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Guide to Responding When Your Business Is Sued

Taking the wrong steps can cost you time, money and your business
By W. Eric Martin

Trademark infringement, a customer mishap, wrongful termination, lease violations, product liability -- your business can be sued for any number of reasons, and once the papers are filed in court, you don't get to dismiss those reasons as frivolous. You need to treat the lawsuit as something that can destroy your business because that's the truth. But by taking the proper steps in response, you can:

1. Have lawsuits without merit dismissed and your lawyer's fees reimbursed.
2. Protect the standing of your business in the community.
3. Keep your business functioning both during the lawsuit and afterwards.

Action Steps

The best contacts and resources to help you get it done

Hire a lawyer Presumably you already have a lawyer who's helped you with business organization or arbitrated disputes, but if not -- and a lawsuit has socked you from nowhere -- now's the time to get one.

I recommend:  Search the Findlaw lawyer directory for a legal partner for your business. LegalMatch is a good choice for when you need someone immediately. Make sure that the individual has experience with the legal needs of small businesses and the specific issues of the lawsuit before hiring. Most people represent themselves in small claims court, but you could still consult with a lawyer beforehand to discuss the case.

Try to stay out of court Being served with a lawsuit doesn't automatically mean a day in court. Do what you can to resolve the problem before the court date arrives.

I recommend:  Try alternative dispute resolution tactics: an apology, negotiation with the other party, an outside mediator who works as a go-between, and finally arbitration by an independent individual or panel. For those final two steps, find experts for hire at the National Arbitration Forum or the American Arbitration Association.

Prepare your evidence Claiming your innocence isn't enough. You need to provide proof that will convince a judge or jury to support you.

I recommend:  Documentary evidence -- checks, receipts, invoices, contracts -- will likely be crucial to your defense, so assemble this material well in advance of your court date so that your defense attorney can review it and ask for further material if needed. Other types of evidence include witnesses, discovery evidence, and demonstrative evidence.

Ready your testimony Evidence doesn't always stand on its own. You, your employees, and others might be called to the witness stand -- by either side in the lawsuit -- to answer questions. Your lawyer should help you prepare for this situation ahead of time.

I recommend:  Witnesses can't memorize their testimony, but they can be questioned ahead of time to help them organize their thoughts and remember details relevant to the lawsuit. The character of your witnesses helps to "sell" your side of the story, so think about how they'll appear in court.

Tips & Tactics

Helpful advice for making the most of this Guide

• Be courteous at all times in the courtroom. Your demeanor can be as important as the evidence in the eyes of the judge and jury.
• Check your business insurance policy to see whether it covers lawsuit fees. Some policies partially cover these costs.
• Learn how to give your testimony in layman's terms, avoiding business lingo and explaining technical details whenever needed.