What to Do When Your Business Is Sued

Being sued is a frightening scenario for business owners, and it can happen to anyone at any time with the United States legal system. This stressful possibility adds extra work to your team and can threaten the livelihood of your business depending on how it is handled.

This step-by-step guide will walk you through the process—from how you will be contacted to how to handle it—to make the situation a bit easier for you if it occurs. Being prepared and knowing what to do can help minimize damage done to your business.

1. Demand letter

Occasionally, business owners will receive a demand letter. This letter is not a lawsuit, but rather a complaint asking for corrective action. This is an opportune time to contact your attorney and prepare a response. Quick action and early mediation can prevent a potential lawsuit.

2. Formal complaint

A formal complaint will then be received if the matter isn’t resolved through the demand letter process. This could be delivered in a number of ways, including being delivered by a sheriff or mailed to your company.

The formal complaint will include a summons telling you that legal actions have been taken against you. It will also lay out the claims being made against you, give you a time frame to respond and identify the courthouse in which the actions will take place.

3. Review the complaint and preserve records

As soon as you are served, you need to review the complaint and use this time to learn the facts and prepare.

During your review, you will find out the time frame you have to respond to the complaint. In most courts, you have 20 to 30 days, but a hearing could be set in as soon as three days.

Even if the claims are false, take the complaint seriously and come to court prepared. Don’t just set it aside; you will need to prove your case.

It is also important that, from this point on, you find and preserve any records related to the incident or the case. These will be helpful in court and could be vital in proving your case. Be aware that destroying or discarding records, including emails, while you are in a lawsuit may be illegal.

4. Contact your attorney

After gathering all of the necessary records and reviewing the complaint, you will need to contact your attorney if you have not already. Inform your attorney of any related facts and hand over any files or documents that may be needed.

This step should be completed as soon as possible to give your lawyer more time to gather information and make your case. Your lawyer needs to know everything, so don’t hold anything back. This will make sure they are able to defend any claims made by the other side and won’t be surprised by any accusations.

You can then work on a strategy with your attorney and prepare your defense.

You also have other options, including choosing not to respond (default), filing an answer or filing a motion. Your lawyer will have the best advice on what choice is ideal for your business and your case. While it is specific to the California legal system, you can find out more information on your options and how to choose your response from this California Courts’ page entitled “Being Sued.”

5. Contact your insurance agent

After you contact your attorney, your next step should be contacting your insurance agent. Depending on the type of policies you have, your insurance company may help front some of the costs (for example, liability insurance may be able to protect you against legal costs resulting from a customer or employee’s liability complaint). Have your agent work with your attorney on what your policy will cover during the resolution of the claim.

You will keep your costs lower by contacting your insurance company quickly because most policies state that they aren’t obligated to help if they aren’t notified promptly.

6. Consider settlement or mediation

Being willing to compromise can soften the damage to your business’ reputation in the public eye. Settlement can also minimize financial costs because you avoid court fees and paying potentially higher damages later. Your attorney can help you decide if this is an ideal route for you. You can also seek out impartial mediators to advise you on your options; to learn more about arbitration services, see the American Arbitration Associate website here.

7. Consider countersuit

In some cases where your business is not at fault, countersuing is a realistic option. If you feel your business’ reputation may have been damaged by the plaintiff’s false accusations, countersuing on the grounds of defamation or slander is a possible scenario. If your company is potentially partly at fault, countersuing can still help prevent some damage done to your reputation.

If you have a claim against the plaintiff, you must file a cross-complaint at the same time you file your answer. If you don’t file at this point, you will waive your claim.

You have the possibility of receiving financial compensation for court costs if the suit goes well. However, this decision should be considered and debated thoroughly with your attorney before taking action.

8. Prepare to go to trial

Occasionally, the best option you have to remedy the situation is to go to trial and fight your case. If the parties cannot settle the case outside of court, pretrial will start around 90 days before the trial will begin. During this time, prepare for trial by gathering witnesses and collecting your necessary evidence with the assistance of your attorney.

Trials can last anywhere from hours to months. This is likely to be a stressful time, but good preparation and advice from your lawyer will help guide you through the process.

After trial, either side can appeal or collect judgment.

Following these steps will help keep you on the right track in the unfortunate event that your business is sued. However, good preparation, recordkeeping and communication with your attorney can ensure you make the right decisions along the way and make the best choices for your business and your case.