Lawsuits can be costly, time-consuming, detrimental to positive public relations and, it seems, inevitable.
Whether a lawsuit is justified or not — and
not all lawsuits are — it can tie up a company’s resources that might be better utilized in carrying out the business’s mission.
A lawsuit also requires a company to retain
attorneys to defend it or to find an alternate way to solve the dispute, such as
direct negotiations between the parties or
arbitration. The best way for a company to
defend itself against lawsuits, then, is to
prepare adequately for them.
Smart Business spoke with Jeffrey R.
Elkin to learn how a company can prepare
for and defend against lawsuits.
What can companies do to prepare for lawsuits?
There are seven basic guidelines that I
tell my clients:
1) Follow a simple rule: It is better to do
a bad deal with good people than a good
deal with bad people. In other words,
choose the right business partners. Be
careful who you do business with. To the
extent possible, companies should do business with people they know and trust. That
is one sure way to limit the possibility of
being sued.
2) Follow the adage: ‘An ounce of prevention is worth a pound of cure.’ Get legal
advice and assistance early instead of waiting for a lawsuit to be filed and then bringing in an attorney. It can be less expensive
and usually alleviates the risk of litigation.
Remember, part of a lawyer’s job is to
anticipate potential problems and help
design ways to avoid those problems. It is
much more efficient to do that at the front
end of a transaction than wait for a dispute
to develop and try to resolve it through litigation.
3) Hire the best people, and work hard to
keep them. Often, litigation occurs when
companies fail to hire and retain the best
employees available. This can be a costly
mistake. While it may save money in the
short term to hire less-than-stellar employees and hope they work out, it is not
always worth taking the risk — especially
if the company ends up in court.
4) Make sure that every transaction is
properly documented. There is no substitute for a well-written transactional agreement. Such an agreement anticipates the
potential issues or problems that the parties may face in the future and establishes,
within the document, an agreed way to
handle such situations. That is a far more
efficient way to handle disputes than
through litigation.
5) Address business complaints immediately. Letting a business problem percolate
without addressing it usually leads to a
lawsuit and increased cost to a company.
Try to nip a problem in the bud by dealing
with it. Make litigation the last alternative,
not the first.
6) Be ready for litigation. Have a document retention policy in place, so that
important evidence will be preserved.
Train employees in the proper use of e-mails, which are the new ‘smoking guns’ of
litigation.
7) Get good legal advice. Do not hire an
attorney because he or she tells you what
you want to hear. Good advice isn’t always
pleasant. What you want is someone with experience who you can count on to be
forthright and frank about whatever situation you are dealing with. Mutual trust is
essential.
What can an attorney do for a company to
help avoid lawsuits?
An attorney can help a company set its
house in order before it even opens its
doors for business. For example, an attorney can make sure that a business is properly organized and has all the certificates,
licenses and other paperwork in place that
government or regulatory agencies require.
An attorney can also advise on liability
insurance and develop training plans to
deal with contemporary issues, such as the
use and misuse of e-mails.
Why is the use of e-mails becoming more of
an issue in business today than it was
before?
As previously mentioned, e-mails are the
new smoking guns in litigation. Employees
are putting comments, observations or
thoughts in e-mails that they would not
think of including in formal business correspondence — even though e-mails are
business correspondence. Electronic information in e-mails is fully discoverable. That
means that the opposing party will get a
copy of every e-mail. Because employees
tend to be more casual, sarcastic, flippant
and cynical in e-mails, than they would be
in formal business correspondence, e-mails can be very effective evidence. Cases
of e-mails coming back to hurt parties
when they are preparing a defense are
legion because employees are not trained
adequately in the purposes of e-mail.
JEFFREY R. ELKIN is a partner in the litigation section with
Porter & Hedges LLP. Reach him at (713) 226-6617 or
[email protected].