As a business owner, making informed and intelligent decisions can help mitigate the risk that your company gets stuck in business litigation. Business litigation is challenging to understand and encompasses many varying legal situations.
If you accept the premise that it is important to keep your business out of court, you also understand that the best way to avoid ending up in court is to manage and mitigate the risk of business litigation. Numerous legal issues fall under the umbrella of business litigation, which occurs when a person or group files a lawsuit against your business or conversely when your business needs to pursue its own claims against another business or individual. Unfortunately, even with the best intentions and practices, sometimes business litigation is unavoidable.
The most important phase of business litigation is what is done before litigation becomes necessary, in the run up to filing suit. Understanding the common triggers for litigation and how to avoid them while still standing firm is what keeps businesses away from lawsuits. Below we will discuss some of the common scenarios that lead to litigation, the most common causes, and the importance of hiring an experienced attorney early enough to actually help you navigate the complexities of business litigation.
Legal Issues That Can Lead to Business Litigation
Many legal issues can land your business in business litigation, including the following:
- Employment issues such as retaliatory discharge, discrimination and wrongful termination
- Breach of contract
- Disputes over real estate, zoning, and land use
- Workers Compensation, Class and Collective Actions
- Misappropriation of funds or fraud
- Breach of fiduciary duty
- Business partnership disputes
- Product liability lawsuits
- Shareholder oppression
- Intellectual property disputes
- Noncompete disputes
Most legal issues are premised upon occurrences that may be unpredictable and equally unavoidable. A traffic accident or work related injuries are common examples. Conversely, many legal issues in the employment law category are avoidable and typically result from an employer’s failure to adhere to lawful standards governing conduct. Falling short of these legal standards is understandable as they are ever changing. Proactive compliance requires a seasoned HR professional working closely with a corporate attorney to develop an approach that often includes developing and maintaining a policy manual based upon the law. Having a policy manual is important but keeping it updated and current (think maintenance) is the only way to ensure that your company has policies that keep up with ever-changing legislation at the local, state and federal levels.
The Most Common Type of Business Litigation
Below are some of the most common types of legal issues and the triggers that businesses often face in the run up to litigation.
Breach of Contract
Breach of contract is the most common basis for business litigation. Contracts are involved in almost every part of your business, including:
- Employment – Who runs your company, from administrative personnel and executives, to sales representatives and line workers all of them have agreements with their employer, some written and some oral.
- Transactions – Agreements for the production and sale of your company’s goods and services and how they are delivered to your customers and end users (POs, Sale and Service Agreements, Production Agreements, Shipping Terms are examples)
- Business Governance – all businesses have or should have written agreements spelling out terms that govern shareholder conduct, business loans, personal guaranties and succession planning.
Triggers to avoid.
When a claim for breach is threatened or made against you or your company, avoid the temptation to respond immediately or by email. Responses that are too quick are often emotional and sometimes even the most level headed among us can come off as terse, if not angry. Responding by email is another trap to be avoided as too often email strands often escalate tension as they can be misinterpreted, impersonal and ineffective at restoring a calm tension free environment for good decision making.
Develop a Process
- Investigate the Facts. To avoid issuing a quick response sent by email, start out by equipping yourself with knowledge of the facts. This is done by speaking candidly with your employees, reviewing prior correspondence (often email and POs) and reviewing your company’s “dispute file” (and if you don’t have one,create one, as it is a good practice to follow when a dispute arises). The reason this investigation is important is that it enables you to become fully aware of the basis for the claim and what led up to it. Quite often a claim is made because the complainant did not receive the type of response they expected. This is a common fuse that can be lit by a busy employee’s failure to issue an earnest apology, or by not doing what reasonably needs to to be done to make things right and address the dispute fairly and directly. Here again, as you review prior correspondence in your dispute file, you will often see that tardy or snippy emails are often what precedes a claim. Employees are busy and often feel that they do not have the time to respond to a complaint by phone or do not want to get sidetracked by a whiny customer. However, training your employees to approach complaints with a different attitude can make a big difference.
- Respond Promptly and Directly. Once you have a thorough understanding of the facts consult with your attorney to firm up your understanding and develop a sensible approach. There are plenty of landmines for an unwary business owner and not responding promptly without knowing if the approach you want to take is legally appropriate can lead to unanticipated and devastating outcomes for your business. Once you have a sound well reasoned approach, set up a personal (sit down) meeting with the complaining party and key stakeholders. If an in person meeting is not practical, set up a Teams or Zoom video conference as this is the next best way to convene and it sends the message that you care. A phone call can often suffice as well, but at this point emails are inappropriate as they portray an uncaring or rushed approach.
- Negotiate Sensibly – The Long Game. Armed with knowledge of the facts and a sound approach, you can quickly zero in on what is truly at issue. Open the discussion by apologizing or accepting responsibility for whatever your business could have done better. This is an effective and disarming way to start the meeting. Be accommodative with an eye towards the long game. The long game seeks to evaluate and preserve those relationships worth protecting. Resolving a dispute with a good customer by providing a discount or taking some other conciliatory measure, when doing so will protect and likely enhance the business relationship, personifies the long game. When the relationship is not good and should not or cannot be salvaged, the long game is still in play since getting a bitterly contested dispute resolved will keep your business out of court and allow you to focus on your business. Getting stuck in court litigating a business dispute will quickly become expensive and aggravating. The best example of this point is found in the case of Paul H. Schwendener v. Larrabee Commons Partners which was decided after 11 years of litigation (https://casetext.com/case/paul-h-schwendener-v-larrabee-commons-partners). If you are convinced that your only option is to pursue court administered justice, read this case first and be warned.
- Try Mediation. If the process outlined in (1) – (3) above does not lead to a directly negotiated settlement, consider mediation as it will give you another opportunity to resolve your business dispute without litigation. Settlement by Design https://settlementbydesign.com/ offers mediation services for business owners interested in trying to stay out of court.
The single best way to mitigate risk and head off disputes before they occur, is to engage a firm like Fuchs & Rosell, Ltd who focuses its practice upon corporate representation and business litigation. From developing sensible written agreements and preparing effective governance documents, your business depends upon and will greatly benefit from a proactive approach.
#2. Employment Claims
Legal issues that lead to employment claims are a common feature of operating any business. These issues often include the following claims:
- Discrimination or harassment
- Hour or wage disputes
- Retaliation or wrongful termination
- Breach of non-compete, non-solicitation, nondisclosure, or employment contracts
- Family and Medical Leave Act violations (FMLA)
- Employee Retirement Income Security Act violations (ERISA)
Employment claims can involve state and federal law and often include charges filed with administrative agencies (IDHR/EEOC/IDOL) with procedures that differ from those used in federal or state courts. An experienced business attorney can help navigate these processes.
#3. Class and Collective Action Lawsuits
Most class and collective action lawsuits place businesses in the position of being the defendant to a long and drawn out case brought on behalf of a large class of plaintiffs. Class and collective actions will be trotted out in open court made a matter of public record.
The most common examples of this include the following:
- Claims of unsafe products, practices and environmental hazards caused by a business’ emissions impacting resources, such as air, water and land and causing injury and harm to those exposed.
- BIPA Claims, claims of personal data breaches and personal information being collected, stored and used unlawfully
- Product liability occurs when numerous people have been injured or negatively affected by a business’ product line
- Debt collection practices that are illegal
Once a class action lawsuit is filed, a judge must certify the class, which includes the following:
- Numerosity – A significant number exist who are or have been negatively affected by an alleged action, and their claims share the same parties, factual basis and similar injuries
- The main issue involves all parties of the lawsuit
- The representative Plaintiff who is named can protect the interests of all involved
Understanding what to do if your business is threatened with or facing a class action lawsuit, is critical and taking the right steps early (like notifying your insurance carriers, determining coverage – often it is wise to retain separate coverage counsel) can prove invaluable. Hiring an experienced commercial litigation attorney to help protect your rights and fight the class certification are important steps in defending a class and collective action.
#4. Shareholder Disputes
Shareholder oppression and disputes happen if the minority shareholders claim that the majority shareholders or corporate officers have frozen them out or otherwise compromised their interests. These disputes may include the following legal issues:
- Payments of dividends
- Dilution of shares through a reverse stock split
- Breach of shareholder agreement or fiduciary duties
- Excessive compensation, fraud, or embezzlement
- Disagreement over corporate actions and being denied access to ledgers and corporate records
Optional remedies for shareholder oppression and derivative actions may include injunctions, money damages, or, worst case scenario; the court can order the dissolution of the business and/or asset liquidation. The first step when you are faced with a claim or facing a dispute like this is to seek the assistance of an experienced and reputable law firm. Since 1989, our firm has helped thousands of clients navigate shareholder disputes with an eye towards achieving sensible, attainable results.
Fuchs & Roselli, Ltd., Is Here to Represent You
With a highly experienced business transactional attorney to help your business deftly navigate a complex and ever changing legal and regulatory environment, we are ready to partner with you to develop a custom approach to avoiding business litigation. If litigation has been threatened or commenced, our team of experienced professionals (Litigation and Pre-Litigation Counseling), is ready to consult with you and your business to develop a strategy for achieving the best outcome possible.
At Fuchs & Roselli, Ltd., our highly skilled team of experienced attorneys has a well-earned reputation for putting their clients’ needs first and understanding the critical difference between activity and achievement. With a results-based approach, we strive to build long-lasting relationships and create personalized solutions for all those individuals and businesses we are fortunate enough to call our clients.
Whether you need help with pre-litigation consulting, litigation, estate and tax planning, commercial real estate, corporate governance and transactions, or Banking and Finance, we are dedicated to helping you achieve your goals every step of the way.
Contact us today to get started working with one of our dedicated professionals.