How to fend off business litigation monsters

Among the many worries that keep small-business owners up at night is the possibility of litigation.

The irony is, the more successful your business becomes, the more likely you are to be sued. The more money you have, the bigger grows the proverbial target on your back. As one local personal-injury attorney bragged in a recent TV commercial, these cases often are “all about the money.”

Here are five of the biggest litigation monsters lurking around almost every small-business owner.

1. Indemnity and insurance. If you outsource tasks to another business, be sure your contract has a clause requiring the contractor to defend and indemnify for wrongful acts that might drag you into court. Indemnification is great, but the duty to defend is indispensable, as it shifts the costs of litigation to the contractor. Next, check your general liability policy. It should provide for payment of defense costs as well as indemnity if your business is sued. Insist on an attorney you are comfortable with, not just the attorney the insurance company chooses for you, and do not wait to notify the insurance company of the claim.

2. Email and digital retention. You can’t pretend that you don’t know how technology works; judges and jurors assume that today’s typical business owner is relatively tech-savvy. Craft a document-retention policy that addresses emails and digital retention, and rigorously follow it. If you are sued or if a dispute is threatened, create an immediate litigation “hold;” talk to your lawyer about how to do it. If you don’t, you could lose your lawsuit before it even goes to trial.

3. Text marketing and autodialed calls. If you are using an autodialer or a company that uses one, you must have the customers’ prior express consent to do so. If you don’t, you could be liable in a class-action lawsuit for violating the Telephone Consumer Protection Act. The potential damages: up to $1,500 per text or call, with no cap on damages and a potential four-year period of liability.

4. Your website and documents. You would be shocked to realize how many items on your own website and social media can be used against you in court. Attorneys can make public record requests for documents you’ve disclosed to government inspectors or even dig through your trash.

5. Your employees. Today’s “ambulance chasers” are smart, disciplined and creative. One recently placed a Craigslist ad offering $50 to recruit a client’s employees to gather information. Be sure you have ironclad nondisclosure agreements with employees and enforce them. Check blogs, websites and social media channels to see what people are saying about you online.

The bottom line? Good counsel and careful operation of your business can keep litigation monsters at bay so you can enjoy the good night’s sleep you’ve earned.

Patrick Reilly is a partner at Holland & Hart LLP.

Tags: The Sunday