you are forced to do before you can make any further arguments that this case should be over.

Summary Judgement: Once discovery is over, both sides would have an opportunity to file a motion for summary judgment. You have probably at this point already spent months or maybe up to a year of work and hundreds of thousands of dollars, and now this is your first opportunity to make a strong argument that the legal claims against you are so weak that they should be thrown out. Here is the standard for it:

“The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.”

Summary judgment is a two-part standard, and you have to win both parts in order to win summary judgment.

The first argument you need to make is that there are no genuine issues of material fact. So you essentially need to persuade the judge that the facts that they need to understand in order to rule on the case are known and not disputed between the two parties. You, in this case, can’t really make any fact-based arguments. If one party is alleging that somebody said something and the other party says, “Well, we didn’t say that,” that is a disputed fact. That’s the kind of thing that a jury trial will need to hear evidence and look at testimony and do all that to determine facts. So you need to argue that all the facts that you need are here and are undisputed. For example, if all the information is in contracts which we have the text of and emails that we have the text of, and certain things are not disputed between the two parties, then you have to establish that there is not any fact-based questions that need to be sorted out by a jury trial. And you then also need to win the idea that, based on these non-disputed facts, you should win as a matter of law. So you really can only be making arguments about the legal invalidity of the case against you, not about the truthiness of the case against you. This can be an incredibly high bar to clear because most cases are probably going to have some disputed facts. So even if you have an incredibly compelling case here, you probably will have a tough time winning summary judgment if there are any material facts that you know the parties are disputing. This is your second and potentially last time to have a judge throw the case out before it goes to a jury trial, and in both cases, the standard for the judge to throw it out is just incredibly high. The odds are very high that you’re going to continue having to go through the case process and continue spending a lot of money unless you come to a settlement.

So here’s the asymmetric trap every defendant faces: Defending yourself all the way through trial will definitely be incredibly expensive, no matter how strong your case is. The chance of losing in a jury trial is always more than 0%, and even if you win, you will almost certainly not be able to recover your legal costs. So the Prisoner’s Dilemma most defendants face is: Do you want to pay us some amount for a 100% chance of making this go away now, or spend much more money with at least some chance of losing at trial? This is why ~98% of civil cases settle before trial.

Founder Takeaway #1: Understanding this reality has profound implications for how you structure deals and contracts. The actual language of a contract almost doesn’t matter unless the underlying issue is worth $2-3 million or more. No matter how iron-clad your contract language, the other side can always raise enough doubt to force the matter to trial, and it can cost $1 million+ to litigate through completion.

This means contract disputes over smaller amounts mostly depend on leverage or a willingness to outspend the other side. Consider this in your future contract negotiations—you’re better off identifying risks and potential areas for dispute upfront than spending money having a lawyer “button up” language you can’t afford to enforce anyway.

I also now deeply understand why experienced business people have a strict “no assholes” policy. I always thought this was throwaway advice, but it only takes one lawsuit to make it clear how incredibly valuable it is to work with people you trust.

Two years ago, I was sued for the first time. I’m going to leave out many of the specific facts and focus on what I learned about the process of dealing with litigation—the decisions I made and how I was feeling along the way.

This was uncharted territory for me. The first curveball: our primary counsel wasn’t based in Delaware, and when someone files a lawsuit in Delaware, you immediately need Delaware-barred lawyers to defend you. You’re suddenly scrambling for referrals to lawyers you’ve never worked with to help you with what is now the most important legal issue of your life. And you don’t have much time—litigation comes with tight response deadlines.

When working with paid professionals, I think people tend to put them into one of two categories: doctors or general contractors.

With doctors, if your oncologist says you have a lump that needs to come out, you pretty much do whatever they say. You’re the patient. They’re the expert leading the charge.

With general contractors doing home renovations, most people intuitively know that’s not the right approach. You stay on top of them, give clear instructions, try to understand the issues yourself, and assume you need to provide lots of direction and monitoring to get what you want done.

Most people—entrepreneurs included, certainly myself—default to putting lawyers in the doctor category when they should really treat them more like general contractors.

When the lawsuit hit, I asked various people I trusted for their take. Almost across the board, the perspective was: “This is ridiculous. It doesn’t make any sense. I can’t even understand how there would be damages.”

It seemed like something that didn’t really need my full attention. So I made what seemed like a rational, delegating-CEO decision: don’t let this take up too much brain space. Give it to lawyers and let them handle it.

This approach might be right if your business can comfortably spend $500K-$1M to defend a lawsuit. But if, like many entrepreneurs, you don’t have that kind of money, and the mounting costs will become a source of leverage against you, then you need to take it seriously and go “Founder Mode” on the legal process.

When you ask lawyers “what do you think we should do?” they’re going to give you the “best representation” they can—because that’s what they’re incentivized to do. This means ticking every box, being as thorough as humanly possible, and taking everything the other side throws at them as seriously as possible.

What lawyers typically won’t do is come up with creative ways for you to accumulate leverage against the other side to get them to back down. If you understand the dynamics I laid out earlier—that you’re almost always headed toward a negotiated settlement rather than an actual reckoning of the truth—the standard approach is exactly the opposite of what you should be doing.

You want to spend as little money as possible so costs don’t become leverage against you. And you want to find ways to make it clear that pursuing litigation against you will be a costly endeavor with little upside for the other party.

How exactly to create that leverage is more of a conversation to have with me over beers than something I can cover in a blog post. But this should be your primary focus—not perfectly playing the tit-for-tat game of legal proceedings that will mostly end up being irrelevant when two sides sit across a negotiating table.

I learned this the hard way. We spent a large portion of the initial proceed