No business wants to deal with a lawsuit, but the reality is that legal disputes happen. Whether they stem from a contract disagreement, an employment issue, or a customer complaint, lawsuits can be costly, time-consuming, and stressful. The key is knowing how to respond effectively and, when possible, preventing disputes from escalating in the first place.
But what should businesses consider if they find themselves facing legal action? The first course of action, naturally, is choosing the right attorney. However, that’s easier said than done. Here are three things to keep in mind when selecting an attorney:
1. Go With Honesty Over Salesmanship
Too often, attorneys are so focused on landing a client or making money that they don’t give people the blunt truth about what they’re really facing. That may help close the deal, but it doesn’t help the client understand the reality of their case. In many situations, the first time a client hears a real, unfiltered assessment is during mediation, when a neutral mediator lays it out for them.
2. Responsiveness Matters
Does the attorney call you back? Do they respond to your emails? Many attorneys are simply too busy. And while that may be good for them, it’s not good for you. Make sure your attorney actually has the capacity to take on your case and the staff to make it the priority it should be.
3. Experience Matters Even More
When choosing a lawyer, opt for experience and positive reviews over the name on their diploma. I went to a fancy law school, but after 10 years in the field, I can tell you it doesn’t mean much. School isn’t real life. Real life is real life. At this point in my career, I can usually give the client a realistic outcome after the first meeting, not because I’m brilliant, but because I’ve handled thousands of cases, jury trials, bench trials, and mediations. I’m not a genius. I’ve just seen the same movie so many times, I know the plot, I know the villains, and I’ve spent years studying people. After sitting beside thousands of clients through some of the hardest moments of their lives, you get to know human behavior pretty well.
Where Businesses Go Wrong
While choosing the right attorney is crucial when facing a lawsuit, many legal battles could be prevented altogether. Through years of practice, I’ve seen the same preventable mistakes surface again and again. Here are the most frequent—and often costly—pitfalls that leave businesses exposed:
1. Not Having Enough Insurance
The first line of defense against lawsuits is often your insurance policy. Insurance exists to bear the financial risk of your mistakes, because mistakes will happen. Don’t skimp here. Get a comprehensive policy, not the cheapest one. No amount of legal work can undo a bad decision; it can only minimize the damage. A major misstep without coverage can sink your company. Good insurance not only covers liability but often includes legal defense, which can save you thousands in attorney’s fees alone.
2. Failure To Set up a Proper Business Entity
Your business structure is your legal shield. Make sure you establish an entity that prevents you from being personally liable. Too many people think they won’t get sued—until they are. If you have a proper entity set up and maintain it correctly, you’ll sleep better at night.
3. Ignoring Changing Rules & Regulations
Compliance isn’t static; it’s an ongoing responsibility. Laws and compliance requirements are constantly evolving. A good attorney (and ideally a great CPA) can help you stay informed and audit your business practices to flag risk areas before they become legal problems.
4. Going Silent When Someone Is Upset
Communication breakdowns often lead to legal showdowns. When someone is upset about something your company allegedly did wrong, don’t ignore them, even if you think you’re in the right. The goal isn’t to be right; it’s to resolve the dispute before it becomes an expensive, stressful lawsuit. A quick call, informal meeting, or mediation session can often calm things down. Take bold steps to resolve problems quickly and use your attorney to get ahead of the issue.
Steps To Take When Facing a Lawsuit
If you’re served with legal papers, time is of the essence. Start by filing a claim with your insurance company. Your insurance broker or agent will typically file the claim for you or direct you to the right website to do it yourself. Once the claim is submitted, an insurance adjuster will be assigned to your case and guide you through the process.
Next, decide whether to settle or fight. This is often the most difficult choice business owners face. I always tell clients that “right” and “wrong” don’t really exist in the law. Both sides believe they are telling the truth and that the other side is lying or trying to extort them. The truth usually lies somewhere in between.
From my perspective, it’s not about who’s right, it’s about how best to make the case go away. If the settlement amount is less than what you’d spend on attorney fees to win, it’s a no-brainer: just pay them. It is very expensive to be correct. I’d rather settle and preserve capital than be “right” and drain the business.
Also, remember that the courtroom isn’t your only option. There’s also mediation. Mediation is one of the most effective tools out there. It resolves 99% of disputes and is where most lawsuits end up anyway—after you’ve spent a small fortune on legal fees. Skip the attorney fees and go straight to discussions. A calm conversation or neutral mediator can go a long way.
Now, if the demand is outrageous or the other side refuses to be reasonable, even after mediation, then sometimes you have no choice but to go to trial. I always say, if you are going to trial, it’s probably because one or both sides are being irrational and/or unreasonable.
Final Takeaway
Lawsuits are a fact of business life, but they don’t have to be catastrophic. The right attorney, the right insurance, and the right approach to conflict resolution can make all the difference. Be prepared, stay proactive, and don’t let pride turn a small dispute into a financial disaster.
Mark Russakow is a seasoned attorney with over 25 years of experience in business, employment, probate, personal injury, and civil litigation. A graduate of Loyola Law School and UC Irvine, Mark currently serves as Managing Partner at Arroyo Law Group, LLP, and is a LegalZoom Network Attorney. He’s also an active board member for several community organizations, including the Ronald McDonald House Charities and the Pasadena Bar Association.
Photo courtesy Getty Images for Unsplash+
