You've Been Sued: Now What? « All Wyche Articles

April 11, 2007

Interview with Ted Gentry
As heard on "South Carolina Business Review" with Mike Switzer
Broadcast April 11 and 12, 2007

If you run a business, large or small, there's a good chance that at some point your company will be sued.  And while you may have to live with that lawsuit for months or years to come, your immediate reactions can have a huge impact on the future of that lawsuit.  None of the following is a substitute for consultation with an attorney; however, these tips can keep you from making a mistake in the time it takes to get in touch with your lawyer.

How do you know if your business has been sued?

If someone wants to sue your business, they have to file a document called a complaint in court, and they have to serve your business a copy of that complaint.  There are different ways to serve a complaint, but it must typically be delivered by hand or by registered mail to an officer of the defendant company, or to the company's registered agent.

What should a business person do first when served with a complaint?

The single most important piece of advice is this:  Don't ignore a complaint!  There's a natural human tendency to shove bad news aside, and a complaint is almost always bad news.  But, it won't go away on its own, and if you delay in responding, you run the risk of losing the case without even having a chance to make your case.  So, you have to deal with the complaint.

When reviewing the complaint for the first time, look at the caption -- the box on the upper left corner of the first page -- to see who the defendants are.  If you have been individually named, then things are more complex.  You'll need to consider whether you need your own lawyer, whether you have insurance, and whether you and the company can cooperate in a defense.

What does it mean to "deal with" a complaint?

Eventually it means filing a response with the court.  The events that lead up to the court response are outlined below.

If you are a manager in a large company and are served with a complaint, and you don't believe that you have the authority to deal with it, it is imperative that you bring it to the attention of appropriate management immediately.  This is important to the company -- and to your career.

What if you are the right person to deal with the complaint?

The best thing to do is to consult with a lawyer as soon as possible.  A lawyer who is familiar with the type of claim that the company is facing is the best source for specific legal advice on how to proceed.

But sometimes it takes time to reach the lawyer, or to find the right lawyer.  Focus on the important "self-help" steps that can help to avoid a costly mistake before the lawyer takes over.

What are some of the initial steps in responding to a complaint?

First, pay attention to how the complaint is received.  In a small percentage of cases, the plaintiff can make a significant mistake in serving the company, so you want to be in a position to describe how service was made.  Keep the envelope the complaint came in.  Make a note of when you received it, where you where, and how it was provided to you.  If a secretary or mailroom employee handled it, have them record what they know.

Along with the complaint, you should have been served with a document called a summons.  Somewhere in the summons, there should be an indication of when the formal answer is due.  Depending on the court, you typically have either 20 or 30 days to file a response.  Talk to your lawyer and explain the case to him or her as far in advance of that date as possible.

What else should be done after calling a lawyer and have the complaint in hand?

If your company has insurance that might cover the dispute, let the insurance carrier know about the complaint right away.  Your policy will tell you how to do that, and your insurance broker may be able to help you.

This is another time-sensitive task.  All insurance policies place the duty on the insured to tell the insurance company about a lawsuit.  If that is not done promptly, the insurer may rely on that delay to deny coverage.

There is another important point here.  The insurance company may have the right under the policy to pick a lawyer for you.  If you are particularly comfortable working with your own lawyer, you may have to negotiate with your insurer on that point.

What other important tips should be considered when a company is waiting to hear back from its lawyer?

One of the most critical elements of modern litigation is discovery.  At some point in the litigation, the company will be obligated to allow the other side to review whatever documents they have that are relevant to the case.

You don't have to share those documents right away, but it's not too early to begin collecting them.

Why would you want to start collecting discovery documents before you have to?

There are three good reasons to start collecting documents right away.

First, they will help you understand the case.  The odds are good that all the details about the dispute that is the subject of the lawsuit are not known.  And the strengths and weaknesses of your case cannot be accurately evaluated until all the relevant materials have been collected and reviewed.

Second, your attorney will need to see the documents in order to give you good advice.

And the third reason to begin collecting relevant materials now may be the best one of all.  One of the worst things that can happen to you in litigation is the accidental destruction of relevant documents after the case has commenced.  The other side may accuse you of intentionally destroying damaging evidence, and they may persuade the judge or the jury to agree.  So it is vital, once you have been sued, to make sure that all relevant documents are set aside and preserved, so they won't be accidentally destroyed as part of your company's routine document retention policy.

Does discovery apply only to paper documents?

The obligation to produce documents extends to electronic documents, such as e-mails and accounting or word processing files.  Once a complaint is received, work with your IT Department to protect any relevant electronic data from any routine purging that might otherwise take place.

Another concern that needs to be considered is a key participant in the events leading up to the lawsuit might leave your company -- either through retirement or job changes.  If there is someone who knows a lot about the case and who may be about to leave, consider steps to obtain and preserve that person's knowledge and testimony.  Your lawyer can advise you on the deails of doing that, but be sure to alert your lawyer that a key witness may be disappearing soon.

What else should be considered besides paper documents?

Conversations with anyone other than your lawyer are potentially dangerous.  When you get sued, there is a strong tendency to want to talk to someone about the suit.  And if you're angry or upset, you may be fairly unguarded in your comments about the suit.

Unfortunately, if you're just talking with a friend or a co-worker about the case, that conversation is not privileged -- which means the friend or co-worker could be asked what is said about the lawsuit.  That is not good for them or for you.  So, the better practice is simply not to talk about the substance of the lawsuit outside the presence of your lawyer.

What other consideration should be given when you've been sued?

The hardest advice to give, and often the hardest advice to take, is to try to consider early in the process whether the case can be settled.  The vast majority of cases -- probably well over 95% -- settle at some point.  Oftentimes, those settlements come after years of anxiety, lost productivity, and lawyers' fees.  You are better off settling a case today for $X, rather than litigating for a year or two and reaching essentially the same settlement.

Now, some cases can't settle quickly.  One party, or both, may have an unrealistic view of what the case is worth.  Or, there may genuinely be a matter of principle at stake that outweighs the cost of litigation.  But, most cases are going to settle, and so the sooner you figure out what a case is worth, and move in that direction, the better off you will be.

If you are interested in learning more about what to do when your company is sued, or if you have any questions related to this subject, do not hesitate to contact any member of Wyche's litigation team.

This information is provided by Wyche for educational and informational purposes only and is not intended and should not be construed as legal advice.  The federal rules are the subject of ongoing interpretations and clarifications.  We will be pleased to discuss with you in detail how the federal rules apply to a particular company or issue raised in litigation.  Please contact our firm for more information.