There’s a strong chance that every business will face a lawsuit. These can stem from a handshake deal turned sour, poorly drafted contracts, unforeseen events, or a failure to maintain complete books and records, among other reasons. That’s why business owners should know how to both be prepared well in advance of any litigation and how to respond if formally called to court.
Smart Business spoke with Buckingham, Doolittle & Burroughs LLC’s Jude Streb, Partner and Litigation Practice Group Leader, and Erin Dickinson, Counsel in the Litigation Practice Group, about how to properly respond if sued.
What is the first sign of a lawsuit?
Often, the first sure sign that a lawsuit may be imminent is when a business receives a letter from a complainant’s lawyer. When this happens, business owners should consult with legal counsel. Too often business owners will try to handle the matter on their own, which tends to make things worse.
The official notice that a business has been sued is a summons and complaint, formally served at their place of business or on their statutory agent by certified mail, or the defendant’s attorney can be sent a request to waive service by certified mail. Once either happens, the defendant has 28 days to file a response with court — the denials and defenses in response to the complaint — along with any potential counterclaims, or to return the waiver of service.
It is also important to immediately contact the business’s insurance carrier, depending on the nature of the claim, to determine whether the business may be entitled to a defense and/or coverage under their polices. Most if not all business insurance policies require prompt written notice of a claim to ensure coverage and obligate the carrier to provide a defense. Without prompt written notice, an insurance carrier may refuse coverage for the claim.
What steps should be taken once a lawsuit is filed?
Once it’s clear a lawsuit is imminent, a business owner should gather all of the records, evidence and communications available on the matter immediately. Too often, people unknowingly delete or lose critical documents. A failure to preserve evidence can lead to an additional claim for destroying evidence, known as ‘spoliation,’ including an inference that the evidence would have been harmful to the business.
Conversely, it’s also important to not create more evidence through correspondence about the lawsuit. All communications about the matter should be verbal, and even those should be kept to a minimum. To the extent possible, businesses should involve counsel on all communications so that they are protected by the attorney-client privilege.
The biggest mistake business owners can make at this early stage is not responding before the 28-day deadline. When that happens, the plaintiff’s attorney can file a motion for default judgment, and the defendant essentially leaves the decision on the matter up to the judge based solely on information presented by the plaintiff.
Extensions of time to respond are often available, but generally only when they have been requested prior to the expiration of the time to respond. A default judgment can open the business up to a claim that they did not comply with their duty to cooperate with their insurance carrier in the defense of the case, which generally results in the carrier not paying a claim.
How can business owners be prepared for litigation?
It’s important that business owners are connected with a competent attorney who can help a business take appropriate measures to avoid litigation, such as fending off potential claims, contract review and drafting, policy implementation, and general legal advice, as well as being prepared to instantly step in to defend.
Like any business, the law is constantly evolving. By engaging regularly with competent, experienced counsel, business owners can benefit from prompt notice of changes that require action. This allows the business owners to keep their contracts and other legal documents up to date and, thereby, avoid accidentally running afoul of the law. With competent counsel already involved, smart business owners will also be prepared to quickly mount a defense in the event a lawsuit is filed. ●
INSIGHTS Legal Affairs is brought to you by Buckingham, Doolittle & Burroughs, LLC.
