Best Practices, Operations, V4I2

LITIGATION 101: For the Defense

Congratulations! Your shed-building business is a success. Customer orders are flowing in, employee morale is high, and you might even take a short vacation.

Then you hear from a disgruntled customer, whose gripe may or may not have any legitimacy, and nothing you suggest will appease them. Next thing you know, you are served with a lawsuit.

If you think that scenario can’t happen to you, think again.

According to, of the 84.2 million cases filed in the United States in 2016, nearly a fifth involved complaints for money, breach of contract, and other civil matters.

Brad Frank

Brad Frank, a partner in the corporate law department of Minneapolis’s Barnes & Thornburg LLP, says business owners would be wise to “be careful about customers. While it can be appealing to take any and all business that comes along,” that’s not always the best policy. “If there is a bad feeling or problems at the front end, trust your instincts.”


While there is no foolproof way of preventing your company from ever being sued, there are strategies small business owners can and should take to lessen the likelihood. For example, Frank suggests creating a standard form contract for every transaction.

“Use that contract and get it signed by all parties for every project,” he says.

Not only that, be certain everyone who signs the contract is actually authorized to do so. Entering into a contract with someone who does not have the right to sign it, whether it’s because they are under age, haven’t been given that power by a superior, or for other reasons, is a critical mistake.

David Benson, managing attorney with the Benson Law Firm in Cleveland, agrees written contracts are mandatory. Not only should contracts or purchase orders be in writing, “be certain the terms clearly state the parameters of your relationship so you are sure everyone is on the same page,” he says.

Communication is key to any successful relationship, business or personal, so don’t underestimate it, says Benson.

“When you see a problem coming, make a phone call to explain any delays or difficulties that may impact the other party’s decision- making,” he suggests. It’s also of paramount importance to
maintain a dialogue with your business lawyer.

Frank agrees. “The more communication there is along the way with customers or suppliers, the more likely an agreement can be reached without lawyers” or litigation, he says.

Scott Stitt

“Ignoring a problem does not make it go away,” cautions Frank. No matter the steps a business owner takes to lessen the likelihood of litigation, it is still wise to be prepared, just in case. That is why Scott Stitt, a partner in the Columbus office of Tucker & Ellis, encourages entrepreneurs to “obtain more insurance than you think you will need, both for the business, as well as for you (and your family).”


While litigation is sometimes inevitable, there are strategies a business owner can employ to try to limit their liability once sued.

Incorporating your business as a separate corporate entity is an essential first step. Registering trade names, which are names you do business under with that corporate entity, is also important, says Stitt. Every state maintains its own laws about how to incorporate a business within its borders. While it is not necessary to hire an attorney to incorporate a business, doing so might save you time, money, and aggravation.

Moreover, the state office holder in charge of overseeing corporate matters differs from state to state. In Ohio, for example, the Secretary of State’s office administers corporate filings. Check online to find out who is in charge of such matters in your jurisdiction.

Moreover, a company can become incorporated in a state other than where the company owner lives. For example, because corporate laws in Delaware are extremely business-friendly, many companies incorporate their entities there. However, no matter where your company is incorporated, Stitt says it is wise to register the entity in every state where it does business.

“Every state where you have a customer is a state where you should be registered,” he recommends.

Maintaining a clear line between personal and business assets is also of paramount importance. That means, for example, opening and maintaining corporate bank accounts separate from personal ones. It is also important not to commingle funds. In other words, do not pay business debts from a personal account because that blurs the lines between the two.

“If you treat the entity as you, so will a court,” says Frank. Another way to differentiate between personal and business matters is by not offering personal guarantees. Doing so could lead to a situation called “piercing the corporate veil.” If that happens, and a court judgment is rendered against your company, you might be forced to pay a judgment from personal assets on top of corporate ones. Maintaining separate financial accounts helps draw a clear distinction between business and personal liabilities.


Not surprisingly, all three lawyers encourage small business owners to contact their legal counsel immediately if their company gets sued.

“Talk to a lawyer. Though you may not end up needing a lawyer to resolve the issues, you’ll want to understand your rights,” says Frank.

Another step to take if your company gets sued is to review your entity’s practices and agreements.

“The claims made against you could have merit, and you want to make sure you aren’t making the same mistakes with other customers or suppliers,” he says.

Also, while you might have a fantastic working relationship with your corporation’s lawyer, that does not necessarily mean they are equipped to represent your company if it gets sued. If
you hire an attorney to defend your company against the law-suit, be certain the lawyer is trained in litigation techniques.

Because litigation can be costly and time-consuming, do what you can to minimize the time your lawyer spends on your case. That means organizing and providing all pertinent documents, emails, texts, files, and any other information you have regarding the matter.

“Preserve everything you have, regardless of whether it looks ‘relevant’ or important,” Stitt urges.

While you may not think a certain document or email truly pertains to your case, a trained litigator may think otherwise. Your job is to help your lawyer defend you and your business, and providing information is an essential way to do that.

If your company gets sued, call your business’ insurance carrier to report the claim. Moreover, if your insurance carrier insists on providing you with a lawyer, Stitt advises company owners to request at least two attorneys to choose from. That way, you can meet with and compare the lawyers to determine who seems more aligned with your needs.


Just because a lawsuit is filed against your company does not mean full-blown litigation, meaning a trial, will ensue. In fact, statistics overwhelmingly demonstrate the opposite to be true.

According to the Florida Office of the State Courts Administrator, which tracks statistics on that state’s court system, trial courts in the Sunshine State disposed of over 2.7 million cases (not including probate, family court, or civil traffic infraction matters) in the fiscal year of 2010-11. Of that 2.7 million, only 4,348 were adjudicated through a bench trial, where a judge rendered a verdict, and of those, only 1,049 were decided by a jury. In other words, less than 0.2 percent of all civil lawsuits filed in Florida during that fiscal year reached the trial stage of litigation.

Of course, an excellent outcome of a lawsuit filed against your company is for a court to dismiss it as baseless.

Short of that, settlement options exist, if the parties are amenable.

For example, mediation early in the process can be particularly useful in settling a matter before full-blown litigation ensues. This is especially true when the dollar amount is low, or less than what it might cost to litigate a case, says Stitt.

Arbitration is another option for settling lawsuits. However, Stitt cautions, “It’s not necessarily faster or cheaper than litigation. Sometimes, litigation can be faster and cheaper, especially if the lawsuit is filed in small claims court.”

Stitt offers sage advice if a lawsuit gets settled, whether that means before fullblown litigation occurs or even before it is ever filed.

“Make sure any settlement includes a release agreement for all parties that not only resolves the claim but also releases all claims (whether known or unknown), so that the settlement brings closure to the dispute,” he says.

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