In a previous article I authored for The More Report, "Liability & Lawsuits: Strategies to Protect Your Family Business," I detailed strategies that small to mid-sized business owners can adopt to avoid litigation or minimize the impact of business litigation. In this article I focused on five key areas where small business owners commonly face litigation: employment matters, business to business contracts, lending, shareholder agreements, and succession planning. The suggestions set forth in the article were intended to serve as useful tools for business owners to consider and implement as a means to avoid or minimize risk. However, what should small business owners do when litigation is imminent? Here are some helpful steps to take.
First, needless to say, contact your attorney and schedule a face-to-face meeting. Virtual meetings through platforms like Zoom or Teams are helpful, but they are no substitute for a face-to-face meeting, where documents can be reviewed, and plans and strategies agreed upon.
Second, gather and organize all relevant contracts, demands, notices, communications, emails, and text messages exchanged among you, your business, its employees, and the adverse party.
Third, issue a litigation hold to all employees and other representatives. A litigation hold should instruct all employees and other representatives to refrain from deleting or destroying evidence including contracts, notices, communications, emails, and text messages.
Fourth, make sure you understand the contract provisions including, in particular, any notice of default, termination provisions, venue selection clauses, and contract provisions purporting to limit the time in which to submit a claim or file a lawsuit. Frequently, a contract will require notice of default and opportunity to the other side to cure said default.
Fifth, immediately take steps to mitigate or minimize your damages. This may include finding alternative sources of supplies or hiring a replacement contractor to repair, replace or complete your project. That said, you should not engage in remediation work without giving the adverse side an opportunity to inspect the current state of the project.
Sixth, make sure you understand the timing of default occurrences, as many contracts contain shortened limitation periods for filing suits. Furthermore, these contracts may impose restrictions on the venue for legal proceedings and the applicable laws. Many contracts also contain mandatory mediation and/or arbitration provisions which must be complied with.
Seventh, in collaboration with your attorneys, interview key employees and other representatives to determine what information they possess. Additionally, steps should be taken to preserve this information through witness statements or affidavits, if deemed necessary.
Eighth, work with your attorney to establish a litigation budget and litigation plan as soon as possible. However, it's essential to keep in mind that litigation entails risks and significant expenses. Therefore, it's crucial to regularly review, update, and revise budgets and litigation plans to accommodate any developments that arise as the litigation progresses.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.