Responding to a Lawsuit*

by
Dennis W. Chiu, Esq.
Owner
PRODIGY
LAW

Litigation is an unhappy prospect for any business owner. This article will focus on what to do if your business is sued.

 

SERVICE OF COMPLAINT

 

Once you or your business has been served with a lawsuit you only have thirty (30) calendar days to file a responsive pleading. Under the press of business, a month can seemingly pass quickly, so act quickly and decisively, before you find yourself in worse shape.

 

The worst-case scenario is that you do not respond and the plaintiff files a default against you, leading to a judgment.

 

Your attorney can file a motion for relief from a default judgment, but you will be paying for a motion that could have been avoided.

 

Business Insurance Note:  if your business is being sued for a claim that could be covered by one of your insurance policies, most insurance policies require that you notify the insurance carrier of a claim within a reasonable time. Providing a claim after too long a period may trigger a "Reservation of Rights" letter, where the insurance company may claim after analysis that you waited too long and it will not insure you against the claim.  Before submitting a claim to your insurance carrier, I highly recommend that you speak your insurance agent or broker. The insurance agent or broker should look over your deductible and help you analyze if you should report it. (Whether or not to report the claim to your insurance carrier is only a problem, if the claim is so small that it would be cheaper in the long run to deal with it yourself, then risk the long term higher insurance premiums.)

 

RETAIN AN ATTORNEY

 

In order to respond to a lawsuit (excluding a Small Claims action), you need to consult an attorney. You may want to interview 2 or 3 attorneys to get a feeling if you will work well together.

 

Many business claims involve a "Breach of Contract" cause of action. Most business insurance policies do not cover "Breach of Contract". This means that the cost of defense will be an out-of-pocket expense to your business, so selecting your attorney with appropriate fees is important.  However, losing a lawsuit may be worse, so it is a balancing act -- try and find the best business litigation attorney at the best value.

 

Look for a free consultation. Some attorneys do not offer free consultations, because the attorney uses the consultation fee as a test to determine if the client has sufficient money to pay the attorney throughout the litigation. An attorney in litigation may not withdraw without client permission or leave of the court. (So, the attorney may literally sometimes be stuck in a case where he/she will not be paid his/her full fee.)

 

If your insurance will provide an attorney, you do not have to worry about this step.

 

FILING THE RESPONSIVE PLEADING WITHIN 30 DAYS

 

The most common options are to:

 

1.  Demurrer

2.  Motion to Change Venue

3.  Motion to Strike

4.  Answer

 

Note:  Where the lawsuit is based on facts where you were acting or working on behalf of your LLC or Corporation, you as an individual should not be a party to the lawsuit.  Only the LLC or Corporation should be a party to the lawsuit. If you are individually sued, your attorney should make a motion to dismiss you as an individual from the lawsuit.

 

THEORY OF THE CASE (CASE STRATEGY)

 

One of the most important parts of litigation is to have a theory of the case or case strategy. This is your attorney's ability to chart out the big picture of your case, so he/she can decide on defenses, target discovery, and work the details of the case towards a conclusion in your favor.

 

CASE BUDGET

 

In most cases, an attorney should outline for you the general cost of all of the phases of litigation. The phases are:

 

1. Pleading Phase

2. Discovery

3. Motions (Pre-trial)

4. Trial

 

The cost of each phase is determined by the complexity of the case.

 

KEEP IN COMMUNICATION WITH YOUR ATTORNEY

 

Under the California Professional Code of Conduct, attorneys must let their clients decide on the major decisions (like whether or not to accept a settlement offer, whether or not to waive a jury trial, etc.) Most of the time attorneys decide the step-by-step case strategy.

 

My practice is to send a draft or the actual pleadings (motions, discovery, etc.) to my client at every step along the way.

 

The bottom line is that you have a right to know how your case is proceeding.

 

The worst-case scenario is if your attorney forgets about the case and a judgment of default is entered against you.  So, maintain communications with your attorney, and if he or she does not respond within 3-5 business days, write a letter by U.S. mail and facsimile, requesting a return phone call for a verbal or written status update.


Should you have any questions, Prodigy Law stands ready to assist you.


*PRODIGY LAW ARTICLES ARE CREATED BY DENNIS W. CHIU ARE FOR INFORMATIONAL AND EDUCATIONAL PURPOSES ONLY. ANY SUGGESTIONS CONTAINED IN THE ARTICLES IS ONLY THE GENERAL OPINION OF DENNIS W. CHIU. PRODIGY LAW ARTICLES ARE NOT WRITTEN WITH ANY SPECIFIC FACT PATTERN OR CASE IN MIND. THEY DO NOT REPLACE ORIGINAL LEGAL RESEARCH AND CONSULTATION WITH AN ATTORNEY REGARDING YOUR SPECIFIC MATTER OR CASE. PRODIGY LAW ARTICLES ARE PRESENTED "AS-IS", AND DO NOT GUARANTEE THE ACCURACY OF THE INFORMATION CONTAINED THEREIN, SINCE CASE LAW AND LAW CAN CHANGE RAPIDLY.