How Should Your Small Business Respond to a Lawsuit?

Opening and operating a small business in Maryland or any other state is challenging, but also rewarding. As you see your business grow and prosper, you realize that your hard work, dedication, late nights, and missed vacations were worth it. However, owning a small business has some risks. 

There are things that you cannot control such as the economy, natural disasters, and the changing needs and desires of consumers. However, you can prepare for some events by purchasing insurance, developing a disaster plan, preparing a business succession plan, and working with professionals such as a Maryland business attorney, accountants, and others to ensure you have adequate plans in place should the unthinkable occur.

Can Lawsuits Be Avoided? 

You have little control over whether a person or company sues your small business. There are steps you can take to limit the risk of being sued; however, there is usually nothing you can do to stop a party from suing.

While using detailed contracts and agreements can help reduce your liability if you are sued, they rarely prevent a party from suing. Even if you include a mandatory arbitration or mediation clause in every contract you enter, the other party might still sue, forcing you to respond and defend against the lawsuit. 

The only thing you can do is understand how to respond when your small business is served notice of a lawsuit. The steps you take immediately after being served with a lawsuit can have a substantial impact on the outcome.

Steps to Take When You Receive a Lawsuit Naming You or Your Small Business as Defendants

Do not panic if you receive a lawsuit and do not ignore the lawsuit. Panicking can lead to mistakes and poor decisions that could be costly. You should not contact the person suing your business, especially if a lawyer represents the person. Contacting the plaintiff is often a knee-jerk reaction that many small business owners make after receiving a lawsuit. Anything you say to the person or the person’s attorney could be used against you during the lawsuit. If you must communicate with the plaintiff (as in the case of an employment-related lawsuit), you should not discuss the lawsuit and always have a witness present. However, it is best to avoid communication if possible.

On the other side of that coin, you should not ignore a lawsuit. You have a set amount of time to respond to the lawsuit, or you may be held in default by the court. If you fail to respond to a lawsuit, the plaintiff may receive a default judgment from the court. A default judgment typically grants the relief being sought.  For example, if a vendor is suing you for failing to pay an invoice, the vendor may receive a judgment for the full amount of the invoice plus court costs and attorney fees if you do not respond to the lawsuit. You may have a reason for not paying the invoice, but you lost your right to present this evidence by failing to respond to the lawsuit.

Therefore, if your small business is sued, do not panic and do not ignore the lawsuit. Steps you should take include:

·      Reading the Complaint Carefully

Note who is suing your company, if you are named personally, why your business is being sued, where the lawsuit was filed, and what deadlines are contained for filing a response. In addition, if the lawsuit comes with a temporary order, such as a Cease and Desist Order, you need to understand the terms of the order so you comply with the court order.

·      Notifying Your Insurance Provider

If the lawsuit involves a matter covered by insurance, immediately notify your insurance provider. When a matter falls within your insurance coverage, your insurance provider may retain an attorney to defend the lawsuit. However, you might also want to consult an attorney to ensure that your personal legal rights are protected. Your insurance provider may defend the lawsuit regarding the business’s liability, but not your personal liability.

·      Contacting a Business Lawyer

You need to notify your attorney immediately upon receiving a lawsuit if you have an attorney on retainer. Your insurance provider may retain an attorney to defend the lawsuit, but you might need an attorney to determine if you need separate legal counsel to protect your personal interests. 

If you have no attorney or the insurance provider provides no attorney, you need to contact a defense attorney immediately. Retaining an attorney familiar with the law related to the allegations is recommended. For example, if the lawsuit involves allegations of product liability, you want to seek advice from a product liability lawyer. However, if the lawsuit alleges injuries from a slip and fall accident, you need a premises liability lawyer to handle the matter.

·      Do not hide anything or destroy evidence

It may be tempting to leave out information you believe could harm your case or delete or destroy potential evidence. You need to be honest with your lawyer and disclose all information, regardless of whether you believe the information is relevant or harmful to your case. Your attorney cannot effectively represent you or prepare a defense if the attorney does not have all the facts. In addition, you could be charged with a criminal offense if you destroy potential evidence after a lawsuit is filed.

·      Determine how to move forward with the lawsuit

After reviewing the lawsuit with a lawyer, you need to decide how to proceed with the lawsuit. If your insurance provider retained an attorney, you might not have as much decision-making power about how to move forward as you do if you retained a lawyer. There are several directions a case may take after a lawsuit is filed. Depending on the facts in your case, your lawyer may file a response with a motion to dismiss the case for cause. Your lawyer may also file a response with a counterclaim alleging wrongdoing by the plaintiff. Another option could include a third-party complaint in which you name another party to the lawsuit who could be liable.

Often, a lawsuit is settled without a trial through negotiations or mediation. Being sued is one risk that every company must deal with as they conduct business. Whether it is a vendor, employee, client, or other party, a lawsuit against your business is personal. Many business owners feel overwhelmed, indignant, and anxious. However, by focusing on your business and consulting with competent legal counsel, you can get through the lawsuit and move forward.

Protect Yourself and Your Small Business from Lawsuits

Even though you may not prevent a lawsuit, maintaining detailed and accurate business records could be a crucial element of a successful defense. In addition, you might incorporate your business to limit your personalliability. There are several options for incorporating a business that provides various levels of protection against personal liability. If you are concerned that your small business has a high risk of being sued, schedule a consult with Maryland business attorney Stephen Thienel today to discuss other ways you can protect yourself and your business. Mr. Thienel has decades of experience assisting clients with their tax planning needs throughout, Maryland, Virginia, and the District of Columbia.