Yes, lawsuits can be your worst nightmare, but here’s the good news: They don’t have to sink your business. Read on for case studies and tips on how to deal and get out in one piece.
Getting sued by a big corporation
Back in 2005, recent college graduate Hamid Saify was tired of shopping at Ikea. He loved mid-century modern furniture, but couldn’t afford designer prices, so he came up with a solution for cash-strapped shoppers: an online company called Paradigm Gallery. Saify would find vendors to replicate popular furniture styles and sell them online at slashed prices. Each piece was clearly labeled a nonoriginal.
The business was a smashing success right out the gate. “After the first week, we’d sold $20,000 worth of product,” he remembers. Nine months later, Saify was up to a $1 million in orders.
In 2007, Saify received a letter from Knoll, a major furniture manufacturer, asking him to stop selling a few of his products. The products included a remake of the popular Barcelona chair, one of Saify’s top sellers. But instead of following Knoll’s wishes, he ignored the letter altogether. When a second letter arrived a few months later, he ignored that one, too.
“I was full of bravado,” Saify says. “I thought I must have been doing something right to get the attention of a big company and that nothing was going to come of it.”
A third letter from Knoll arrived two months later. This one laid out possible legal action against Paradigm Gallery unless Saify stopped selling three products in his inventory. Once again, the letter was ignored.
One day in fall 2008, Saify received a knock on his door. It was a local sheriff serving him lawsuit papers. “I opened the letter, and it was official; Knoll vs. Paradigm Designs LLC,” he says. “It told me what they were looking to settle for, which was way more money than I had. I panicked.”
Saify hired a lawyer and three weeks later came to an agreement with Knoll for a manageable settlement amount. He sold the business two months later. Looking back now, he has a few regrets.
“I shouldn’t have settled so quickly,” he says. “I didn’t know it at the time, but I could have extended the process to allow me more time to think.”
How to deal
Today Saify is working at a social platform called ChoicePunch and offers a few tips for those presented with a big company lawsuit.
“Don’t panic; find a lawyer and ask them how much time they think it will take,” he suggests. “Get a few estimates. Then do research on other cases that may be similar to yours. A lot of trademark cases are thrown out.
“Oh, and always listen when you get first wind that you may be angering other, larger companies. Don’t follow my example.”
William H. Healey, a certified civil trial attorney specializing in employment law at Kluger Healey in Red Bank, N.J., says that in addition to paying attention to formal communication by a potential plaintiff, make sure to look into your insurance coverage.
“Sometimes it can be surprising when you find out that you are covered for something like this,” he says.
But what if you aren’t covered and don’t have the money to settle?
Fear not. Healey recommends getting in front of a judge as quickly as possible to present your situation and possibly come to an early resolution.
“Sometimes you have no choice but to cry poverty,” he says. “Big companies realize that it is fruitless to go after smaller ones if there is nothing to collect. I’ve been able to get rid of cases early just by being candid about the other side.”
Getting sued by an employee
Susan Long took over her family business, Diving Unlimited International, a little more than 10 years ago, and in doing so also inherited Diana*, an underperforming employee. Diana had been with the company for 25 years and, as of late, wasn’t pulling her weight. On several occasions, Long spoke with Diana about improvement plans, but nothing worked. She was eventually forced to let her go.
“She was sad and I was sad,” Long remembers. “I knew this lady; I grew up with her.”
Six months later, Long was shocked when strapped with a lawsuit for wrongful termination.
“Her lawyers wanted to settle right away, but I wouldn’t do it,” Long says. “We ended up going to trial. Employees had to give depositions; it was just tough.”
With a mountain of documented reasons for Diana’s termination, Long ended up winning—but not before spending $70,000 on legal fees. Today she looks back on the experience as an “emotional” one but says she wouldn’t do it any other way—that far too many employers are eager to settle, not go to trial, and that fact alone leads to more employee-on-employer lawsuits.
Healey agrees. “Most plaintiff’s lawyers know that if they are reasonable early on, they will get money out of the employer,” he says. “If there was a firmer line, I think they would be less inclined to file all these lawsuits.”
How to deal
Employers who find themselves on the receiving end of a wrongful termination suit should first gather all the documents they can.
“Not just an employee’s personnel file; I’m talking about any e-mail communication, any traces that a former employee left behind that may assist a defense,” Healey says.
Don’t have documentation? Talk to your lawyer about increasing your jury appeal.
“You better be believable and presentable,” he says. “If the plaintiff is extremely sympathetic, good luck.”
From there, lawyers will need to interview members of your company who interacted with the plaintiff. Do this quickly, he recommends, while everything is fresh.
Should you always take it to court?
It depends, Healey says. He recommends, “picking your fights,” but if you are worried about copycat lawsuits from other employees, hedge your bets and “take it to conclusion.”
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*Name has been changed
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