Lawsuits can be costly, time-consuming, detrimental to positive public relations and, it seems, inevitable.
Whether a lawsuit is justified or not and not all lawsuits are it can tie up a company’s resources that might be better utilized in carrying out the business’s mission. A lawsuit also requires a company to retain attorneys to defend it or to find an alternate way to solve the dispute, such as direct negotiations between the parties or arbitration. The best way for a company to defend itself against lawsuits, then, is to prepare adequately for them.
Smart Business spoke with Jeffrey R. Elkin to learn how a company can prepare for and defend against lawsuits.
What can companies do to prepare for lawsuits?
There are seven basic guidelines that I tell my clients: 1) Follow a simple rule: It is better to do a bad deal with good people than a good deal with bad people. In other words, choose the right business partners. Be careful who you do business with. To the extent possible, companies should do business with people they know and trust. That is one sure way to limit the possibility of being sued. 2) Follow the adage: ‘An ounce of prevention is worth a pound of cure.’ Get legal advice and assistance early instead of waiting for a lawsuit to be filed and then bringing in an attorney. It can be less expensive and usually alleviates the risk of litigation.
Remember, part of a lawyer’s job is to anticipate potential problems and help design ways to avoid those problems. It is much more efficient to do that at the front end of a transaction than wait for a dispute to develop and try to resolve it through litigation. 3) Hire the best people, and work hard to keep them. Often, litigation occurs when companies fail to hire and retain the best employees available. This can be a costly mistake. While it may save money in the short term to hire less-than-stellar employees and hope they work out, it is not always worth taking the risk especially if the company ends up in court. 4) Make sure that every transaction is properly documented. There is no substitute for a well-written transactional agreement. Such an agreement anticipates the potential issues or problems that the parties may face in the future and establishes, within the document, an agreed way to handle such situations. That is a far more efficient way to handle disputes than through litigation. 5) Address business complaints immediately. Letting a business problem percolate without addressing it usually leads to a lawsuit and increased cost to a company. Try to nip a problem in the bud by dealing with it. Make litigation the last alternative, not the first. 6) Be ready for litigation. Have a document retention policy in place, so that important evidence will be preserved. Train employees in the proper use of e-mails, which are the new ‘smoking guns’ of litigation. 7) Get good legal advice. Do not hire an attorney because he or she tells you what you want to hear. Good advice isn’t always pleasant. What you want is someone with experience who you can count on to be forthright and frank about whatever situation you are dealing with. Mutual trust is essential.
What can an attorney do for a company to help avoid lawsuits?
An attorney can help a company set its house in order before it even opens its doors for business. For example, an attorney can make sure that a business is properly organized and has all the certificates, licenses and other paperwork in place that government or regulatory agencies require. An attorney can also advise on liability insurance and develop training plans to deal with contemporary issues, such as the use and misuse of e-mails.
Why is the use of e-mails becoming more of an issue in business today than it was before?
As previously mentioned, e-mails are the new smoking guns in litigation. Employees are putting comments, observations or thoughts in e-mails that they would not think of including in formal business correspondence even though e-mails are business correspondence. Electronic information in e-mails is fully discoverable. That means that the opposing party will get a copy of every e-mail. Because employees tend to be more casual, sarcastic, flippant and cynical in e-mails, than they would be in formal business correspondence, e-mails can be very effective evidence. Cases of e-mails coming back to hurt parties when they are preparing a defense are legion because employees are not trained adequately in the purposes of e-mail.
JEFFREY R. ELKIN is a partner in the litigation section with Porter & Hedges LLP. Reach him at (713) 226-6617 or email@example.com.