July 2020 Newsletter – You Have Been Sued: A Guide for Handling New Litigation

By: Raymond “Ray” Hafner

Executive Summary:  New litigation requires a company to take immediate steps to begin preparing a defense and ensuring the company is in the best position possible.  Failure to act quickly can seriously harm the company’s defense.  Successful companies will involve counsel immediately, investigate early, preserve all evidence, notify their insurance carriers, budget appropriately, and, if at all possible, resolve the case early.

“YOU HAVE BEEN SUED.  YOU MAY EMPLOY AN ATTORNEY.  IF YOU OR YOUR ATTORNEY DO NOT FILE A WRITTEN ANSWER WITH THE CLERK WHO ISSUED THIS CITATION BY 10:00 A.M. ON THE MONDAY NEXT FOLLOWING THE EXPIRATION OF TWENTY DAYS AFTER YOU WERE SERVED THIS CITATION AND PETITION, A DEFAULT JUDGMENT MAY BE TAKEN AGAINST YOU.”

So begins the sometimes long and arduous process of defending your company against a lawsuit.  The citation, or service of process, marks the first time the government, in the form of a court of law, reaches out to tell you, “You have a problem and are now under our jurisdiction.”  

Perhaps this dispute had been brewing for months and is no surprise.  Or you may not recognize the names of who is suing you and don’t know for what.  Once you receive the citation, however, the clock is ticking and failure to respond can seriously harm your defense.  This article provides a quick guide for how to respond and the actions any defendant should take at the start of new litigation.

  • Call an Attorney

If you already have a trusted general counsel, outside counsel, or use an outsourced general counsel, send them the citation and petition or complaint right away.  Competent counsel will be able to review the lawsuit and determine what issues are at stake, the potential size of damages, and, if the dispute is in a specialized area of the law, what type of attorney is needed to defend.  

Certain lawsuits, for example employment claims, anti-trust, securities, data privacy, and regulatory actions, will require counsel specialized in that area.  Having a trusted attorney on hand to point your company in the right direction is essential.  If you are unsure about which attorney to hire, be sure to consider multiple attorneys with the right kind of expertise in order to choose one you are comfortable working with.

  • Confirm the Details and Your Deadline to Respond

The citation and petition will include lots of information.  It’s important to determine exactly who is the plaintiff and who is the defendant.  If the plaintiff has sued the wrong business entity, that may be a basis for temporarily dismissing the lawsuit.  The exact entity will also be useful in determining the key witnesses and where to find the relevant business records.

Read the facts in the petition closely to see what details are included.  Does the plaintiff quote a specific document or mention any of your employees by name?  Does it identify a problem that is ongoing where you can take corrective action to reduce potential exposure?  Frequently, plaintiffs include nearly all the information they have, which can be useful for knowing exactly what you are up against.

Next, make sure you calculate your deadline to respond.  In Texas state court, the deadline is 10 a.m. on the Monday following 20 days from the date you were served.  It’s complicated, and Texas Rule of Civil Procedure 4 explains that the date you were served does not count as one of the 20 days, so now you can use a calendar to figure out which Monday is after twenty days.  Or you can just look at this chart [https://www.courtdeadlines.com/texas-answer-deadlines/].

Answers in federal court are typically due 21 days after service, but that can also be complicated.  Additionally, answers in federal court are much more detailed than those in state court, so it will take extra time to prepare the response.  In both state and federal court, the time to answer can be extended by your attorney.  Even if you are still seeking specialized counsel, be sure to have an attorney file an answer, so that specialized counsel may be substituted later.

  • Identify Key Witnesses and Records Custodians

Once you have hired counsel to defend the lawsuit, you should assist them in identifying the key witnesses at your company and identifying where relevant documents are kept or stored.  It is important early on to notify employees who may be involved in the litigation so that outside counsel can instruct them on keeping information confidential.  They should also know that employee communications with outside counsel are generally attorney-client privileged, but that privilege can be inadvertently or accidentally waived.  

The relevant records will be different for each type of case.  You will need to know where the documents are, both physically and electronically, and which employees are responsible for maintaining them.  That person is called a custodian of records and is able to certify the records in order to make them admissible in court.

  • Implement a Legal Hold

Perhaps the most important step early on in litigation is to put in place a legal hold that will ensure you preserve evidence.  A legal hold informs employees about the litigation and instructs the employs to preserve and keep all documents or evidence that is relevant in any way.  Legal holds should be put in place with the assistance of your records and IT employees, so that automatic deletion can be turned off for e-mail and other electronic records.  In the case of electronic data, even accessing the data has the potential to alter the evidence.

The failure to preserve evidence can be one of the biggest errors a defendant makes in litigation.  Courts that find spoliation of evidence will often impose harsh sanctions on litigants, including monetary damages and instructions to the jury that may make the case harder to win.  It’s important to remember that “documents” is interpreted broadly and includes any physical or electronic piece of evidence.  

Note that the duty to preserve evidence begins when it appears reasonably likely that a dispute will lead to litigation.  In that case, companies must implement a legal hold even before they receive confirmation that a lawsuit has been filed.

  • Notify Your Insurance Carrier

Often your insurance carrier and CGL policy may be responsible for paying some or all of the damages.  In many cases, such as in the case of accident or injury, insurance companies have a duty to defend companies against litigation, which means they are responsible for your attorneys’ fees.  For significant claims, such as those seeking more than your deductible, you should send your carrier a copy of the litigation and other relevant correspondence or records so carrier can make an initial determination about coverage.  Failure to timely provide notice may end up waiving the carrier’s liability or duty to defend.

Even when you have notified an insurance carrier and expect them to defend the litigation, it is important to ensure you do not miss the answer deadline or that you get an extension on the time to answer.

  • Develop a Budget

Litigation is expensive and once the case is underway the expenses can start adding up fast.  In addition to your attorney’s time, there may also be expert fees, deposition expenses, or third-party vendors that are all necessary to defend the case.  Additionally, litigation may take years, becoming a recurring cost that can affect quarterly results.  A litigation budget will help your company plan its overall budget.

Once your attorney has filed the answer, you should request a draft budget.  While litigation costs are inherently unpredictable – the same lawsuit can be wildly expensive when you face a contentious attorney on the other side – developing a preliminary budget early on will prepare you for upcoming expenses.  It will also give you something to hold your attorney to when the costs suddenly start rising.

  • Consider Early Resolution

If the plaintiff’s case appears to be meritorious or the damages appear to be minimal, you should consider resolving the lawsuit before the litigation really gets going.  The vast majority of civil cases settle and never see trial.  In many cases, the cost of settlement will never be cheaper than it is on the day the citation is served.  Six months or a year later both sides will have spent significant money on their cases while the amounts at issue remain the same.  

Competent outside counsel can and should determine whether the case is ripe for early resolution.  If so, this article may be all you need to know.  If your company has been sued and you are trying to figure out how to respond, do not hesitate to contact R. Reese & Associates.  Time is of the essence. If you have any questions or concerns, do not hesitate to reach out to RR&A at (832) 831-2289 or info@rreeselaw.com.

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