You’ve Been Sued or Received a Demand Letter. Now What?

Finding out that you have been sued or that someone thinks they have a claim against you can be stressful, particularly when you did not know anything was coming or you have not been involved in litigation before. But panic is the enemy of good decision-making. Your initial response can shape the outcome for months or years to come.

So, what do you do first? While hiring the right attorney is critical, there are also steps you can take on your own to start from the strongest possible position. Here are the top five things to do when you find out a claim is being made against you or your company:

1. Don’t Ignore It.
2. Loop In Your Team, Selectively.
3. Preserve Everything Relevant.
4. Contact Your Insurance Carrier.
5. Get an Attorney Before You Say Anything.

Step 1: Don’t Ignore It. Understand Your Deadlines. 

Resist the temptation to put it on your desk to “deal with later.” Lawsuits and demand letters need immediate attention and are not something you should wait to address. Unlike a good wine, these things do not get better with time. They almost always come with deadlines, either those imposed by the opposing party or by the court.

How long do I have to respond in Virginia?

When you are served with a summons and a complaint by either the local sheriff or a private process server, a 21-day clock starts for a response in Virginia’s state and federal courts from the date you receive the documents.

If you use a registered agent, then the clock starts when that registered agent is served, regardless of when you find out about it. Missing a court-imposed deadline like this one can result in a default judgment against you, which can be difficult (and potentially expensive) to undo once it is done.

If you get a demand letter, usually the opposing party will put a response deadline in the communication, asking you to either pay their demand or otherwise respond. While these deadlines are not court-imposed and do not carry the same weight, they still should not be disregarded. Most times, that deadline provides a time to respond so that a lawsuit will not be filed, providing an opportunity for the dispute to be worked out informally – which can be a massive benefit, avoiding litigation expense and strain on your organization.

Mark the date you received the notice immediately, but do not feel compelled to respond directly to the other party or their attorney until you understand the claim made against you and your options.

Step 2: Loop In Your Team, Selectively.

You don’t need to announce a lawsuit to your whole company, but relevant people (a co-owner, your bookkeeper, an HR manager, or an employee with direct knowledge of the facts) should be aware so they can help preserve documents (explained below) and avoid saying something damaging. These people may also have key information that you both need to be able to defend the claim or be able to help identify those people who do. Instruct the employees or personnel that you do inform of the claim not to discuss the matter with the other party, on social media, or with anyone else inside or outside the company without your attorney’s guidance.

Step 3: Preserve Everything Relevant.

As soon as you have that demand letter or you receive the summons, you need to preserve evidence immediately. But, if you did not know about a potential claim until that point, the line becomes a bit harder to draw. When this kicks in depends on whether you knew about the potential claim prior to receiving a demand letter or being served, or if you did not. The term of art for the point in time when you need to start saving things is when “reasonably anticipated” litigation to arise from a certain event or action.

For example, simply terminating an employee does not necessarily mean you “reasonably anticipated” litigation to arise. But, if during the meeting where the employee was terminated, the employee claimed that you were retaliating, then it is reasonable to anticipate a claim coming.

As another example, being a few days late on a materials delivery where you communicated the delay and the buyer (even if frustrated) agreed to accept the items late and the delivery went otherwise smoothly does not “reasonably anticipate” litigation. But, if that buyer refused to accept the items or otherwise implied that they were going to be harmed by the delay, you should anticipate a claim.

This is not to say that a routine termination or an accepted delay can never result in litigation – it can – but under these circumstances, it would be reasonable to say that you were unaware of the litigation until receiving the demand letter or summons.

What is a litigation hold, and what should be “held”?

As soon as you’re aware of a claim or a potential claim, you should take steps to preserve evidence that is related to the claim. This is often referred to as a “litigation hold.” What should you “hold” in these situations? Essentially, anything related to the action or issue. Don’t delete any electronic files (like emails, texts, voicemails, any other electronic communications, photos, and videos) or hard copy documents (like letters, files, contracts, invoices, and handwritten notes) regarding the issues. Inform your IT department and employees that they should stop any routine file deletion/destruction practices until these items can be identified and preserved.

Put simply, everything related to the issue or claim should be saved until you are told by your attorney not to, even if you think that the information you are saving seems unfavorable to you. Destroying evidence, even accidentally, can lead to serious legal penalties and can change your ability to defend your case properly. Lastly, let the key individuals from your organization who have custody or control of important records know that they need to preserve them.

Step 4: Contact Your Insurance Carrier.

Sometimes, the stress of finding out about a claim or the necessity of preserving files can cause business owners to forget that they have insurance coverage that can be invoked to help cover any liability. A company’s general liability, professional liability (E&O), employment practices liability (EPLI), or business owner’s policy (BOP) may cover the claim, including the cost of a legal defense.

Beware of Policy Notification Deadlines

Be familiar with the notification requirements in any of your insurance policies. Some policies require notice of a claim within a prescribed period after you anticipate a claim is coming. This timing is like the litigation hold above. Some policies allow the carrier to deny coverage if you think a claim is coming, but do not notify them when you do. Others do not require pre-litigation notice but do require notice within a certain number of days after you receive actual notice of the claim; that is, after receiving the demand letter or being served.

In short, as soon as you expect a claim to be made or find out that you are the subject of a claim, notify your insurance broker or carrier promptly. Delay can jeopardize your right to a defense and coverage of any money damages. Even if you are unsure if the claim is covered, let the carrier make that determination. There is no harm in reporting.

Step 5: Get an Attorney Before You Say Anything.

It is understandable and natural to want to talk about something as important as a lawsuit against your company, or to seek answers from the person or entity suing you. Don’t do it until you are represented. Do not call the other party to clear the air (or ask them what they think they’re doing) or send a written response on your own. Do not post about the claim or lawsuit online. Do not complain to your friends over lunch where everyone can hear you.

When you know about or anticipate a claim, seek out an experienced business litigation attorney to assist you with these initial steps and throughout the case. A litigator can help you evaluate the actual strength (or weakness) of the claim and identify deadlines and procedural requirements. They can communicate with the other side on your behalf, acting as a buffer between you and your adversary. A litigator can also advise whether early settlement, negotiation, or a formal legal response makes the most sense, considering the facts of the case and your ultimate goals. Even if you do not retain the first attorney you speak to, your conversation is confidential and will not be shared.

If you’re facing a claim or lawsuit in Virginia or North Carolina, Sands Anderson’s Business Litigation team is here to help. Our litigators have significant experience both inside and outside of the courtroom, and work closely with the firm’s deep bench of subject matter experts in tax, shareholder rights, corporate governance, mergers and acquisitions, wills and trusts, real estate, employment, and professional liability – to name a few – to ensure that you have the best representation possible and the right team on your side from start to finish. If you are worried about a potential claim or have been sued, review the firm’s website to identify which attorney has the right subject matter experience relevant to your legal dispute to guide you and explain the process.

Subscribe now to receive the latest insights from our Litigation Team.