Opening a letter containing notice of a lawsuit can and does start a wave of fear and worry in business owners. You’re already too busy without having to deal with the headache of responding to and preparing for the lawsuit.
In addition, the possibility of a potential financial hit to your bottom line is beyond stressful. After all, if your business is sued and the lawsuit is successful, it could ruin your business — both from any bad publicity the lawsuit brings and paying damages awarded if the suit is successful.
The risk of being sued is a top worry for small and mid-sized companies, according to the Small Business Administration (SBA). The most frequent lawsuits filed against businesses include breach of contract, slip-and-fall accidents, discrimination and sexual or other types of harassment. However, whistle blower suits are becoming more frequent, and there are other facility-related liability grounds for a lawsuit.
So, what’s the first thing you should do if your business is sued?
If the claim is for $10,000 or less, the suit will be filed in Small Claims Court. Here, you can:
- Talk to the plaintiff to try and settle out of court.
- Try mediation services to settle the claim. Mediation services are available through Los Angeles County and the Center for Conflict Resolution.
But for many businesses, the amounts plaintiffs request can easily be more than $10,000. And in both cases, it’s critical that you know the steps to take and the process in court. An attorney that specializes in business law is the answer.
First Steps to Take When Your Business is Sued
- Read the complaint.
This will likely be full of legal terms that the typical business owner doesn’t understand. The point here is to learn and understand the legal grounds for the lawsuit. What did your business do to harm the plaintiff? Until you know that, you’ll have no idea how to officially respond. This is when contacting a skilled business attorney can be crucial.
- Don’t directly contact the plaintiff.
Your first instinct may be to call the plaintiff to discuss the lawsuit. However, this could put you at a disadvantage before you even respond to the complaint. Your words may be taken out of context or interpreted differently than you intended. They can even be twisted into an admission of guilt and can all be used against you in court. It’s far better to talk to the plaintiff through your attorney.
- Organize your documents.
Gather together all the relevant documents you’ll need to defend yourself. These may include records, invoices, payroll information, contracts and so on. It all depends on the legal grounds, if any, for the complaint. Organization is key, so make a list of all the documents you think you’ll need and check each one off as it’s added to you pile.
- Contact your insurance agent.
Do you carry full or partial protection against lawsuits? Insurance companies usually have notification requirements that, if not followed, may mean that if you carry lawsuit insurance, it won’t be paid out.
- Prepare and file your response.
What are your options? California gives you 30 days to respond to a lawsuit once a complaint has been filed with the courts. And it’s quite probable that you’ve been alerted beforehand by a demand letter or a pre-suit notice, which allows you more time to prepare. Your response depends on the evidence offered by the plaintiff and the type of business you own and must be in the proper legal format required by the California courts.
In general, your response should:
- Answer each specific issue outlined in the complaint.
- Provide an affirmative defense. This is where you produce credible evidence that counters the plaintiff’s claims. It’s your own set of facts and evidence that, if found true, means the plaintiff’s lawsuit is groundless.
- Be filed with the court where the complaint was filed.
- Be served to the plaintiff.
Whatever you do, don’t ignore the lawsuit. That in itself is seen as an admission of guilt, because if you don’t respond in the 30-day window, the court will allow the plaintiff to file a request for default judgement—meaning they automatically win the case — after another 30 days passes.
LawPLA is here to assist you if your business is sued for any reason. We specialize in business law, so we can guide you through the often confusing process and calm your fears and frustration. Just contact us for a consultation today.
