What to Do If You Have Been Sued: Steps You Can Take to Lessen a Lawsuit’s Impact

Some say it is an inevitable cost of doing business in the United States — eventually, you will be threatened or served with a lawsuit.  Preparing in advance is the best way to avoid some of the difficulties and pitfalls attendant to being involved in litigation.

Alerting your insurance carrier should be the first step any time a claim is made against you or your company.  Even if you do not believe that any of your insurance will provide coverage for the particular claim, a failure to provide notice can be very costly.  It could result in running up significant attorney fees that otherwise could be covered, and could even cause the loss of insurance coverage if the insurance company is put on notice at a later time, but has been prejudiced by the delay.

The penalties for not diligently gathering and protecting key information can be very steep.  Immediately issue a litigation hold notice to all employees, key players, or relevant custodians of records who might have information pertaining to the claim or claims.  As we are all aware, electronically stored information (“ESI”), especially including email communications, has increasingly become the root of most internal and external company business.  Preserving this information is vital.  Courts can issue very stiff sanctions to parties that fail to preserve important documents and information once they become aware that litigation is reasonably anticipated.

Sometimes, along with the lawsuit or notice of claim, you will receive a litigation hold letter detailing what specific information needs to be preserved.  Do not rely on this.  The best practice is to have a form litigation hold notice at the ready, which can be quickly modified to match the details of a particular claim.  The attorneys at Prince Lobel can assist you in developing an appropriate form, which needs to be comprehensive, detailed, and explicitly clear, especially to non-lawyers.  Be sure to remind all employees and key players that the claim is not to be discussed with anyone not directly involved and that they should direct all inquiries to a single designated person or to General Counsel.  It is likewise important to work directly with your IT department and develop, in advance, a method to effectively capture and preserve ESI.  Waiting until a lawsuit arrives to figure out your system environment, where information is stored, and how to preserve it can create expensive headaches that are easily avoided with some basic planning.

It is equally important to actively supervise the process of preserving all relevant information – including relevant non-ESI documents.  Directing your employees and IT department to preserve the information is not the same as following up to ensure that it is being done properly.  It is also important to adjust what is covered by the litigation hold notice and reissue it as more information is developed about the claim.  Otherwise, significant information may not be captured.

Perhaps one of the most important steps that can be taken in advance of litigation is to create a detailed document retention policy and more importantly, to actually follow it.  As a general rule, courts will not sanction a party with an established document retention policy if information is unavailable or destroyed as a result of following that policy.  In other words, if your policy is to destroy all electronic communications after five years and critical communications are wiped off of the system as a result of your routine adherence to this policy, this will not result in a sanction.  However, reporting that information is not available because you have a five-year document retention policy when, in fact, you do not methodically and permanently destroy the older information, can cause trouble.  Instituting and following an appropriate document retention policy also dovetails with the litigation hold issue; it is important to timely issue a hold notice so that key information is not accidentally destroyed as part of regularly following your document retention policy.

For most organizations, litigation is generally something to be avoided — it can be a major drain of energy, money and other resources. By preparing now and putting everything in order, it is possible to limit the negative impact of a lawsuit, if one should arise.