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 Broken System: Why Defendants Always Lose

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. The motion for summary judgment is the first opportunity. Again, 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 a