Business Law: The Intelligent Way to Handle
Frivolous Lawsuits

By Nina L. Kaufman, Esq

"Heather" was at her desk, reviewing accounts receivable reports. She grimaced as she saw the unpaid invoices from HiSpeed Technologies, Inc. She had done great work for them, and they continually praised her efforts - but what started out as a rough cash flow patch for them was turning into one excuse after another. Just as she wondered how she would ever collect the debt, there was a knock at the door. It was a process server, handing her some official-looking court documents. Her heart dropped into her stomach as she saw the names on the papers. Hi-Speed was suing her! Frantic, she wondered, "How can I make this frivolous lawsuit go away quickly"?

Unfortunately for Heather, there is no "magic pill" to prevent people from suing for seemingly baseless reasons. However, you can hit back hard - hard enough that your litigious opponent thinks twice about proceeding further.

The first step is to understand how these kinds of claims can arise. They are often the knee-jerk response to avoid your claim for nonpayment. Deadbeat defendants frequently play several cards in their deck. They'll claim they were dissatisfied with your services or products. Plus, they may claim that the damages they suffered for your unsatisfactory work far outweighed whatever "paltry" sum you may be trying to collect. In addition, deadbeat defendants will delay - delay paying you, delay prosecuting the lawsuit -- as much as possible. Their strategy is often a war of attrition: can they drag out the lawsuit long enough to make the matter financially painful? Would paying them something - anything - even if undeserved, get rid of the dispute and thus be a more attractive option? That's what they bank on.

In all of these situations, "the best defense is a strong offense." Answer the complaint (or claim) swiftly. Your answer should contain all possible defenses and counterclaims. Also, if the circumstances are right (check with your attorney first), you may demand monetary sanctions (penalties) against the other party and the party's attorney. Just as the deadbeat wants to delay, your approach should be pursued with equal, yet opposite, vigor. Keep proceedings on a short (time) leash. Investigate the possibility of bringing what's known as "summary (court) proceedings, so that you don't have to wait to go to trial to be done with the case. When met with an aggressive defense, frivolous litigants often lose interest and agree to what is known as a "nuisance value settlement". Or, they may just "want to call the whole thing off."

Once Heather straightened out her situation with HiSpeed, she began to focus on how she could prevent being sued for trumped-up claims. The most important step Heather took was to have written contracts with all her new clients. Here are a few terms that she made sure to include:

• A clear plan of accountability. This included greater detail about the services she provided and tracked the services to expectations of payment. No payment, no services.

• "Boilerplate" concerning legal fees and costs. Legal fees are almost never awarded in contract disputes . . . unless your agreement provides for them. Provisions like those go a long way to encourage an amicable resolution of disputes without the need for litigation. It most almost certainly will dissuade someone with a knowingly frivolous claim.

• Arbitration provisions. Arbitration can be faster and less expensive than litigation. In most cases, you can set an arbitration date months, even years, before you might get a trial date in court. Because arbitrator's awards generally cannot be appealed or set aside, there's no "prolonging the agony" through an appeals process. Speedy resolution at lower cost, in front of an arbitrator who should be able to sniff out frivolousness quickly - all of these are the bane of those whose game is delay.

Without a written agreement though, you leave yourself more vulnerable to the kind of suit that plagued Heather. Don't stick your head in the sand when hit with a nuisance suit. Make sure to be as proactive as possible and get the advice and help of an attorney who can steer you to a quick resolution!

© 2004-2009 The Legal Edge LLC. Nina L. Kaufman, Esq. is an award-winning business attorney, author, and speaker. Under her Ask The Business Lawyer umbrella, Nina offers easy-to-understand business law resources that protect small businesses and save them money. To learn more, and receive our FREE "LexAppeal" ezine, visit http://www.GreatBusinessLawTips.com  or contact Contact Us. This article is for your general information only. Be sure to consult with an attorney regarding your particular situation to make sure you get the specific advice you need.

Nina Kaufman, Esq. Award Winning Business Lawyer, Author & Speaker