Five Critical First Steps in Business Litigation Management

No business is immune from a lawsuit.  Whether your business manages a single residential property, or a portfolio of commercial properties; whether you are a sole proprietor, or a publicly-traded national or global corporation, you can be sued and forced to defend a lawsuit in local, state or federal court simply by doing ordinary course business.  The lawsuit may be filed against your business by a customer, a subcontractor, even one of your own employees or partners.

During the U.S. and global financial crisis, some of the largest financial institutions in the world expended billions of dollars per year between 2007 and 2012 defending against litigation brought largely by their customers.

By contrast, the large bank I worked for had to lay out only a fraction of the litigation expenses reported by our closest competitors — regional banks with $100,000,000,000-$250,000,000,000 in assets — throughout the entirety of the financial crisis.  Some of the difference was due to the lesser magnitude of risk inherent in our business activities compared to some of our competitors.

But my colleagues and I also devised reproducible methods for the effective and efficient management of all litigation brought against the company.  We applied the same principles of effective early case analysis and management to each.  Every company, smallest, to largest, can employ these methods to reduce litigation costs and expenses, and to effectively deal with a lawsuit, whether it is specious on its face, or if it presents a real threat to your business’ future.

The Critical “First Steps” in Business Litigation Management

1.  Appoint a responsible agent, employee or manager (receptionist, administrative or executive assistant, paralegal, mailroom clerk, in-house or outside counsel, executive, registered agent, etc.) to be your official point of contact for legal papers served upon your business.

This step should be accomplished now — as in, once you finish reading this post.  Most civil complaints must be answered within 21-30 days of service on your business.  Do not leave your business in a position where you can lose 10 days of response time on a civil Complaint because the lawsuit has been in someone’s inbox awaiting action while they are on the beach.

  1.  Read the Summons and Complaint to determine a) WHO is being sued, b) concerning WHICH TRANSACTION, c) WHERE the lawsuit is filed, and d)                          WHEN the Answer to the Complaint is due.  Don’t be distracted yet by how                              much $$ the Plaintiff is seeking in the lawsuit.

a) WHO is being sued:  Sometimes, the Plaintiff has identified the wrong Defendant, or has incorrectly named your Company as a Defendant.  Many companies operate as the subsidiary of a large, even publicly-traded holding corporation.  Thus, a lawsuit naming the holding corporation as the sole defendant would not be a viable lawsuit against a bank subsidiary — if you were a bank customer intending to sue the bank, you have to name the bank as Defendant, not the parent corporation.

Understanding who is the named, and the intended Defendant will help you prepare your defense to the lawsuit, and will tell you what part of your business is likely to be affected by the result

b) WHICH TRANSACTION is the subject of the lawsuit:  Even small businesses can have hundreds of contractual relationships that are necessary elements to its continued success.  Does the lawsuit concern a contractual relationship with a customer, a service provider or another business?  Does the lawsuit concern an interaction or series of interactions with your sales department, or a particular manager or employee ?  In large organizations it is important to determine the business relationship, line of business, product, or service that is at the center of the legal claims described in the Complaint.

Knowing which transactions gave rise to the Plaintiff’s claims will tell you who in the company you will need to keep informed as to the status and progress of the litigation, who you can reach out to for help in identifying and interviewing witnesses, and from whom to obtain necessary transactional and other documents and information about the business relationship at the heart of the lawsuit.

c) WHERE is the lawsuit filed:  The lawsuit against you has been filed in local (county, city), state or federal court somewhere in the United States.  It can be surprising to a small business owner to find oneself subject to business litigation in another state, but if you do business across state lines, you can be summoned to answer a lawsuit in a state where you do not have any employees, facilities or significant operations.  Generally, you cannot be lawfully summoned to answer a lawsuit in another state where you do not have any significant business activity or relationship, such as delivering products or services to customers in that state.

d) WHEN is the Answer to the Complaint due:  Count the days out one by one on a calendar from the date the lawsuit is received by the company, until the date it is due (the Summons or Complaint should say when a response is due (“Within 21 days . . .)).

A Plaintiff’s motion for preliminary injunctive relief, or a temporary restraining order can be heard by a Court with little advance notice to the Defendant — often just 5-10 calendar days.  You will probably have an opportunity to be heard at the hearing on such a request for preliminary relief, but you may have to act very quickly to understand the Plaintiff’s plea for preliminary relief, to develop an effective response to the Plaintiff’s motion, and to execute a defense against the motion in Court through legal counsel.  In litigation, timeliness is critical.

If you receive a Summons and Complaint with no demand for injunctive or TRO relief, you usually have 21-30 days from date of service upon you to file a written Answer or other pleading with the Court.  It can take from several hours, to several days of attorney time to develop and file a response to a Complaint.  That being said, I have received a lawsuit the morning a response is due, read and assessed it, assigned it out to outside litigation counsel with instructions to file an answer before close of business, and achieved a timely response.

I have also assigned cases to outside litigation counsel that appeared to be already beyond the response date set by Court rules.  I do what I always do — I instruct them to file an Answer or responsive Motion while seeking the Court’s leave to file untimely if necessary and the Answer or Motion was accepted by the Court upon showing good cause for the delayed response.  I’ll repeat the point I made above — timeliness is critical.

3.  Do you know a good lawyer?  If upon reviewing the lawsuit, you determine                        that the company will need a legal representative to defend it in a lawsuit, who                  do you call for help?

Whoever you decide to call seeking representation in a lawsuit, you need to make the call as soon as possible after receiving the Summons and Complaint.  You may already have an attorney that represented your company successfully in a prior lawsuit.  You may, or may not have had a great result, or a great experience with that attorney.  If this is your first time being sued, where do you begin your search for competent, effective defense counsel?

Identifying your defense counsel is going to start with some conversations.  You may begin by contacting the law firm, or attorney that drafted or reviewed/approved the contract or transaction that is at issue in the lawsuit — let them know that you received a Summons and Complaint concerning the deal they represented you on, and see if they are capable of handling the lawsuit, or if someone in their law firm is a litigator who has handled this type of claim for clients with businesses like yours.  The attorney should volunteer  if they are able to represent your business in this lawsuit, or if they prefer to handle contract drafting, real estate transactional document preparation, and other types of legal work rather than lawsuits and litigation.

If instead your contract was drafted, negotiated and executed in-house, and no lawyers were employed in the process, where do you start?  Does your business have a lawyer it has worked with on incorporation, collection, or accounts receivable issues?  Do you have a close business colleague who has been to court defended by counsel that you could ask for a referral?  Have you had to hire bankruptcy counsel to make a claim in a supplier’s bankruptcy filing?  Or perhaps you hired a regulatory attorney to provides advice and counsel ad hoc when a regulator sent a letter of inquiry?  Each of these attorney-client relationships may provide you with the referral you need to locate suitable litigation counsel.

If a familiar law firm or lawyer cannot represent your business for whatever reason ask them for a referral to a commercial litigator that they trust, and that they respect based on the quality of representation and results that lawyer provides its clients.  An attorney with 15-20 years practice experience in your community should know the quality trial lawyers in their locality through personal experience and reputation, and they should be able to provide you with referral information for several lawyers to whom they would entrust their own defense.  If cost is an object, make sure the attorney from whom you seek a referral knows enough about your circumstances that she can make a competent and helpful referral recommendation.

You do not need a commercial defense litigation attorney on retainer to successfully defend a business lawsuit.  In managing litigation for a Fortune 500 company, I hired a lot of litigation lawyers, all over the country.  Sometimes I had no choice but to rely upon the referral provided by a trusted colleague.  I gained a fast familiarity with the many capabilities and limitations of the law firms and the lawyers I hired to defend my company, and built great relationships with outstanding lawyers that offered affordable, reliable service.

In the absence of a referral, or any ongoing relationship with a trial lawyer in your community, the Virginia State Bar operates the Virginia Lawyer Referral Service for individuals and organizations seeking legal assistance in their community.  Interested, competent and available attorneys who register with the VLRS usually register in specific categories of legal services for which they are soliciting clients, so a call to the VLRS will usually result in a referral to an attorney in your community who has experience with, for example, business law and litigation, contract drafting or disputes, personal or bankruptcy, labor and employment law, securities law, etc.

Finally, Martindale.com, and AVVO.com each maintain online databases of lawyers that can be searched by state, and practice area if you are starting from scratch.  Likewise, if you are aware of similar lawsuits affecting similar businesses through news headlines, online searches, and other media, pay attention to the names of the lawyers handling the defense — they may be able to assist you as well.

  1.  As early as possible, involve responsible company management in                                  communications and decision-making concerning the lawsuit.  

In step 2, you identified the line of business, service, product or manager that the lawsuit concerns.  Your company may assign separate accounting for different areas of company business, such that managers have budgets for operations that track expenses and revenues by business line or product.  An adverse judgment from a lawsuit may hit that manager’s cost center in a significant way, even wiping out the manager’s profitability for an entire fiscal year.  That manager needs to be in the loop on communications concerning the lawsuit, including analysis of potential downside risk encompassed by the lawsuit, planning and responding to pleadings, dispositive motions, discovery, settlement negotiations and the like so that the manager can continue to meet his responsibilities to the business.

  1.  As soon as you understand the Plaintiff’s story, develop your own chronology              of the events described in the lawsuit to share with your representative.

The facts stated in the Plaintiff’s Complaint may be exaggerated, or vague, or incomplete, or made up out of mostly whole cloth.  You won’t necessarily be relying upon the story that the Plaintiff tells in the Complaint in your defense.  Of course you will have to respond to Plaintiff’s claims in some way — but Plaintiff’s story is not necessarily the whole truth, or the whole story.  You may have more than one defense to a well-pleaded Complaint — a factual defense, or a legal defense, maybe both if you are lucky. But approaching the Plaintiff’s claims with an investigator’s curiosity, and a real desire to get at the truth of the matter and to document that truth should help you to define and describe your business’ story to your litigation counsel.

The best way to memorialize your company’s position is to write or record an accurate summary or chronology of events that you intend to share with your lawyer at your first opportunity to do so.

Ex:  First, we negotiated a service contract (DATE); Next, we performed all of our                         obligations under the agreement as required (we commenced grading of the                       parcel on June 4, completed surface compaction on July 1); Then, we sent our                       invoice to Plaintiff seeking payment in 30 days; Finally, 3 months have passed, and without any other notice, Plaintiff failed to pay the invoice, instead suing us for                   breach of contract, etc.

Your summary or chronology should be supported by correspondence, reports, meeting minutes, evidence of performance of contractual undertakings, and other evidence gathered from responsible company managers and employees, including their names and contact information.  The chronology prepared for your attorney and your company executive team in receipt of or in anticipation of litigation most likely will not be discoverable in the lawsuit as it will be a confidential communication from the client company to its lawyer concerning a specific lawsuit.  The underlying reports, e-mail or text/SMS communications and other evidence will probably be discovered by the Plaintiff in the lawsuit.

CONCLUSION

Panic need not be your first response to a lawsuit against your business.  Following these five critical first steps in establishing your defense will ease the burden on your organization as a whole by placing responsibility for activities relating to the lawsuit in the hands of a small group of responsible managers who hold a stake in the outcome, and who are provided the information they need to exercise knowing judgment when decision points arise in the lawsuit.  Honest communication within the organization about the lawsuit, and forthright communication by the company to outside litigation counsel is the most critical ingredient of each of these steps toward effective business litigation management.

 

Christopher Okay, principal of Chris Okay, Attorney at Law is admitted to practice law in Virginia, North Carolina, and the District of Columbia.  This article is intended to be educational and informative, and is not intended to offer or constitute legal advice.  For a consultation concerning a business lawsuit, or threat of a lawsuit against your business, please call Chris Okay, Attorney at Law in Staunton, Virginia at (540) 466-3130.  If you received an estimate for legal services that is much higher than you expected, or can afford, and you would like a second opinion on your organization’s likelihood of success in a lawsuit, Chris Okay, Attorney at Law welcomes your call for a consultation — we offer extremely reasonable rates for a second opinion.

 

 

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