So You’ve Been Sued–What Now?

Date: June 06, 2008

How to respond to a lawsuit against your small business

It's every business owner's nightmare: Someone walks into your business and hands you a stack of papers explaining that you're being sued. It might be a customer, an employee or another business, but whatever the source, it's going to cost you time and money to defend. But don't panic. Instead, follow these steps to help increase your chances of a favorable judgment.

Don't ignore the lawsuit: No matter how frivolous you think the lawsuit is, or how little you want to deal with it at that moment, you have to respond. Your time to respond is very limited. If you don't respond to the lawsuit within the allotted time, the other party will win a default judgment against you. This means they automatically win, even if you had a good defense.

Peter J. Walsh, a partner in the corporate litigation division of Potter, Anderson and Corroon in Wilmington, Del., warns about delaying. "It not only increases cost, it also reflects badly on you as the defendant by showing that you're not sufficiently concerned or interested to respond in a timely manner," he says.

Contact an attorney: And do it right away. Lawsuits are serious. Your business could be at risk, and you want to give your attorney time to gather some basic facts and prepare responses. Retaining a lawyer early on can also help you avoid prejudicing yourself and incurring extra costs.

Most state bar associations have a referral service you can use to find a lawyer. Walsh says other good sources for referrals can come from networking. "Seek the advice of small business owners who have been in a similar situation and ask them for recommendations," he says.

Also, be sure to contact your insurance carrier. Your insurance company will decide whether or not to defend your case, and it may even hire an attorney for you.

Prepare: As a general rule, when you are served or you become aware that there may be litigation, you need to begin preserving relevant documents. Your lawyer can give you advice regarding specific types of information to keep.

"If you don't inform employees about preserving records and important documents are destroyed because you didn't exercise sufficient caution, it can lead a court to draw a negative inference," Walsh warns.

You should also begin organizing the information you have. Make photocopies of documents and offer the originals or copies to your lawyer. Draft a written statement of your position with as many details of the events as possible. Coordinate any investigation and data collection with your attorney to comply with the law.

Ask your lawyer for advice on what to say to the press. "If the wrong person says something, those statements can come back to haunt you," Walsh says. Usually, your best response to questions is, "No comment at this time," until your lawyer advises you otherwise.

Stay involved: Don't just turn the matter completely over to your lawyer. Work together in making major decisions on how to proceed, but defer to your attorney's expertise on the details.

Unless you are fortunate enough to have an insurance company pick up the tab on defense fees, your strategy for defense may depend on what you are willing or able to afford. Ask your attorney for an estimate of fees and expenses and then determine your potential liability exposure based on how much the case could cost, your chances of winning the lawsuit and how long the case may take.
For helpful tips on hiring a lawyer and more small business legal resources, visit the NFIB Small Business Legal Center online at

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