It sucks when your company gets sued. But it’s part of operating a successful business. No one wants to sue a business that has no money and no assets. The more successful you are, the bigger the target you have on your back. Lawsuits are not fun. They are risky. And very expensive. No lawyer can change any of that, but there are certain things that you should do, and not do, as soon as you receive lawsuit papers, including the following.
- Don’t Ignore It. Although some threatening letters from lawyers are empty threats (you should not ignore these either; some require a response by statute) that you may choose to ignore, a summons and complaint notifying you of a lawsuit will not go away on its own. In fact, there can be grave consequences, including a default judgment against the named defendants, or, in some cases, an immediate injunction (court order) against your company. Although a default can sometimes be vacated if you take swift action, you don’t want to leave that to chance. This leads to the second point …
- Call Your Lawyer Immediately. I know this sounds self-serving, and no one likes to pay legal fees, but you need legal advice, and fast. If your business is a legal entity, such as a corporation or LLC, you cannot represent it in court in Massachusetts (with the exception of small claims). One of the consequences of incorporating is that your business is a separate legal entity from its owners; unless one of the owners is a licensed lawyer, you will need to hire an attorney or else face default.
- Choose the Right Lawyer. All lawyers are not the same. There are different specialties, different personalities and styles, and different hourly rates. Your ideal lawyer will have some experience in the type of case at issue, will have a reasonable rate, and will have a personality and style that you can work with. Don’t be shy about asking tough questions about the lawyer’s experience. Consider asking for references. Investigate the lawyer on-line (www.avvo.com is a good starting point). Ask the lawyer for a litigation budget, a general defense strategy, and the lawyer’s thoughts on alternative dispute resolution. You will not offend the lawyer by being a smart consumer of legal services. If you do, then you are probably talking to the wrong lawyer.
- Check for Insurance Coverage Immediately. Even if you think that your policy, be it a general liability policy, directors and officers policy, or other insurance does not cover the claim, check with your insurance agent anyway. You may be pleasantly surprised. If you are fully covered, the insurer will assign a lawyer and will pay the lawyer, subject to any deductible, and will likely pay for any settlement or judgment. Sometimes insurers agree that they have a duty to defend your company, subject to a reservation of rights. This usually means that you can pick your own lawyer, and the insurer will pay the reasonable and necessary legal fees, at least until and unless it or a court determines that there is no coverage.
- Preserve Electronic and Paper Information. Put any normal document destruction or e-mail purging programs on hold. You have a duty to preserve information, which could help you or the other side. If you destroy information, that fact can be used against you, which may look like you are trying to hide something even when you are not.
- Be Careful What You Say or Write. Other than communications with your attorney, almost everything you say about the plaintiff or the lawsuit is discoverable. That includes internal e-mails with your staff. It likely includes investigations or interviews that you take without a lawyer (sometimes, it makes sense for companies to do their own investigations). Your best bet is to let your lawyer handle it. A meeting with you and your key personnel is not protected from discovery if your lawyer is not there. E-mails and memoranda can be especially devastating. Don’t put something in an e-mail unless you want it blown up on a giant poster-board in front of a judge and jury. If you have any doubt, check with your lawyer.
- Don’t Just Let the Lawyers Handle It. Although you want to continue to focus on your business, it would be a mistake to turn the defense of the suit over to your lawyers and then not monitor it. You want to be involved, because you know your business and the facts better than the lawyers. There is so much at stake. Think of yourself as part of the defense team. If you have no insurance coverage, you can also keep a better handle on legal fees and expenses.
- Consider Alternative Dispute Resolution. First, check to see if a contract at issue requires arbitration. In some circumstances, arbitration can be quicker and cheaper than litigation (but not always). It’s also more private. Also consider, after consultation with your attorney, pursuing early mediation. If there is some exposure on the claim and the plaintiff and plaintiff’s lawyer appear to be reasonable, you may be able to save tens of thousands in legal fees and eliminate the risk of a judgment in an indeterminate amount. Consider that, in Massachusetts, interest runs at 12% per annum from the date of the breach of contract or the date of filing. Do the math; it adds up. If handled correctly, a request for mediation is not a sign of weakness.
If you or your company have been sued, or you know a lawsuit is on the horizon, and you need assistance, give me a call at 617.338.7000.
damnedif 