09/ 15/ 2006
by Beth Gaudio
NFIB Legal Foundation
Someone enters your business, asks for you and hands you a sealed envelope stating, "You are served." Unfortunately, lawsuits are a part of doing business. After being served with a lawsuit, what should a small-business owner do? Don't panic. There are several acts that can bring advantageous results in responding to a lawsuit.
Do not ignore the lawsuit
The most important point is to never ignore the claim, no matter who makes it or where it comes from; always be ready to act immediately. The other party can be in a state on the other side of the country, and you can be sued there if you've done business in that state. If you fail to defend against a lawsuit in the time mandated by the law, the other party can take a default judgment against you. A default means you lose the lawsuit, even if good defenses to the claim exist.
Contact an attorney
Despite any fears toward lawyers, do not hesitate to get legal advice. Call your attorney, or if you don't have one, find one quickly. Typically, an attorney will have around 30 days to respond to all the claims, leaving precious little time for delay. To find a lawyer, ask friends or business associates for a recommendation, call your state bar association, or contact a lawyer referral service. For more information, see NFIB's "Helpful Tips for Hiring a Lawyer." Your attorney may advise you to call your insurance carrier. Your insurance company will decide whether or not to defend your case, and it may even hire an attorney for you.
Organize information
Generally, an attorney will ask a client to collect information for litigation. Gather all documents together in a logical order that the attorney can easily access. Don't destroy any documents, including e-mails or other electronic records, related to the case. Compile a list of current telephone numbers and addresses of the witnesses and interested parties. Make photocopies of pertinent bills, records and 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. In some cases, an employer may have to investigate a claim, such as a sexual-harassment lawsuit. Coordinate any investigation and data collection with your attorney to comply with the law.
Work with your attorney
Don't just turn the matter completely over to your attorney. Stay on top of the case and work closely with your attorney to make decisions on how to proceed. Share all information with your lawyer because failing to provide a key fact may result in losing the case. However, do not become so involved that you approach the other party. Always remain silent about the case unless your attorney has instructed you otherwise. Your statements about the case may well be used as evidence against you at trial.
Formulate a plan
Unless you are fortunate and 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 on fees and expenses, and then determine your potential liability exposure with your lawyer based on how much the case could cost, what the chances of winning the lawsuit are, and how long the case may take. Decide on settlement possibilities and legal strategies, such as whether to countersue, using sound business judgment.
