1/14/2016

What to Do If Your Business Gets Sued

Start Your Business

Startup Basics

You're Being Sued: A Guide to Handling a Business Lawsuit

By Nicole Fallon Taylor, Business News Daily Assistant Editor January 14, 2016 09:05 am EST
1

MORE

Credit: Paul Matthew Photography/Shutterstock

You hoped it would never happen, but in the back of your mind, you knew it
could: Your small business is being sued.
Whether it has been filed by an employee, client, vendor or even another
business, a lawsuit against your company will likely cost you a lot of money,
whether you win or lose. It's normal to feel overwhelmed, upset and
indignant, but if you want to keep your business and its reputation intact
http://www.businessnewsdaily.com/8724-small-business-lawsuit-tips.html

1/9

1/14/2016

What to Do If Your Business Gets Sued

during this time, it's important to handle every step of the process carefully.
Business News Daily spoke with legal, human resources and insurance
experts to compile a step-by-step guide to help you through your lawsuit,
along with critical mistakes to avoid along the way. Please note that this
article does not replace professional legal counsel, and if your business is
being sued, we urge you to consult an attorney before taking any action.

Step 1: Review the lawsuit with an attorney

The first thing you should do when you receive the suit papers is review
them carefully with an experienced business lawyer. Attorney Braden Perry of
Kennyhertz Perrysaid that you should check the caption and service
information on the lawsuit to ensure that it contains the proper entity or
person associated with the issues. If this information is incorrect in any way,
you may move to dismiss the action in its entirety, Perry said. If it is correct,
you should proceed with reviewing the allegations and put a litigation hold,
or preservation order, in place. This requires the company to preserve all data
that may relate to the legal action.
"It is extremely important that you preserve all records that have any
relationship to the case, no matter how tangential," said attorney Krishna
Narine of Meredith & Narinelaw firm. "Such records include documents,
electronic material such as email and Web pages, photos, videos and voice
messages. If you have a document destruction policy, suspend it until you
have consulted with your attorney. In addition, if appropriate, take pictures
and/or video and be sure to include identification of the time and date of
those images."

DO NOT: Communicate directly with the plaintiff

Many of our expert sources reminded business owners that anything they say
regarding the lawsuit can be used against them. For this reason, you should
not attempt to contact the plaintiff before you've thoroughly reviewed the
suit. From there, all communications with the opposing side should be
http://www.businessnewsdaily.com/8724-small-business-lawsuit-tips.html

2/9

1/14/2016

What to Do If Your Business Gets Sued

conducted through your attorney and the plaintiff's.

"Once a lawsuit has been filed, you should not communicate with the
plaintiff at all," said John R. O'Brien, a Chicago-based attorney. "The time for
talking things out and resolving issues amicably ended when they filed suit,
so all communication should be through your company's attorney.
If the plaintiff is someone that you must communicate with a current
employee, or another company that you have an ongoing business
relationship [with] you should make clear that you will not discuss the
lawsuit with them."

Step 2: Inform your insurance provider

A variety of business insurance policies exist to cover companies in the event
of a lawsuit. Ted Devine, CEO of online small business insurance agent
Insureon, said third-party injury claims and accusations of defamatory
remarks about a competitor are typically covered by general liability
insurance. Client allegations that your work caused them a financial loss are
often covered by a professional liability policy. Suits from employees may be
covered by employment practices liability insurance or employer's liability
insurance, which is included in some workers compensation policies.
"Should the suit fall under the umbrella of what your policy covers, it's
common for your benefits to pay for attorneys' fees, court costs and any
settlement or judgment you're found liable for paying," Devine said.
If you believe one of your current policies does cover the suit, get in touch
with your insurance provider as soon as possible.
"Most insurance policies require that suit papers be promptly forwarded to
the insurer ... to preserve any insurance coverage," said David Turner, a
partner at Schulten, Ward & Turner."If the suit is covered, the insurer or
counsel retained by the insurer will defend the lawsuit."
http://www.businessnewsdaily.com/8724-small-business-lawsuit-tips.html

3/9

1/14/2016

What to Do If Your Business Gets Sued

Turner noted that companies should keep their general counsel advised of
any claims against them, even if an insurance company is involved in
defending the case.

DO NOT: Assume your insurance will cover the suit

Certain types of lawsuits may indeed be covered by a general liability policy,
but do not operate under the assumption that this case is covered. Turner
advised business owners to consult with their insurance provider to confirm
whether or not the lawsuit is covered, as the specific circumstances of the
suit may exclude it from the policy.

Step 3: Decide how to proceed, and respond to the complaint

When you receive a lawsuit, you are issued a deadline to submit a written
response to it, typically within 30 days, although this may vary from state to
state. According to a blog post on the Foster Swiftlaw firm website, your
answer should include the following items:
Admittance or denial of each of the plaintiff's allegations.
Your defenses and counter/cross-claims against the plaintiff or other defendants.
Whether you want a jury trial or an alternative resolution (e.g., an out-of-court settlement).

Before you respond, there are a few important things you need to consider.
"You need to understand the nature of the claims against you and the
potential liability and exposure to your business so you can make a business
decision on how to proceed with the case," said Jessica Gray Kelly, a partner
at Sherin and Lodgen. "Litigation costs can rise quickly, so if the claim is only
for short money, or there is a nonmonetary way to settle the dispute, that
may be a better business option for the company."
Kelly recommended asking your lawyer to explain the litigation plan,
potential exit strategies and estimated costs at different stages of the
http://www.businessnewsdaily.com/8724-small-business-lawsuit-tips.html

4/9

1/14/2016

What to Do If Your Business Gets Sued

proceeding. You should also discuss whether it makes sense to propose

alternative dispute resolution to the plaintiff.
"[Ask about] the pros and cons to proceeding with the lawsuit," added
Merlyne Jean-Louis, a New York-based attorney. "Although you may not be at
fault or have violated any laws, it is sometimes in the best interest of the
business to settle."
Your level of insurance coverage may impact your options for resolution. If
the claim is not covered, O'Brien advised finding out approximately how
much it will cost you to both defend yourself and pay the ultimate judgment
should you lose the case. He also said that counterclaims could work in your
favor.
"Ask your attorney if there is a basis for a counterclaim against the plaintiff,
or a third party that might bear some or all of the liability," O'Brien told
Business News Daily. "For example, if a customer is suing because a product
was not delivered on time, or was defective, there may be a supplier whose
delay in delivering materials, or defective materials, caused the problem. Or
the plaintiff may be filing as a defensive measure, knowing that they have
some fault ... and may be simply trying to win the race to the courthouse."
Alternatively, you may wish to file a motion to seek immediate dismissal of
all or part of the complaint in lieu of an answer. A judge will then grant or
deny the motion.
Regardless of what you decide, be sure to have an attorney check your
response or motion before sending it to make sure you've addressed
everything properly.

DO NOT: Ignore the suit

Failure to respond to a lawsuit within the allotted time frame gives the
plaintiff the right to file a Request for Default, after another 30-day period.
This means the plaintiff will win the case, and whatever judgment the court
http://www.businessnewsdaily.com/8724-small-business-lawsuit-tips.html

5/9

1/14/2016

What to Do If Your Business Gets Sued

makes against you will be enforced.

Step 4: Find a defense attorney (if you don't have one)

If your company has a lawyer on retainer or your insurance carrier is
providing an attorney, you won't need to take this extra step to find someone
to defend your case. However, depending on the complexity of the case, you
may want to seek out an attorney who specializes in the type of lawsuit you
were served.
"You will want to retain counsel who is familiar with the type of claims
alleged in the complaint, and if possible, who is familiar with the court in
which the case has been filed," Narine said. "For example, defending a slipand-fall case brought by a customer is substantially different from defending
a defective-product case. This can be particularly important if a case is
brought by an employee, as there are a wide variety of employer-employee
disputes, some of which require very specific knowledge, such as
employment discrimination cases."
Charles Krugel, a management-side labor and employment lawyer, advised
doing thorough research and getting recommendations from trusted
colleagues. From there, you can evaluate the quality of the attorney by
asking questions such as:
Have you ever handled a case like this before?
How much can I expect to pay at the outset, and where will the money go damages, back
pay, front pay, legal fees?
Where is this case heading, or where can it go?
Do you have testimonials from former clients?

DO NOT: Stick with a poor communicator

As with any important business matter, clear, consistent communication is
the key to ensuring litigation goes as smoothly as possible. Legal defense is
http://www.businessnewsdaily.com/8724-small-business-lawsuit-tips.html

6/9

1/14/2016

What to Do If Your Business Gets Sued

expensive, so you want to make sure you're getting your money's worth in
the form of a knowledgeable, forthright attorney. Krugel said to be wary of
lawyers who won't give you a straight answer or attempt to withhold
information from you.
"If a lawyer can't explain something to you in plain English, run away," he
said.
Keith Dennen, a member attorney with the Nashville office of Dickinson
Wright PLLC, also noted that a good lawyer should provide you with frequent
status reports, as well as copies of all important pleadings and
correspondence about the case.

During and after the case

The litigation process can be long and stressful, but here are a few pieces of
advice to follow throughout the case and beyond.
Don't try to cover anything up. "Be completely honest with your lawyer about
the facts, they will come out sooner or later, and it is better for your lawyer
to be prepared for them than be caught by surprise." Jessica Kelly
Be diligent and prompt. "Review the attorney's invoices promptly. Ask
questions when you have questions.The more you delay in responding to the
attorney's requests, the more it costs you." Keith Dennen
Stay focused on your business. "Don't lose sight of the fact that you have a
business to run, and a bottom line to think about. So put aside any feelings of
anger or pride. Oftentimes I hear clients say, 'We didn't do anything wrong,
why should we pay this person?' The answer is that winning the case can
cost a lot more than settling. You have to make a calculation: Will the
company be better off, financially, if it pays the plaintiff $20,000 than if it
spends $30,000 to win the case? As the saying goes, 'A bad settlement is
often better than a good trial.'" John R. O'Brien

http://www.businessnewsdaily.com/8724-small-business-lawsuit-tips.html

7/9

1/14/2016

What to Do If Your Business Gets Sued

Protect yourself from copycat suits. "In light of any recent employment
lawsuit, you should take proactive steps to create an HR foundation that
includes creating or updating your handbook; delivering anti-harassment and
anti-discrimination training to all employees and management; creating a
detailed complaint procedure that is published to all employees; and
providing management training on dangerous areas such as interviewing,
discipline and terminations. This will not only make an impression on the
current case, but it could also stop later accusers in their tracks." Joseph
Campagna, owner of human resources consultancy My Virtual HR Director
Keep your head held high. "Do not let a lawsuit rattle your entrepreneurial
feathers. Remain calm and continue to work in your business's best
interests." Merlyne Jean-Louis

Nicole Fallon Taylor

Nicole received her Bachelor's degree in Media, Culture and Communication from New
York University. She began freelancing for Business News Daily in 2010 and joined the
team as a staff writer three years later. She currently serves as the assistant editor. Reach
her by email, or follow her onTwitter.

START-YOUR-BUSINESS

SEE ALL

Six Tips for Avoiding a Hiring

Lawsuit

4 Labor Laws You Might Be

Breaking

Objection! Employee Lawsuits

on the Rise

The Company Policies That

Could Land You in Legal
Trouble

http://www.businessnewsdaily.com/8724-small-business-lawsuit-tips.html

8/9