How Not To Get Sued

I was sued five times for libel. Three of those lawsuits were handled by my insurance and two were handled pro-bono by a friend. I believe I was out of pocket about $16,000 for expenses. I never had any assets to seize anyway.

I have found that a proper understanding of my place in reality, of my relative importance in the various interactions that make up my day, is the best tool for reducing unnecessary conflict and avoiding my character defects of dishonesty, selfishness, self-seeking, inconsideration and fear. We are different people in different emotional states, and so long as I stay out of the states of dishonesty, selfishness, self-seeking, inconsideration and fear, life goes well. Most days most of the time, I feel like I am floating through my day. When there are bumps in the road, there’s usually some part of reality that I am denying (aka I am in a state of dishonesty).

I find that having the mindset that everybody knows everything helps me to lead a more integrated life and that reduces unnecessary conflict. Previously, I used to take great joy in trying to get away with as much as I could. That did not work out well. Facebook, for example, wants you to use only one profile under your real name, with no title, and that can cover all aspects of your public life. There’s wisdom in that approach. Ideally, you operate in one sphere of your life in ways that will not damage the other spheres of your life. You don’t preach from the pulpit the opposite of what you practice at work. Instead, your hobbies, your loves, your careers and your spiritual pursuits work together to create a positively visible life.

One thing that has consistently hurt me is my lack of care. I am not high in the personality trait of conscientiousness. Knowing that, I do all sorts of things to back up my work and to engage in practices that reduce the bad effects of my sloppiness (if I want to remember to take something with me, I put it where I can’t miss it, I post notes, I set alarms on my phone, etc).

From Hanover.com:

Maintain good communications. …
Avoid giving false expectations. …
Make the client make the hard decisions. …
Document your advice and the client’s decisions. …
Don’t initiate hostilities against the client. …
Avoid, or handle with care, the borderline personality client.
Run, don’t walk, away from unsavory clients.
Do not favor your interests over your clients, or one client’s interests over another’s
Be proactive in addressing client complaints
Carry good liability insurance

From American Express:

1. Suck it up: Clients never liked this piece of advice much, but that doesn’t mean it was wrong. The fact is, people don’t usually like to resort to lawsuits; they are often a choice of last resort born of frustration. In many of the cases I dealt with, the expensive lawsuit could have been avoided if the alleged wrong party was a little more humble and reasonable. But once egos get involved and/or people get mad, once it gets overly emotional, the chance to settle diminishes rapidly.

2. Avoid suing: Once you sue someone, you open the floodgates. They can sue you back. And if they are as angry as you are, they just might. In that case, you will need to hire a lawyer, maybe notify your insurance carrier, deal with discovery, get deposed, etc. If you don’t sue though, it probably does not get that far.

3. Be reasonable: Here, I am talking about reasonableness in the legal sense. Often (not always of course) when a business is sued, the allegation is that they were negligent in some manner. Essentially, negligence means you did not act as a reasonable person would in the same or similar circumstances.

So be reasonable. Be cautious. Double check. Follow standards and rules. Be prompt.

4. Keep your word: As an adjunct to #3, it would similarly behoove you to live up to all of your agreements and not breach them. Aside from negligence suits, breach of contract suits are the most common in business. Even if the contract is difficult to live up to, breaching is rarely the proper solution.

5. Institute policies and procedures

6. Be a mensch: Be a mensch to your employees. Be a mensch to your customers. Be a mensch to your suppliers. People rarely sue menches.

From Investopedia: “Watch What You Say and Do. First of all, when it comes to your business image, owners and their employees should avoid making any public announcements or conducting any business that might be considered questionable. This means avoiding things like libelous or potentially slanderous statements, but it also means not doing business with unscrupulous individuals. You may not think it’s a problem working for a group of individuals who are known for shoddy business practices – because you know your company’s ethics are above reproach – but if they take a hit, your company’s name may be linked to them in the fallout.”

From MoneyCrashers.com:

Review for Lawsuit Vulnerability. Review your business and personal practices to identify areas or actions that make it more likely that you will be subject to future legal actions. If possible, cease the activity or end the relationship. If it’s not possible to stop, change it to reduce your vulnerability.

Require Potential Plaintiffs to Assume Responsibility. Companies aggressively and publicly identify possible adverse consequences for the use of their products or services.

Shrink Your Public Profile. Plaintiff attorneys and bill collectors often complain about those people who are “judgment-proof.” In layman’s terms, these are people who have little or no assets exposed to creditors or judgments. Since there is little likelihood of financial benefits, plaintiff attorneys are reluctant to sue such people.

Reduce your allure to future claimants in the following ways:

Transfer Assets. Giving your property to a family trust is a popular way to protect your assets. If you don’t own it, no one can attach it.

Leverage Assets. Borrowing and giving the lender a lien on your property makes collection of a judgment more difficult. A court’s judgment, in most cases, cannot override the rights and priority of a secured creditor or lien holder. In order to take the property, the plaintiff would have to first satisfy the lien. This process can be expensive and cumbersome, an action most plaintiffs are reluctant to pursue unless the difference between the market value of the assets and the loans are substantial…

Lawsuits are generally nasty, often personal affairs. Even if you’re successful in defending the claim against you, you will pay a price financially and emotionally.

The Balance Careers:

Don’t break the law. This may sound like common sense, but thousands of small business owners routinely violate laws by:

Not Registering or Legally Establishing A Business,
Failing to Report Income or File Taxes Properly,
Copyright, Patent, or Trademark Infringement.

Another common reason business owners (especially employers) get sued is because they create documents (employee manuals, contracts, legal forms, and even email communications) that set them up for lawsuits.

It is important that you have someone qualified to help you set up any document that shows or establishes how your business is set up or run.

From a law firm:

Keep accurate records
Reputable businesses make it a standard practice to keep accurate records at all times. This process includes recording the time and date of when an agreement was signed, and items discussed at each subsequent meeting. Any communication, including phone calls, emails, and transactions, can be documented. Some businesses limit their record-taking to when a problem occurs that jeopardizes the timely completion of an assignment.

Businesses should have their records state exactly what services were agreed upon with each customer in case of a lawsuit. Those details could include a number of different products or services that were discussed in the negotiating process. Remember, consistent records can be used as a defense in the case of a lawsuit.

Write and implement company policies and procedures
Another important step in protecting your business is properly drafting workplace policies and procedures which may help prevent lawsuits. Instruct your staff to follow these policies because they can be vital in protecting your company. Providing a job manual or employee handbook is the safest route for your employees to learn policies and perform their jobs well.

Be ethical, honest, and moral
It is important that businesses strive to be ethical in their practices every day in order to build a reputation within the community. The goal should be that no client, transaction, or dollar amount is worth jeopardizing your place in the market by bending the rules. Act in a professional manner each time you deal with customers and employees to help prevent being sued.

Provide exceptional customer service
One way to avoid being sued is having great customer service. Some customers may just be upset, and quality customer service can make the difference between calming them down or dealing with a lawsuit. Your staff should be prepared to explain that mistakes are unintentional, but can happen. Proper training with managers and employees can help prevent a lawsuit.

Judy Melinek MD writes:

1. Don’t be an asshole. Patients sue when they are angry at their doctors. If you treat people badly, they are more likely to blame you when things go wrong — even when it’s not your fault. Give your patients your time and attention and empathy.

2. Take the time to explain things.

3. Don’t promise anything you can’t deliver.

4. Check your ego and your peer-reviewed references. You do not know everything.

5. Take responsibility for mistakes and apologize.

Link: “When patients perceive their doctors are friendly and helpful, they are much less likely to sue them. Although being warm and friendly does not eliminate any chance of a lawsuit, doctors who are perceived as cold or dismissive are more likely to get hit by a lawsuit. In studies asking them why they sued, plaintiffs cited perceptions that the doctor deserted them, was unhelpful, devalued their views, and didn’t acknowledge their perspective.”

Mark Suster writes:

1. If you want to start a company, create a legal entity — it’s dirt cheap.

2. Make it clear in writing that anybody you speak to about the idea does not constitute their contributing to your IP and if they do any work for you please make sure you sign a legal agreement assigning the IP to you.

3. Be formal with every employee contract — even with friends.

4. Make sure you have standard vesting — even before your raise capital. At least one year cliff and four-year vesting. No acceleration. Everybody signs — even you. No “special deals.”

5. Where possible avoid 50-50 ownership. It leads to more problems than I care to say. Nobody talks about this publicly because the fights are too personal so people don’t blog about them. It is insanely common.

6. Be very careful with everything you write in an email or send in a text message. These will be read out loud in a court of law and will be used out of context if needed. Humor is tone deaf in court. I was forced to explain why I say “I switched to the Dark Side” (referring to VC) on my blog. I was continually asked whether I was evil in a serious tone. It’s not crazy to use services like Confide or Cyberdust that delete your messages after you send them.

7. Follow HR protocols. This is something many young founders err on because often they have never worked in a “real” company. If you think you may have to terminate employees always have legal advice. Where possible sign releases in exchange for your providing more benefits or compensation than the law stipulates. Never be mean or bitter for outgoing employees — it never pays.

About Luke Ford

I've written five books (see Amazon.com). My work has been followed by the New York Times, the Los Angeles Times, and 60 Minutes. I teach Alexander Technique in Beverly Hills (Alexander90210.com).
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