From the August 1998 issue of Startups

Lawsuits are an ugly fact of life. Sadly, in our litigious society, if you haven't already had the pleasure, you're probably overdue for one or more of these uniquely time-consuming, aggravating and expensive ordeals.

You'll know you're being sued when you receive formal notice by mail or in person. And after the shock and rage subside, you'll find yourself holding a summons directing you to file a written response with the applicable court within a specified period of time, generally 30 days for state courts and 20 days for federal. What do you do now?

"Act immediately," says Atlanta attorney Ken Menendez, author of Taming the Lawyers: What to Expect in a Lawsuit and How to Make Sure Your Attorney Gets Results (Merritt Publishing). "Don't put the summons aside, thinking you'll get to it later. This is the number-one mistake people make, and once they've missed a deadline, they've really jeopardized their rights." Remember, if you're sued, a response must be filed on time. But that doesn't necessarily mean you'll be the one who has to file it.

First, determine whether you're covered by one of your existing insurance policies, for example, a homeowners, general liability or umbrella policy. Don't automatically assume you're not--check into it. If you think you're covered, contact your insurance company promptly. Otherwise, it may point to the fine print in your policy to deny its obligation to defend you and/or pay the claim.


Marc Diener is an attorney and author of Deal Power: 6 Foolproof Steps to Making Deals of Any Size (Owl Books/Henry Holt). This article contains general information only. If you are concerned about how these issues might affect you, seek independent counsel.

Get A Lawyer Involved

If you're not covered by an existing policy, or if you're not sure, don't do anything until you speak to your lawyer. Resist the impulse to contact the person or entity suing you. Even your innocent, well-meaning action--for example, what you admit in a casual phone call--can have severe legal repercussions later.

Before you meet with your attorney, prepare thoroughly. Assemble a complete file, including all relevant documents, insurance policies, correspondence, bills, canceled checks, contracts, fax logs, contact information for potential witnesses, and the like. If you're not sure whether a piece of paper is important, take it with you and let your attorney decide. Clip, highlight, tab and/or cross-reference the key items, and put it all together with a written chronology. Don't forget to keep copies of everything for yourself.

All this may seem like a lot of work, but by doing it, you achieve two important objectives. First, you're giving your attorney what he or she needs to best defend you. Second, you'll probably save a pile of dough on legal fees. When defending lawsuits, lawyers generally charge by the hour. Every meeting, phone call and minute you save will have a direct, positive effect on your bill.

Before you leave that first meeting, insist that your lawyer put together a strategic plan and budget for your case as soon as possible. Of course, he or she won't be able to guarantee how events will unfold, but to stay in control, you must get a clear idea of the strengths and weaknesses of your position and how your lawyer wants to run things.

Avoiding War

Your most important step may be to talk to your lawyer about avoiding litigation. Sure, there may be times when principles or reputations are at stake or where it's in your best interest to drag things out. But more likely, you can take Abraham Lincoln's words to heart: "Persuade your neighbors to compromise whenever you can. Point out to them how the nominal winner is often a real loser--in fees, expenses and waste of time." If your beef is with someone you know well, you may get lucky--a simple phone call may clear everything up. In any case, ask your attorney about the two basic forms of alternative dispute resolution (ADR): arbitration and mediation.

Arbitration is basically a streamlined form of litigation. Both sides take their arguments to an impartial, private third party who is empowered to make a final decision. At its best, it's cheaper, quicker and more confidential than litigation; there are, however, some pitfalls. Unlike judges, arbitrators are not obligated to follow legal precedent or procedure, and their decisions may be impossible to appeal. Arbitrators may also corruptly favor the parties that throw them repeat business. Combine these risks with the legal fees you'll already have to pay, and ask your attorney whether you'd be better off going to court.

In mediation, a neutral third party facilitates a face-to-face discussion between the opposing parties. Unlike an arbitrator, a mediator has no binding authority. But by defusing anger, asking questions and clarifying issues, skillful mediators are surprisingly successful at helping resolve disputes quickly, economically and, often, creatively. "Mediation often produces a win-win result," says Dan Wax, vice president of Solutions LLC, a Laguna Niguel, California, professional mediation group. "Many jurisdictions are now mandating mediation before resorting to the adversarial system."

Other forms of ADR are variations of arbitration and mediation. In early neutral evaluation, each side presents its case to an impartial expert for an opinion on who would prevail in court; as you may expect, settlement often follows. In med-arb, you start with mediation; if it doesn't work, you move to arbitration. Conciliation is an informal bringing together of the parties. Conciliators have an extremely light touch; they're not even supposed to make suggestions about how to settle the case.

A minority of lawyers believe the mere suggestion of ADR is a sign of weakness. It really isn't. You can always get into a full-contact legal brawl later. But here's one important warning: When trying to work things out through ADR, your opponent may learn things about your case that could hurt you if you wind up in court later. If you think that risk is too great, reconsider ADR. Or make sure each party signs a statement acknowledging that everything said during ADR is to be considered part of "settlement negotiations" (which are inadmissible as evidence at trial) and that neither side will call the arbitrator or mediator as a witness. Such a statement is not foolproof, but it will help.

The Process

If you end up in the midst of a full-blown lawsuit, it will consume lots of time and paper. Initially, each side files various motions ("complaints," "answers," "amendments," "counterclaims," "cross-claims," "demurrers" and so on) to define the basic who, what, where and when of the case. Then comes the "discovery" phase, where (through "depositions," "interrogatories," "requests for admission," "inspections," "notices to produce documents," and so on) each side is given broad license to probe the other's case. Unlike what you see on television, it can take years to get to trial as each side tries to wear the other down.

Keep in touch with your lawyer. Call. Ask questions. Get regular updates. Make sure the matter is handled your way, on your budget. In the words of Menendez, "Like most rambunctious beasts, lawyers must be kept on a short leash!"

The S-Word: Settlement

As time passes and fees accumulate, cooler heads may eventually prevail, and litigation will give way to a cost-benefit analysis. Despite all the posturing at the beginning of a lawsuit, nine out of 10 are settled out of court.

Your peace treaty will come in the form of a settlement agreement. Because they're signed after weeks, months or years of conflict, mistrust and frayed nerves, you and your lawyer should keep these considerations in mind:

  • Once you've reached an understanding, get your settlement agreement signed quickly, before your opponent has second thoughts.
  • Include wording that clarifies that settling doesn't mean you're admitting any liability.
  • Consider including a confidentiality clause. The whole world doesn't have to know about the settlement.
  • Make sure your lawyer is scrupulously attentive about who's releasing whom from what. Otherwise, you may leave out someone who may come after you, or you may give up your own rights. Consider whether your settlement should be limited to claims that each side knows about then or whether it should extend to claims that may be discovered later.

So when that summons arrives, keep all of the above in mind. With any luck, you'll avoid the fate Ambrose Bierce ascribed to the typical litigant--who goes into litigation "as a pig and comes out as a sausage."

Contact Sources

Ken Menendez, (404) 812-5680

Solutions LLC, (888) 562-4000, htp://www.solutions-4-u.com