Arizona Business Magazine September/October 2011
What to do when your business is sued
Start with the proposition that anybody can be sued at any time for anything. One U.S. Senator even sued God in 2008. Obese children sued McDonald’s for making them overweight. It is easy to file a lawsuit; a person simply submits their complaint and the filing fee to the Clerk of the Court. The Clerk takes the money and files the lawsuit. The Clerk does not read or even care what the lawsuit says. That is for the Court to decide.
Getting sued can be scary, annoying, irritating and frustrating, but understanding what to do when it happens can help you feel more prepared. Sometimes just comprehending the process will ensure success further down the road.
More often than not, your business will have a pretty strong idea that someone is planning to sue before they actually do. Many times, you may receive a demand letter complaining about something and commanding your business take some corrective action or pay money. The demand letter may or may not come from an attorney. At this pre-litigation stage, your business may benefit from early intervention and settlement conversations. Depending on the circumstance, it may make sense for your business to try to engage the complaining party and determine if the issues can be resolved before litigation ensues.
Take Active Steps to Preserve Evidence
Once your business becomes aware of the potential for a lawsuit, it is under a duty to preserve and protect records and evidence that relate to the dispute. This includes emails and text messages. Your business could suffer serious penalties if a Court later discovers that you intentionally destroyed documents pertinent to the dispute.
After Service of Lawsuit
If your business cannot resolve the matter by way of settlement, and the complaining party actually sues your business, your registered or statutory agent will receive the formal complaint. The Complaint will usually be personally delivered by a process server. The registered or statutory agent (if it is not you) should then send a copy of the Complaint to you.
It is imperative to review the formal Complaint thoroughly to understand what the allegations are. This way, you can have an educated conversation with your business’ legal representative about what is going on. Do not ignore the lawsuit even if you think it is false and your business did nothing wrong. There are strict timelines and deadlines for your business to respond. If you miss these deadlines, the plaintiff may be able to obtain a default judgment against your business. These are very difficult to set aside.
Contact Your Insurance Agent Immediately
Contact your insurance agent or the carrier as soon as you receive the lawsuit. When businesses fail to notify their carriers promptly about litigation, sometimes the insurance carrier may deny coverage.
It is possible that the business will have insurance coverage for the claims the plaintiff is making. This, of course, depends on your policies, coverages and riders. Make sure the business’ insurance agent explores all current, as well as old policies. Some policies are claims based and some are occurrence based, so even if you terminated a policy, it may still cover you. Also, check with any trade associations in which your business is a member because the association may provide coverage. If the insurance carrier does provide coverage (even under a “reservation of rights”), it may assign a lawyer to defend the lawsuit. After your business pays the policy deductible, the insurance carrier may cover the business’ legal fees, investigation costs, any settlement during litigation, or even a final judgment against the business.
Contact the Business’ Attorney
As indicated above, there are some strict timeline to respond to a lawsuit. The business’ lawyer will need to act fairly quickly to ensure that the business answers or files a motion to dismiss within the timelines provided by the Rules of Civil Procedure. Also, the quicker the lawyer understands what is going on, the more time he or she will have to develop the business’ defenses, gather information, interview witnesses and determine the appropriate legal strategy.
Make sure to tell your lawyer the full story, even if it is embarrassing. The business is protected by the attorney-client privilege, but there is nothing worse than a lawyer learning of bad facts and not having time or the ability to defend against them.
If you do not have a business lawyer, contact any other type of lawyer and they should be able to refer the appropriate person. You could also contact another business owner and they should also be able to refer you to someone. Do your research and make sure you look up the lawyer’s credentials to make sure your business is getting the best legal representation possible.
Keep the Lawsuit on a Need-to-Know Basis
Usually, it is a bad idea to talk about a lawsuit with friends, business associates and reporters unless your lawyer says it is okay to do so. In litigation, the other side seeks out opportunities to use what you say against you. Do not give them the opportunity. It is fine to discuss lawsuits with your clergy, doctor or psychotherapist because they have an obligation to keep what you tell them secret.
Stay Calm and Let Your Attorney Work
Unfortunately, lawsuits have become very common for businesses. While legal issues can cause severe anxiety and frustration, generally, they do not resolve quickly unless there is a settlement. Be prepared to litigate for the long haul – you may not see a Judge for more than a year. Your business hired its attorney for a reason. Trust in their knowledge and the process.
So long as you take the actions above, it will help ease the stress of litigation and will assist your business in obtaining the best possible result.