Companies of all sizes and in every industry face lawsuits daily. Some face them more frequently than others, and have processes and procedures in place to begin responding as soon as the complaint is served (if not before). Others may only face one or a few lawsuits ever, and may not have need for a robust response apparatus. Regardless, all companies should be prepared to respond quickly to a lawsuit or risk facing a default judgment, injunctive relief, the attachment of property or bank accounts, or a similar fate. Below are key steps that all companies should take when served with a lawsuit.
1. Review complaint closely and calendar important dates
Immediately after a lawsuit has been served, the complaint should be reviewed very closely and someone within the company should be made responsible for overseeing the response and litigation. In addition to reviewing the facts and legal claims asserted in the complaint, a number of important deadlines should be determined and calendared immediately. Some deadlines vary by jurisdiction, including the deadlines for filing an answer or motion to dismiss, for removal to federal court (if appropriate), and for responding to any interim measures the plaintiff is seeking (e.g., injunctive relief, attachments of property or bank accounts, expedited discovery, etc.). It is imperative that none of these deadlines are missed or the company could be prejudiced in the litigation.
2. Determine insurance coverage and potential indemnity claims vs. third parties
Claims raised in a lawsuit are often covered by insurance policies (e.g., Directors & Officers Insurance (D&O), Employment Practices Liability Insurance (EPLI), Comprehensive Liability, etc.) or your company is entitled to indemnification under a contract (for instance, if you sold a product manufactured by someone else who agreed to indemnify you for any harm caused by defects in the product). It is important that you put your company's insurance carrier or other third-party on notice of the claims as soon as possible, as they may have the right to choose counsel, make strategy decisions, etc. On a more practical level, the sooner an insurance carrier or third-party with indemnity obligations is notified, the sooner they will begin their coverage, thereby reducing your company's out-of-pocket expenses.
3. Retain outside counsel
Soon after service of the complaint, you should interview, select and retain outside counsel. Find counsel with the relevant experience and expertise in the subject matter of the complaint to ensure that you are well represented. The first discussion you should have with potential outside counsel should revolve around your business goals and objectives as they relate to the lawsuit, and your company's pressure points. Without this understanding, it will be difficult for outside counsel to provide the best advice possible. In selecting outside counsel, always discuss fee arrangements up front - either hourly or value-based fee structures. Value-based fee structures are a good way to improve the predictability and transparency of legal fees. Some value-based arrangements (e.g., success fee and hold back arrangements) allocate some risk with outside counsel so as to allow them some "skin in the game." To learn more about value-based fee structures, see the ACC Value Challenge section of the ACC website. You should also make counsel aware up front that you will want a detailed budget and/or litigation plan, the timing of which may be impacted by how quickly your outside counsel has access to background information. (see # 5 - 9 below).
4. Comply with litigation hold and evidence preservation obligations
Assuming service of the lawsuit is the first notice your company has received of the dispute (which is not always the case), the next step should be to consider and comply with your litigation hold and evidence preservation obligations. If you receive a demand letter or other notice of an impending lawsuit, this step should occur at that time. This involves determining who the custodians of relevant information are (employees, vendors, etc.) and notifying them, in a written litigation hold notice, of their obligations not to delete e-mails, destroy files, or the like - even in the regular course of business. The information technology (IT) department should also be notified to help identify sources or potentially relevant information so that any system-wide actions can be taken to ensure preservation of relevant materials (for instance, disabling auto-delete of e-mails pursuant to retention practices, or suspending the destruction of certain terminating employees' email and documents). Outside counsel can be a great resource for this, as they often have procedures and checklists in place, as well as form litigation hold and document preservation notices. It is not sufficient simply to send out notice - steps must be taken to confirm and document compliance, including for example who was notified, the dates on which they were notified, what steps were taken, what IT-related actions were taken, and the like. Also, custodians should confirm, in writing, that they received notice of their obligations and have taken the necessary steps to comply with those obligations.
5. Gather key documents
Once the custodians of relevant information have been identified and sent litigation hold/evidence preservation notices, documents in their possession should begin to be gathered and reviewed. This may be as simple as pulling the file in a vendor dispute that includes the relevant contract(s) or an employee's personnel file in an employment dispute. Or it may be more involved and require searches of e-mail accounts or off-site storage facilities. An exhaustive search need not be conducted at this point - that will occur during discovery - but the key documents underlying the claims asserted in the complaint should be gathered, reviewed and sent to outside counsel.
6. Witness interviews
In addition to gathering documents, any individuals involved in the facts and circumstances underlying the claims asserted in the complaint should be interviewed. This should be done in such a way to maintain the attorney-client privilege, namely, by having in-house or outside counsel participate in the interviews. Particularly when dealing with lower level employees, the interview process should not only be used to gather factual information, but also to explain the process and claims that have been asserted to assuage any concerns and ensure that they do not do anything harmful to the case (intentionally or inadvertently).
7. Consider potential defenses and counterclaims
Throughout the evidence gathering and analysis phase, your company and outside counsel should be considering and discussing what potential defenses are available and whether any counterclaims are appropriate. Consider whether the statute of limitations would bar any or all of the claims, or whether the plaintiff conducted itself in such a manner as to either bar their claims or create counterclaims. Certain affirmative defenses must be asserted in an answer to be preserved, and claims against the plaintiff that arise out of the same facts and circumstances as its claims may be required to be filed as counterclaims, rather than asserted at some later date or in a separate action. Asserting defenses and counterclaims can also provide leverage for an early resolution if that is a goal.
8. Initial case assessment/potential damage analysis
Once relevant documents have been gathered and reviewed, and potential witnesses interviewed, an initial case assessment and potential damages analysis should be conducted, preferably with outside counsel. The strengths and weaknesses of the plaintiff's claims and any available defenses or counterclaims should be addressed, as well as the level of damages that the company can reasonably expect to be required to pay if it is found liable. Further discussions about the company's business goals and objectives, and its ability to pay any potential damages (and legal fees), should also be discussed at this time and throughout the course of the litigation - these things can change, particularly as conditions in the economy or at the company change.
9. Formulate litigation strategy
Once an initial case assessment and damages analysis has been conducted, you should formulate a litigation strategy with outside counsel. Depending on the strength of the claims and defenses, and your company's appetite for litigation, you may decide that trying to come to an early resolution is preferable. Or, you may determine that settlement is out of the question and that a scorched earth strategy is more appropriate. Most litigation strategies will fall somewhere between early resolution and scorched earth tactics; the best strategy will be different for each case and will depend on a number of factors, both internal and external to the company.
10. File a timely response
Finally, it is important that you file a timely response to the complaint or secure an extension of time to do so from the court or the plaintiff's counsel. The appropriate response may be an answer (with or without counterclaims), or it may be a motion to dismiss if some or all of the claims are arguably barred as a matter of law. Regardless of what the response is, it must be filed on time in order to avoid potentially harmful consequences and/or incurring additional time and expense to remove a default judgment or an attachment.
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