By Todd Zimmerman and Brandt Doerr
Photos courtesy of Fredrikson & Byron Law Firm
Tips for What to Do If You’re Served with a Summons or Complaint*
*Disclaimer: Since each situation is different, readers should consult a qualified attorney for legal advice. This article addresses common issues on the topic but should not be considered legal advice.
A business owner can be faced with uncertainty and dread when served with a summons and complaint, especially when it occurs without warning. Getting served can be jarring, even embarrassing, if it happens while you’re working with customers at your place of business. Unfortunately, along with the freedom and economic potential that comes with owning a business, there’s always some risk of incurring liability.
Whether the complaint arrives from a customer, an individual claiming to have been injured while at your business, or from another business, it’s reasonable to be concerned and unsure of what steps to take to protect yourself and your company. Lawsuits can arise from a wide range of issues, from a simple slip and fall to contract disputes to complicated matters involving competitors, business governance and securities issues.
When you get served, there are certain actions that should be taken promptly. Being proactive under these circumstances will give your business the best chance of avoiding potential liability and bringing about a swift resolution to the dispute.
QUESTION #1: Can I ignore the summons and complaint?
No! This is never a good idea. A failure to respond to a complaint exposes a defendant to entry of a default judgment. In federal courts and in North Dakota state court, a defendant has 21 days to respond. In Minnesota state court, a defendant has 20 days to respond. A default judgment can be entered simply on the basis of failing to answer a complaint, and even though it didn’t result from a trial or a decision on the merits of your case, a default judgment can still be used to collect money from you.
Ignoring a complaint has the effect of admitting to the allegations in the complaint and, simply put, exposes your business to financial liability. While it’s possible to ask a court to re-open a case that’s had a default judgment entered, it’s not something the court will do without good reason. A court may relieve a party from a default judgment for excusable neglect, but the court is by no means required to do so.
Without unique circumstances that show some attempt to answer a complaint or a unique excuse for not answering it, simply ignoring a complaint is generally not grounds for re-opening a case after a default has been entered. In other words, by ignoring the complaint, you will likely lose your legal fight without even entering the ring.
QUESTION #2: What does it mean to have a judgment entered against me or my business?
A court can enter a judgment upon a default, after granting a party’s formal legal reques — called a motion — or after a trial is held. Any judgment, whether by default, on a motion, or at trial, is a publicly recorded event. The judgment creates a lien on your real property, and it entitles the other party to collect money from you by garnishing wages, bank accounts or receivables.
In some instances, they can even gather up your property — including real property — and have it sold to collect upon a judgment. Ignoring a legal action or failing to properly defend yourself is just not a viable option.
QUESTION #3: Should I answer the complaint myself?
The answer to this question ranges from:
“It is not advisable to do so.”
“You are prohibited from doing so.”
Individuals may choose to represent themselves in a lawsuit. However, if your business is a corporation, an attorney is required to answer the complaint. An individual who is not a licensed attorney cannot represent a corporation in litigation, and that includes answering a complaint.
Without an attorney present, savvy plaintiffs can draw the court’s attention to a corporation’s lack of licensed representation and use it to their advantage. We believe it’s wise to contact an attorney immediately after being served with a summons and complaint, whether your business is a corporation, sole proprietorship or another form of business entity.
Attorneys are trained to carefully answer the allegations in a complaint in a way that protects your rights, and while you, as the business owner, may feel the complaint is frivolous and the situation easily explained, an inadvertent mistake in answering can have wide-ranging implications for the lawsuit.
In addition, an attorney can best evaluate whether certain defenses may be raised to quickly resolve the litigation. Many defenses can be waived if they are not asserted at the outset of a case or within other specific time requirements. An attorney can also better evaluate whether your business has any potential counterclaims against the plaintiff and properly assert them early in litigation.
QUESTION #4: Will my insurance cover the potential liability from the case, as well as my attorneys’ fees?
Any insurance policy that you or your business has should be carefully examined at the outset of a lawsuit. Homeowners insurance and umbrella policies may cover more than you expect. Businesses may have a variety of different coverages, both for the business entity itself, as well as its officers or directors. If you have coverage or if there is even the possibility of coverage, you typically need to promptly notify your insurance company and request that they provide coverage under the terms of any potentially applicable policy.
Also, failing to put your insurance company on notice that you are being sued may result in you losing coverage. Many policies have express requirements regarding what you can and cannot do if you are sued. You should advise your insurance agent of any claim that could possibly be covered and let your attorney know of any policies that might provide coverage, so they can be properly considered.
QUESTION #5: If I win the case, will the other side have to pay back my attorneys’ fees and expenses?
While that seems like a fair result, the answer is that even a complete victory will likely not result in you being repaid for attorneys’ fees and other costs. Generally, you can only recover attorneys’ fees and costs if there is a specific contractual provision with the other party that allows the prevailing side to make such a recovery or if there is a specific statute allowing for such a recovery.
Careful contract drafting at the start of business relationships can give you that right. You and your attorney should carefully consider whether there is any statute that might give rise to the recovery of attorneys’ fees and costs.
QUESTION #6: How long is this going to take?
Unfortunately, longer than you would like. Courts are not designed to move rapidly. They are designed to give parties the ability to thoroughly consider their cases and then have them presented to a judge or jury. Depending on the court, you will likely not have a trial date for at least one year and perhaps substantially longer than that.
The time, costs and drain on personnel can be substantial. While the usual inclination once you are involved in a lawsuit is to fight and vindicate yourself, practical considerations may require that you consider options other than a full-scale lawsuit extending for months and perhaps years.
QUESTION #7: This case is frivolous. Can’t I just get it thrown out of court?
The answer is probably not. A plaintiff’s factual claims are presumed to be true at the outset of a case. Only cases that lack any legal merit, even given that presumption, will be dismissed on an early motion. Otherwise, a detailed factual record will need to be presented to the court on what is a called a summary judgment motion to obtain a dismissal. Even then, the rules are structured such that every benefit of the doubt is given to the party not seeking dismissal.
In summary, being sued puts you and your business in a complicated, costly, and likely time-consuming process. Discussions, negotiations and other efforts may well be advisable before you get to that stage. You can be even more proactive by discussing strategies to avoid litigation by addressing potential risks with your attorney long before you see a complaint. Once a lawsuit has been started, you need to get good counsel right away to make sure all your legal rights are protected and to avoid putting your assets and your company’s assets at risk.
About the Attorneys
Todd Zimmerman is a Fredrikson & Byron shareholder and litigator who represents a wide range of business and individuals. He can be reached at [email protected].
Brandt Doerr is a Fredrikson & Byron associate who works on commercial litigation, as well as employment and labor matters. He can be reached at [email protected].
Fredrikson & Byron
51 Broadway N, Fargo