What If Your Company is Sued?

Reality check: Odds are that at some point in time your company will be sued.  How long the case will be pending, how much will your company expend in legal fees to defend itself and what will be the final outcome are very difficult to predict. 

If your company is sued, IMMEDIATELY review the summons or citation (usually the top page of the complaint or petition that states the claims of the lawsuit) and CALENDAR the date on which a response/answer is due.  The number of days you have to respond will be prominently mentioned. 

If you do not file a response to the complaint or petition (generally termed an Answer), or a timely filed motion as determined to be applicable by your company's counsel), no matter how good a defense you may have, the law will assume that you did not intend to defend yourself because you had no defense and will correspondingly enter a default judgment in favor of the plaintiff and in the amount the plaintiff requests.  Once a judgment has been entered against your company, it is very difficult to set it aside.  Therefore, it is better to file an answer than to allow a default judgment to be taken.

Prosecuting and defending lawsuits can become very expensive, especially if the case is neither properly managed by you nor your attorney.  Lawsuits are furthermore very time consuming for owners, managers and employees.  Meetings with attorneys, answering discovery requests, preparing for and taking depositions, attending mediation sessions, waiting at the courthouse and the trial itself are time consuming and expensive propositions.  These activities distract from the mission statement of every company.

Lawsuits can be emotionally wrenching.  Plaintiff lawyers may ask for large amounts of actual damages and possibly even punitive damages.  A large award of actual damages, even where there is insurance coverage in place to defend and resolve the lawsuit, can potentially destroy a company.  An award of punitive damages can easily put a company out of business.  While punitive damage cases are rare, the threat of a punitive damage award will unsettle most if not all small to medium sized companies. 

The contingency fee plays a significant role in the amount and degree of lawsuits filed against companies.  To some extent it encourages litigation for the plaintiff who is not responsible to pay for his or her lawyer and at the same time provides a great deal of incentive to the lawyer to file a lawsuit. 

It is also important to note that the tort system in the United States is extremely inefficient.  It has been reported that for each $1.00 paid by insurance companies in settlements and judgments and in legal fees to attorneys they hire to defend their insureds, that $.58 goes to payment of attorneys and administrative expenses with only $.42 actually going to the person or organization injured or harmed.  In some types of cases, for example construction defect lawsuits, the percentage of every dollar going to the attorneys and expert witnesses can approach 80%. 

Generally, it is not beneficial for a company to defend itself without an attorney, even in an arbitration.  It may also constitute the unauthorized practice of law for a company officer or owner to represent his or her company in a lawsuit.  In these circumstances the court may have the authority to strike the pleadings filed by the owner or officer and enter a default judgment against the company.  Without a lawyer, there is also too much potential for making technical mistakes. 

It is also extremely important to find a qualified attorney or law firm to handle the cases your company files or are filed against it.  Utilizing an attorney who knows both your company and the industry in which your company operates can be especially important and will likely save you both time and money and will furthermore enable you to most likely reach a desired and even perhaps strategic outcome.