How to Handle a Lawsuit Against Your Business in California

As a business owner in California, you know that despite your best efforts, there’s always a chance you could face a lawsuit. It could come from a business partner, a vendor, or an unhappy customer. No matter the size of your company or the industry you’re in, legal trouble can find you when you least expect it.

If you’ve been served with notice of a lawsuit, the first and most important thing you should do is talk to a business litigation lawyer.

Our business litigation attorneys at TONG LAW can help you identify relevant facts and pertinent documents, explain your legal options, and help you chart a path forward that safeguards your business and your bottom line.

Why Do Businesses Get Sued in California?

So what kinds of legal issues do California businesses commonly face? Here are some of the top reasons companies find themselves in court:

Breach of Contract

When a business fails to fulfill its obligations under a contract, the other party may sue for breach of contract. This can include failing to deliver goods or services, missing payment deadlines, or violating non-disclosure agreements (California Civil Code Section 3300).

Personal Injury or Property Damage

If a customer, client, or visitor is injured on a business’s premises or by its products or services, the business may be sued for negligence or strict liability. This can include slip and fall accidents, defective products, or professional malpractice (California Civil Code Section 1714).

Intellectual Property Infringement

Businesses that use or sell products or services that infringe on another party’s trademarks, copyrights, or patents may face lawsuits for intellectual property infringement under federal and state laws, such as the Lanham Act or the California Uniform Trade Secrets Act.

Shareholder or Partnership Disputes

Disputes among business owners, shareholders, or partners can lead to lawsuits over issues such as breach of fiduciary duty, misappropriation of company funds, or violations of shareholder agreements or partnership contracts (California Corporations Code Section 16404).

What to Do if a Lawsuit Has Been Filed Against Your Business

If you’ve been served with a civil lawsuit against your business, don’t panic – but don’t ignore it either.

Step 1: Don’t Panic and Don’t Ignore the Lawsuit

When you first receive notice of a lawsuit, it’s natural to feel overwhelmed and anxious. However, it’s crucial to stay calm and avoid making any rash decisions or statements that could harm your case. At the same time, don’t ignore the lawsuit or hope it will go away on its own.

In California, failing to respond to a lawsuit within the specified time frame (typically 30 days) can result in a default judgment against your business (California Code of Civil Procedure Section 585).

Step 2: Gather Relevant Documents and Information

To mount an effective defense, you’ll need to gather all relevant documents and information related to the lawsuit. This may include contracts, emails, invoices, employee records, or any other evidence that supports your position. Keep these documents organized and easily accessible, as they will be essential for building your case and responding to discovery requests.

Step 3: Notify Your Insurance Provider

If your business has liability insurance, promptly notify your insurance provider about the lawsuit. Many policies require timely notification and may cover the costs of legal defense and any settlement or judgment up to the policy limits. Review your insurance coverage carefully to understand what types of claims are covered and what your obligations are under the policy.

Step 4: Consult with an Experienced Business Litigation Attorney

To protect your business interests and maximize your chances of success, it’s crucial to consult with an experienced business litigation attorney as soon as possible. A business litigation attorney can:

• Assess the merits of the lawsuit and develop a tailored defense strategy
• Draft and file a response to the complaint (answer or demurrer) within the required timeframe
• Represent your business in court hearings and settlement negotiations
• Conduct discovery and gather evidence to support your case
• Advise you on the potential risks and costs of the lawsuit and recommend the best course of action

Step 5: Respond to the Lawsuit

Once you’ve consulted with an attorney, you’ll need to formally respond to the lawsuit. In California, there are two primary ways to respond:

1. File an Answer: An answer is a written response that addresses each allegation in the complaint, either admitting, denying, or claiming insufficient knowledge to respond (California Code of Civil Procedure Section 431.30). An answer also allows you to assert any affirmative defenses or counterclaims.
2. File a Demurrer: If you believe the complaint is legally insufficient or fails to state a valid claim, you may file a demurrer (California Code of Civil Procedure Section 430.10). A demurrer challenges the legal basis of the lawsuit and may result in the dismissal of some or all of the claims.

Step 6: Engage in Discovery and Pre-Trial Motions

After the initial pleadings, the lawsuit enters the discovery phase, where both sides exchange information and evidence relevant to the case. This may include depositions, interrogatories, requests for document production, and requests for admission (California Code of Civil Procedure Sections 2016.010-2036.050). Your business litigation attorney will guide you through the discovery process and help you respond to any requests from the opposing party.

During this stage, your attorney may also file pre-trial motions to narrow the issues in dispute or seek the dismissal of certain claims. For example, a motion for summary judgment (California Code of Civil Procedure Section 437c) may be filed if there are no genuine disputes of material fact and your business is entitled to judgment as a matter of law.

Step 7: Consider Settlement Negotiations or Alternative Dispute Resolution

Litigation can be time-consuming, expensive, and unpredictable. In many cases, it may be in your business’s best interest to explore settlement negotiations or alternative dispute resolution (ADR) methods, such as mediation or arbitration. Your attorney can advise you on the potential benefits and drawbacks of these options and represent your interests during the negotiation process.

Step 8: Prepare for Trial

If a settlement cannot be reached, your case will proceed to trial. Your attorney will work with you to prepare a strong defense, identify key witnesses, and develop a compelling narrative to present to the judge or jury. Throughout the trial, your attorney will argue your case, cross-examine witnesses, and object to any improper evidence or arguments from the opposing side.

Protect Your Business with Proactive Legal Strategies

While facing a lawsuit can be challenging, prompt and strategic action can help minimize the impact on your business. By working closely with a skilled business litigation attorney and following the steps outlined above, you can defend your interests and work towards a favorable resolution.

At TONG LAW, our experienced California business litigation attorneys are dedicated to helping clients navigate complex legal disputes. If your business is facing a lawsuit, we can provide the knowledgeable guidance and vigorous representation you need to protect your rights and achieve your goals.

Contact us today for a confidential consultation to discuss your case and learn how we can assist you.