How to Handle a Business Lawsuit

Even the simplest business operation has the potential to spend countless hours fighting a lawsuit from customers, employees, or other companies.

Let’s Take A Quick Look at the Legal Process

How do you know if you’re being sued?

You'll receive a summons or complaint when a company or individual initiates legal action against your business. The complaint will outline the allegations and legal basis for the lawsuit.

What do I have to do next?

You must respond to the lawsuit by filing a document with the court within a specified timeframe. The timeframe changes based on jurisdiction. Jurisdiction in this context refers to where the lawsuit is being brought. Rules change by state and sometimes even by county and court. This means that the timeframe in New Jersey is different from the timeframe in Pennsylvania. Also, in Pennsylvania, procedures may differ from county to county. If you do not file any response or fail to respond within the proper time frame, a default judgment may be entered against you.

What does a response entail?

A response could take the form of an answer or another documents such as a preliminary objection (in Pennsylvania) or a motion to dismiss (in New Jersey). Once again, your options will depend on jurisdiction.

What happens next?

Next, you begin discovery. Discovery is exactly what it sounds like- you are discovering information from the other side or third parties. You can do this using different mechanisms. This could mean producing documents or answering interrogatories, which are written questions produced by each side. It could also mean depositions, which are questions provided orally by both sides. There are several other ways of discovering information as well.

Discovery is used to figure out what evidence each side has, what credibility witnesses bring, what information experts may be presenting at trial, and much more. It’s a time to determine liability and damages as well.

Throughout the litigation process, you may also have motion practice, where the attorneys request remedies from the court. Depending on the court, your motion may require oral argument before the court or just a written submission to the court.

This process is intended to help both parties put all their cards on the table in order to both prepare for trial, and also to see if they are able to settle prior to trial.

Steps on How to Handle a Business Lawsuit

How you handle a business lawsuit is essential. First, lawsuits can be time-consuming. Second, they can deflect you from core activities, namely running your business and generating revenue.

Follow these steps if a summons or complaint crosses your desk.

Step 1: Talk with a Business Litigation Attorney

The first thing you will want to do is find a business litigation attorney near you. That attorney should be able to address your specific concern. It is just as important to have access to specific experience as it is to have specific experience. Does the attorney have other attorneys within a law firm who know about areas of law that may come into play? Find someone competent, but also someone you trust.

Litigation can be long and draining. You’ll want someone who will walk through the process with you and not only be able to guide you legally, but will be able to walk beside you as you go through this difficult process. You want someone who will communicate with you every step of the way, and someone who will be able to provide explanations and options as to the best course of action every step of the way.

A good attorney will also talk to you, the client, about the possibility of coverage. Many businesses have insurance. Certain lawsuits may be covered by your insurance policy. Your attorney should review any insurance policy you may have and discuss with you who will contact the carrier or agent. This is part of being a partner in the litigation process.

It’s critical to give timely notice to your insurance company. Not only will late notice crater coverage, a lot of carriers won’t even start calculating the retention or the deductible until notice is given.

Step 2: Go through the Complaint with a Red Pen

You’ll notice that the Complaint is usually presented in a timeline fashion. Go through each line and mark up what is correct and what isn’t correct.

Ask the following questions:

Did they miss important details?
Did they get something wrong?
Is any of the information true?
Did they miss mentioning important characters in the story?
Did anything important happen in between certain lines of the Complaint?
Is the timeline off?

Your business litigation attorney will want to know all this. The better you prepare, the better your attorney will be prepared.

Step 3: Start Gathering Your Evidence

One of the keys to success when running a business is good record-keeping. Your records will be helpful if you face a legal challenge. You’re going to need a paper trail to defend against a lawsuit.

This is one case where less isn’t more. If you think it could impact the case, include the information. Below is a good starting point on documents to have on record for your case:

Business contracts and agreements
Financial records and statements
Communications (emails, texts, letters)
Witnesses
Prior disputes

Your records should tell a story from beginning to end. That story should convince the court that your version of the dispute is correct.

Step 4: Determine Your Course of Action

With any business lawsuit, you can take several directions:

Admit to and take care of the claim.
Deny the claim and begin your defense.

Your lawyer can guide you through the pros and cons of each approach, and each approach will likely have several ways of addressing the course of action you take.

You may also be able to avoid going to court by settling the dispute. Many lawsuits take this route.

Step 5: Investigate Alternatives to Litigation

Legal proceedings can be a drain financially and even emotionally. Even if you win your case, you face distractions, courtroom hours, and legal costs. Settlement is one way to avoid those burdens.

Considering using alternative dispute resolution (ADR) to resolve your business conflict could be an option. ADR programs excel at getting results that are flexible and cost-effective. Equally important, they help retain business relationships.

The most common forms of business ADR are negotiation, mediation, and arbitration.

Is there anything I can do to protect my business from a lawsuit in the future?

While you can't wholly avoid lawsuits, there are steps you can take to reduce the risk of having to handle a business lawsuit.

Focus on these actions:

Insurance: Identify where your business could be most at risk for a lawsuit. Then, make sure you have appropriate coverage.
Contracts: They're a substantial driving force behind business lawsuits. So, take the time to draft clear and precise contracts that state responsibilities and deliverables. Even when dealing with friends, and maybe especially when dealing with friends, take the time to draft a contract when doing business. Contracts are just a way to set boundaries and set expectations up front. If everyone is on the same page up front, there’s less chance of hurt feelings or “I didn’t know” that’s what you meant/wanted in the future. A well drafted contract can and should help you protect your relationship with the person or entity you are contracting.
Employment Policies: Establish and communicate employee policies governing customer interactions, competitive conflicts, internal communications, etc. An employee handbook is essential for any startup business. Restrictive covenants can also avoid legal disputes with employees and competitors. Again, this is another way to set expectations. If you teach your employees what is expected of them, they can’t say they didn’t know later. The best course of action is always policies coupled with actual training.
Safety: Some businesses require more attention than others with safety regulations. Construction and manufacturing companies, for example, demand strict attention to safety concerns. There are ways to mitigate risks. There are also ways to mitigate liability. One of the ways to mitigate liability is make sure people are aware of dangers and safety concerns. Once again, both policies and training are always the best protection.
Business Formation: Consider your chosen legal structure when starting your business. Your structure impacts asset risk, taxes, operations, legal protections, and benefits. You should speak with both your attorney and your accountant before making this decisison. Each business entity has its specific pros and cons.

Free Download: Legal Handbook for Starting and Running a Small Business

Download our quick and concise handbook featuring the legal steps and strategies to accelerate your growth and company success.

Business Litigation in Bucks, Delaware, and Montgomery County, PA

Handling a business lawsuit starts with having an experienced business litigation attorney on your side. They can distinguish between winning and losing a business lawsuit, and guide you through the complex legal system.

High Swartz has law offices in Doylestown, Norristown, and Wayne, PA. We represent local and national businesses. If you face a legal dispute, call our firm.

Roxanne Zhilo is a commercial litigation attorney, whose legal practice focuses on business litigation and complex civil litigation matters. She also works as a small to medium-sized business (SMB) counsel, and has experience with employment law and contract matters. She regularly advises non-profits and businesses in risk mitigation, liability assessment, procedural and protocol framework, and employee policies.