Defend yourself, your company and your money in a lawsuit
Being sued is a rite of passage for many startup CEOs. For most, it is their first time as a defendant in a legal case. Newer CEOs frequently focus on the justice or injustice the matter. I admire that perspective as it reflects high character and strong values. Sadly, litigation isn’t about justice; it is about leverage.
I have to break the illusion of litigation that anyone other than the lawyers will win. If you’re facing your first lawsuit, there are three fundamental facts to understand. The first is that your lawyer’s interests aren’t perfectly aligned with yours. This doesn’t mean they won’t be or can’t be a reliable and forceful advocate for you. It is just naive to ignore that they are professionals with their own goals and mission. Handling your case is part of their mission, but they do have other forces on them. The second is the time element means being a defendant is a lot cheaper than being a plaintiff. Third, there’s a high likelihood that you’ll never go to trial. The vast majority of corporate cases are settled or dropped. The American Bar Association reports that 97% settle before trial.
So set aside right and wrong, and manage to the hard facts of being sued.
Lawyer Alignment
For a startup CEO, when you seek an
attorney’s counsel, and review the complaint, all attorneys will exhibit a resolute commitment to defend with great vigor. Notwithstanding that, what starts with “you have a strong case here” ends months or years later with “you’re going to get your butt kicked.” It’s the nature of the beast. To get the retainer and add you to the client list, many attornies will empathize with you and indicate you have a strong case without knowing for sure that you do.
Weeks and months later and many thousands, tens of thousands or hundreds of thousands spent so far; your lawyer will explain that “now that I have the full details of the case, which I couldn’t have known earlier as I didn’t have the full facts, it is clear that you’re unlikely to prevail.”
They indeed know a lot more about the case, and you’ve paid to them hourly to gain that knowledge. Neither the time or money can be retrieved. To be fair, they can’t accurately forecast an outcome well until they know more. Their risk profile is different than yours in the case outcome.
So what do you do? Especially as a defendant where you didn’t initiate anything? First, have checkpoints to address the investment, actions, anticipated actions, and likelihood of success. Provide the forum for the attorney to update you on the progression of your “strong case” and whether it has gotten better or worse in the last thirty to sixty days. Be open, receptive, and rational.
Second, It would help if you found CEO’s who have been through the drill. Get introductions to the peers that your attorney has previously represented in similar suits. You may have contacted them already for a reference. Now reach out to them to review the details. They will likely tell you about keeping your perspective and limiting the legal thrusts and parries that usually have no impact on anything other than the bill at the end of the month. Or give you their thoughts on probable outcomes given the new knowledge of the details and case.
Third, carefully watch expenditures related to “trial preparation.” After all, those investments aren’t likely to be of any value. Be especially wary of trial preparation early in the process.
In the same vein, limit early investments to influence a judge that you’ll probably never face. The attorney must treat every case as if it’s going to end in a trial, that is an excellent legal practice. You must insert yourself and knowledge of the probabilities into the equation.
You will need an attorney to advise and protect your interests, but don’t assume all actions are solely in pursuit of what you want. Be a savvy consumer of your legal dollars.
The Time Element
Being a defendant is playing defense, and defense is cheaper than offense.
If you’re a first-time defendant, the burden of proof is on the other side. Yes, you’ll suffer the slings and arrows of egregious claims. There’s no question it can be infuriating. The disparity of truth and accusations will trouble you. The process of defending yourself and the company is an emotional experience. You’ll live the truth of Mark Twain when he said, “A lie can travel halfway around the world while the truth is putting on its shoes.
Your desire to end this process, clear your company name and move on is the leverage the other side has over you. So accept that the process will be slow, minimize legal work, delay every response, seek extensions, and extend the process. Fight the urge to pursue justice. Make it as expensive as possible for the other side.
Think only about moments of maximum leverage and what settlement is appropriate. Seek advantage whenever and wherever possible. Your adversary will have to make increasing investments to progress the case.
Discovery, where documents are accessed and witnesses deposed, is very expensive. A settlement offer before its’ commencement can be timely. Any litigation is a negative factor for lenders or investors, react to rumors of the opponent seeking capital.
Speak about the entire potential process with your attorney to identify moments of maximum advantage. Look past the obvious ones of scheduled hearing dates, discovery, depositions, and trial. The other side’s third, fifth and seventh legal billing invoice arrivals are essential dates. For that matter, so are yours.
Settlement
Due to expense, heartache, and backed up court systems, the vast majority of cases never make it to trial. You would be shocked how many cases settle for an amount equivalent to lawyers fees. Fatigue sets in on both sides. Think of settling early and often. Prioritize moving on and past the matter.
It may surprise you to hear that settlements often involve payments to the defendant. An example of this is a trademark suit where two parties have very similar names. Each has legitimate, but incomplete, claims to the name. The resolution is that one party owns perfect rights in the trademark name. The defendant party can sell their rights and change their name.
Always seek settlement, it won’t feel right, as justice may not be served by it, but it is usually the correct move.
Time is money.
Truth is elusive.
Justice is not always served.
There’s a 98% likelihood you’ll eventually settle as corporate cases are often battles of attrition. Don’t learn that at the end of your case.
If you are being sued, it is often a good sign. You only get sued when you are doing something meaningful. Often you are doing something right or successfully, and that is what attracts litigation. You will never enjoy litigation, but it is a rite of passage and one you should accept as a fundamental characteristic of b
