Businesses generally know: Doing business in 2022 means dealing with litigious customers, vendors, employees and others. But businesses, especially those less experienced with litigation, do not always understand what that means. Unfortunately litigation cannot be wished away or ignored, often involves production of private company information, and is very costly, even when successful.
Here are four common misconceptions companies should consider when confronted with a new or potential court case.
1. Cases Almost Never Just “Go Away”
Sometimes businesses hope something will just go away – if we ignore the other side or play hardball, they will just move on. Don’t bet on it.
Our court system, both at the state and federal level, is an open system that typically errs in favor of allowing cases to proceed if they are not resolved by the parties. What your company may reasonably deem a meritless or baseless claim cannot be ignored.
While statutes and civil rules allow a defendant to move for sanctions for “frivolous” claims, this is a very high burden to meet, and still requires the time and expense of filing a motion with the court. Rarely will you get your attorney fees paid by the other side.
Unfortunately it is well known that even the assertion of a claim has potential settlement value because the defendant company will have to expend extensive resources to resolve the case one way or another. If a company served with the complaint does nothing, it will face a default judgment, which means the company is found liable and the plaintiff can proceed with proving damages. This turns a defensible claim into a costly judgment against your company.
As a result, even baseless claims require the defendant to retain counsel to either file an answer or, in a relative few situations, move to dismiss the claims. Unfortunately, a motion to dismiss is often denied as judges will err on the side of letting a plaintiff have their day in court.
Most courts will coordinate early settlement discussions to see if the parties can resolve the dispute. This is often the best opportunity to avoid extensive litigation costs, but requires active engagement to get the case resolved. The bottom line is there are multiple strategies to resolve disputes, but hoping they just go away is not one of them.
2. “Private” Documents May Not Stay Private
Court cases are driven by discovery, which includes requests for documents and information from your company. While there are mechanisms to protect confidential information from public dissemination, you will still often have to produce private or confidential documents to the opposing party.
This could include internal emails or memos you never thought would be seen by anyone other than the recipient(s). This often creates uncomfortable conversations and lends itself to the old adage “some things are better left unspoken,” or at least not put in writing. Consider having conversations with staff about private or personal conversations on company email systems.
More important than the uncomfortable conversations, however, is the private company information that may have to be produced in discovery. The court can enter protective orders so that such information can be marked confidential, but that doesn’t prevent the information from being produced if it is deemed discoverable by the court. The number of court decisions regarding what is “discoverable” are too numerous to count, so this will need to be something you discuss with your attorney.
3. Nothing Is Guaranteed
Clients often tell us the claims are ridiculous and there is no way the plaintiff can win. Some lawyers may be willing to tell them that too! When it comes to a jury of your peers or other third party decisionmakers, however, there are no guarantees. Our justice system—rightly or wrongly—appoints eight to 12 individuals just like you to decide cases. There are legal issues judges decide, but factual disputes go to a jury. While trials are not made for TV dramas, there are numerous factors that could lead to adverse decisions. There are certainly cases that “should” be decided in your company’s favor, but there are no guarantees. This takes us back to point #1, that even the most ridiculous cases will not just go away. Plaintiff attorneys know there is a chance to get their day in court, which will be costly to defend and poses a risk—however small—of an adverse decision.
4. Legal Fees are Not the Worst Part
Attorney fees will certainly be a drain on your company’s bottom line, but your time and energy are a bigger loss. Your company is built for being productive and making you and/or your owners money. Every hour you or your employees spend focused on defending the company in a court case is one less hour spent being productive. Whether it’s meeting with attorneys, searching and reviewing documents for discovery, or preparing and sitting through a deposition, you are losing time and energy that should be focused on your company’s business.
This is often the frustration that leads to a settlement, as management is tired of spending the company’s resources working on defending court cases and not the company’s core business. While no one wants to keep paying lawyers, it is even worse to keep losing the productivity that built and sustains your company.
There are other unpleasant surprises when facing litigation against your company, but it is best to face the litigation head on and partner with attorneys that know your company and appreciate the business decisions you face. As with any legal question, litigation strategy to resolve specific cases will depend on the facts at issue. Please consult a legal professional for a more specific inquiry.
This article should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer on any specific legal questions you may have concerning your situation.
Barnes & Thornburg LLP is a national, Midwestern-based business law firm that strives for a more entrepreneurial and cost-effective approach both to client service and its own business. Read more Metropreneurial Legal Insights.