Your Company Has Just Been Sued – Now What?
It’s hard to think of a more disconcerting feeling than getting a copy of a lawsuit filed against your company. If you have no or little experience with litigation, this can be a panic-inducing moment. And no matter how experienced you are handling litigation, your stomach will start to flutter as you read through the allegations. There are some core things you need to focus on up-front to put yourself in the best position to defend the claim. Below are ten things to do when your company gets sued:
1. Read the complaint. Take a deep breath, find a quiet place, and read through the complaint. Start with a first pass, i.e., a quick skim to get the gist of what’s alleged (and just because it’s alleged doesn’t make it true). Then, a second more careful reading. The first thing you will be asked by the business is “what is the lawsuit about?” This will help you answer that question. As you read, check to be sure they have named the right parties and that service is proper. Is there an arbitration provision or a dispute escalation process required by your contract? Did they follow it? Mistakes like these are common and they can buy you additional time to respond.
2. Prepare a short summary of the lawsuit. This will help you focus and distill the issues. Include basic information such as the parties to the suit, where you are being sued and the judge, the claims made against your company, and the types of damages alleged (monetary, injunctive, etc.). You’ll also start a list of potential defenses to the claims.
3. Identify key documents and witnesses. As you prepare your summary, make a list of documents (contracts, emails, presentations, etc.) mentioned in the suit. You should gather those up quickly and review them asap. Are any company employees named? If so, start a list of witnesses to interview. If no one is named, think about the part of your business involved in the suit and who within that organization can help you identify potential witnesses and documents.
4. Implement a litigation hold. Do this immediately. Litigation today is as much a game about “gotcha” over discovery issues as it is about the merits of the claim. A proper litigation hold is of paramount importance. Use the materials you prepared in 3 above to identify who you need to contact to ensure they preserve documents (and remember, “documents” is broadly defined, i.e., hard copies, soft copies, drafts, calendar entries, instant messages, etc.). You should have a standard litigation hold notice on hand. Don’t worry about gathering up “every” document at this point. Counsel will drive the collection process down the road. As the case develops, refine and update your list of people subject to the hold and what records need to be kept. Regularly remind all of the people affected by the litigation hold that it is still in place (e.g., via a monthly or quarterly email) and get them to affirmatively acknowledge that they received each notice/reminder and understand their obligations (including the initial notice).
5. Who needs to know? If it’s a small claims matter, probably only a few people. If it’s major litigation, then certainly the CEO and CFO and other C-suite executives (and likely the Board of Directors). Keep in mind that it is rare that a senior executive fully understands the litigation process. You will probably need to some “Litigation 101” as you look to soothe nerves within the company. Since almost all lawsuits show up in some type of electronic docket, the media will likely receive a copy. For example, employee claims can be particularly appealing to the media. Bring your corporate communications team up to speed early on all but the most minor litigation. Having a response ready to go in the event the media reaches out to your company will save you a ton of late-night work. If you work for a publicly traded company, contact your investor relations team and disclosure committee (and you may need to file an 8K or add to your next 10Q).
6. Does insurance cover the claim(s)? For any material litigation, check with your insurance broker or internal team responsible for insurance to see if any of the allegations are covered by any of the company’s policies (Directors and Officers Liability, Errors and Omissions, CGL, etc.). Check them all. And remember, it is not the headings of the claims that control whether insurance is triggered, but the factual allegations contained in the complaint. Don’t make the mistake of just looking at the title of the Count I or Count II and concluding there is no insurance coverage. If there is any basis for coverage under the facts alleged, notify your carrier. The duty to defend is broader than the duty to indemnify. Your broker/internal team will help with this. Be watchful of how the insurance company responds to any notice.
7. Select outside counsel. Unless your company handles litigation internally, you will need to hire outside counsel. You probably have a “go to” list already in place but don’t hire a firm on knee-jerk reaction. There are many things to consider before picking counsel, including where the claim was filed, does it involve claims based on unique statutes, who represents the plaintiffs, how much/what is at stake? It may be that there is a TRO involved and you simply need to make a choice and go. But, if you have time, think hard about who the best choice would be. Time and other circumstances permitting, running a “request for proposal” process can be helpful. Not only will you be able to compare expertise and rates, firms typically provide some type of detailed preview of how they would attack the case – which you can use even if you don’t select that firm.
8. Can this be settled/resolved quickly? Just because a lawsuit was filed, doesn’t mean the dispute cannot be resolved quickly. I was involved in several cases where all it took was a phone call or two to get litigation resolved (usually involved correcting a faulty factual premise). Would early mediation be something the other side would find appealing? Does your company just owe some money and needs to pay it? It’s worth spending some time before you crank up the litigation machine to try to quickly resolve the dispute if possible.
9. Who is the client? You typically think of the company as a whole as your “client.” That’s true enough. But, who will you work with on settlement authority, budget, mediation, discovery, etc.? You need someone in the business to be your “client.” Work with senior management to identify that person and develop a strong working relationship going forward.
10. Are any confidentiality issues triggered? Litigation is a very public process. Start thinking about any sensitive trade secrets (e.g., price information or contracts terms) or reputational issues that could arise throughout the case. If you think the plaintiff has already violated a confidentiality clause in the agreements at issue in the lawsuit (i.e., disclosed confidential information in the complaint), get a protective order on file as soon as possible and try to get the documents sealed. Keep confidentiality issues top of mind as you go forward. Outside counsel will be invaluable here.
There are, of course, many other things to start thinking about (e.g., budget/costs, counterclaims, staffing the case from the legal department) but this list will put you in great shape, especially if the CEO calls down and wants to know what you’re doing with respect to that new lawsuit filed against the company. Now you have ten things you’re doing off the bat. Above all, don’t panic. Litigation in the commercial context is almost inevitable for companies, especially in the United States. It’s going to happen at some point. When it does, it’s your chance to step up and be the calm in the eye of the storm.
If you have questions about this blog or if we can help you, reach out to Hilgers Graben at [email protected].