Operation Litigation: Top Tips if Your Business is Threatened with a Lawsuit

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We continue to provide legal resources for our military veterans returning to the workplace in our monthly “Vets to Ventures” series. Previously, we have discussed how skills acquired in the military translate into becoming a successful entrepreneur, and what corporate structure is appropriate given your company’s situation and objectives.

This month, we look at the top tips if your business is threatened with a lawsuit. As they say, no plan survives contact with the enemy. And if you operate a business you can plan on potential litigation at some stage of your operation. Veteran-owned businesses must be proactive. Following these tips is mission critical to enhance preparedness and resilience in litigation.

Top Tips if Your Business is Threatened with a Lawsuit

1. Perform pre-combat checks and pre-combat inspections

We live in a litigious world, and you must prepare for a lawsuit that could occur. You would not step out for a mission without checking your kit, and this holds true regarding legal matters. Veteran business owners should proactively check on the following aspects of their operations.

1. Contract clarity - Ensure that all parties understand the exact terms of the contract. Avoid guesswork and ambiguity by having an explicit, written agreement.
2. Employment policies and procedures - Well-defined employment policies and procedures are crucial for avoiding employment-related litigation. Clear guidelines minimize the risk of legal complications.
3. Document retention and organization - Establish a robust document retention program. Retaining relevant documents plays a pivotal role in building a solid defense. Every business should have a document retention program in place. Prioritize meticulous record-keeping. Organize and preserve relevant documents, e-mail threads, sharing them with your attorney to enhance the defense strategy. Whether facing customer disputes or internal disagreements, superior records put you in a stronger position. Good records tell your side of the story and become a powerful tool in navigating legal complexities.

2. When you have a bad feeling about something - do not ignore it

Wounds fester, and unaddressed issues can escalate. Business owners should trust their instincts and promptly address concerns, preventing them from becoming problems. Interpersonal communication is vital in preventing issues from worsening. Talk to your team regularly, address concerns promptly rather than letting them compound. Liability increases when businesses are aware of issues but fail to take corrective action.

3. Understand the distinct types of lawsuits and litigation

Small businesses, especially those owned by veterans, may face diverse lawsuits, demanding a nuanced approach for resolution. It is beneficial to understand the various kinds of lawsuits.

1. Personal injury/property damage - Typical for public-facing businesses, these claims may involve incidents like slip-and-fall or damage to customer property. Ensuring adequate insurance coverage is vital. Workers’ compensation issues related to business operations may also fall into this category.
2. Contract dispute - Vendor contract disputes pose significant challenges for businesses. Mitigating risks associated with these disputes requires clear and comprehensive contractual agreements. Companies must proactively address potential conflicts arising from contractual relationships with vendors.
3. Breach of fiduciary duty - In cases where owners sue each other, or shareholders take legal action against officers, breach of fiduciary duty claims may surface. To safeguard against such issues, directors' and officers' insurance can provide coverage, offering protection in disputes centered on fiduciary duties.

4. Getting the right insurance is a business strategy

Business owners need robust defense strategies when dealing with property damage or personal injury situations. The following is a streamlined approach.

1. Is this covered by insurance? Make a claim - Evaluate if incidents are covered by insurance and promptly make a claim. Photographic evidence is instrumental, and insurance, under general liability (GL) or professional liability (PL) policies, can cover property damage or personal injury. Insurance typically does not extend to contract disputes, but Directors and Officers (D&O) policies can safeguard against breach of fiduciary duty claims. In cases without insurance coverage, hiring an attorney directly is imperative. Legal representation is an investment in protecting business interests.

5. Hire an attorney early. Litigation can be expensive. 

If you feel like you need an attorney and/or legal advice, consult with one immediately. Time is of the essence in legal matters. Delaying the hiring of an attorney can lead to severe adverse consequences, including default judgments. Swift action is crucial to building a robust defense. It only worsens the longer you wait; it does not go away.

1. Understand the financial implications of litigation - Business owners should strategically prepare for legal proceedings costs rather than being solely driven by principle. It is about strategy, not principle. Avoid hills you would be willing to die on, as the costs can be significant, and clarity tends to fade in the fog of war.
2. Recognize that legal costs accrue quickly - Efficient use of legal resources is critical, considering the added expenses associated with prosecuting a case. Your time is expensive. Be aware that active participation in litigation demands considerable time and effort. Business owners should acknowledge the expense of their time, understanding that assisting attorneys in preparing the case is part of the cost.
3. Emotional/psychological trauma. Be prepared to settle - Be prepared for the emotional and psychological toll. Acknowledge the adversarial nature of legal proceedings, especially for those personally invested, and consider settlement options when deemed beneficial.

Conclusion: Strategic Legal Preparedness

Veteran business owners must proactively approach legal matters, ensuring their policies and contracts are in order, understanding potential lawsuits, securing evidence, and seeking timely legal counsel to fortify against legal threats. Recognizing the value of proactive legal counsel from the business's start is crucial for developing robust contracts and policies, diminishing the risk of litigation. Initiating a partnership with an attorney who understands business intricacies can prevent costly missteps, streamline processes, reduce costs, and facilitate decisions.

We look forward to continuing to provide hot topics of corporate and legal interest that can help military veterans transition back to society and launch their new business careers.

Vets to Ventures Series

• “Forming an LLC or Corporation: Which Business Entity is Right for You?”
• “Legal Intel for Veteran Entrepreneurs”

 For Our Veterans, By Our Veterans - Adams and Reese is proud to feature a series of informative articles addressing hot topics of legal interest for service members transitioning back to the private sector. Sean Buckley, a veteran U.S. Navy Officer, is a corporate services attorney in the Houston office. John Woods, a former infantry officer in the U.S. Army National Guard, is a litigation attorney in the Memphis office.