How to tip judicial scales in your favor by D Bautista

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YOUâ&#x20AC;&#x2122;VE BEEN SUED NOW WHAT? How to Tip the Judicial Scales in Your Favor This e-book is designed to help small and medium sized businesses understand the challenges of lawsuits and litigation and how to survive lawsuits that may threaten their profitability or their companyâ&#x20AC;&#x2122;s existence. The following discussion is an outline of various stages of litigation to acquaint you with some of the basics, and is not intended as a scholarly or complete treatment of each subject. Also, readers should note that while this book focuses on both federal and Texas law and practice, the principles are virtually the same in all states. You should read this e-book to prepare a checklist of questions for discussion with your attorney and continue learning the details of the litigation process in your case.

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Why Me? The First Steps to Preparing Your Case.

Chapter 1

Many clients are surprised when they are served with a summons and complaint and ask a question that is both practical, philosophical and oftentimes emotional---Why Me? Like the first stage of grieving (denial), don’t let yourself get sidetracked into being angry, disappointed, frustrated, scared and don’t panic. Unfortunately, in our society, it is the rare individual or company who is never sued, or never does something that someone else finds objectionable and therefore, the basis of a lawsuit. In business relationships, if you’re really successful, other people will either steal your idea or claim that you are stealing their idea, or they love your idea, but they don’t want to pay for it! Perhaps the suit against you is frivolous, or the product of someone who is just angry with you and wants 3 Copyright 2015 Stephen R. Cochell

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to get even. Perhaps one of your employees or agents made a mistake creating a dispute that could not be resolved by good faith discussions with a customer or supplier. The list of reasons for getting sued are endless, but the fact is---You’ve been sued---Get over it, and defend the case. The first steps to preparing your case include: 1 Review the complaint and determine the deadline for answering. In most cases, you have 20 days within which to file a response. That is twenty days not including the date of service.

understand your goals in the case. You will discovery that either you or your employees/ agents and contractors were justified in what they did, or that there were some mistakes along the way!

2. Find a lawyer. This part is worth volumes, but think about whether the lawyer you went to high school or college is really the best person for the job. Like doctors, some lawyers are better, sometimes much better than others, so you have to shop. More about this in Chapter 5.

5. Determine if you have any counterclaims that should be raised. In many cases, a party files a lawsuit with absolute confidence that they will win. Instead, they are confronted with a counterclaim and have their proverbial “clock” cleaned by the defendant who files a counterclaim.

3. Contact a lawyer and see what they need to evaluate your case. I’ve written an article on this subject that gives detailed guidance on how to best prepare your case to be reviewed by a lawyer. See. How to Hire the Right Lawyer.

6. Finally, don’t get mad and don’t set out to “get even.” Anger and revenge is not going to win your case. In fact, making litigation decisions from a position of anger will likely create new problems and needlessly increase the cost of the litigation to you and your business.

4. Gather all documents relating to the disputes (contracts, emails, letters, notices, invoices, etc.) and organize them chronologically. Almost all lawyers want to establish a chronology of facts early in the case to help them respond to the allegations and to

7. Clear thinking, organization and solid legal work by a competent and experience lawyer will help you defend your lawsuit and hold the other side accountable for their own conduct or misconduct.

In sum, almost all businesses and individuals have to defend themselves

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In sum, almost all businesses and individuals have to defend themselves in the course of conducting their business. You may have good defenses and even better counterclaims. Exercise the kind of business judgment you use in conducting your business and use those analytical skills in planning your defense and counterclaims.

Understand The Motivations

Chapter 2

Why do people do what they do? Clients often ask their lawyer why are they doing this to me? If you subscribe to the “Godfather” approach to divining motive: Is it personal or is it just business? “The key is to not to dwell too long or too often on the other side’s motives..” The key is to not to dwell too long or too often on the other side’s motives. In fact, most experienced trial attorneys and litigators will tell you that predicting human behavior is akin to herding cats. Once you start thinking you figured out why this cat did what they did, it turns around and tries to scratch your eyes out! The best that we can do is determine what people do and draw reasonable inferences from the conduct and statements, oral or written. From case to case, these facts may be easy or difficult to prove, but we look to establish the facts and then argue the motivations of the parties. We see litigants file legitimate lawsuits to collect debts, protect intellectual property, collect damages for breach of contract and to prevent interference with contracts as well as business disparagement, and unfair competition, among many other types of lawsuits. A case may be filed in 5 Copyright 2015 Stephen R. Cochell

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a jurisdiction for strategic reasons where the law favors them and not you, or is filed to try and force a contract issue that has been bothering the other side. In these cases, you can usually establish why the other side is coming after you and evaluate what you need to do to either settle or win the case. However, there are cases that are motivated by personal reasons: money, greed, jealousy, retaliation, mental illness, or to obtain an unfair advantage over you or your business. Similarly, there are cases, such as partnership disputes, that start out as “business” but become “personal.” Once you understand the other side’s motivations and end-game, the theory is that you can effectively predict the outcome of the litigation.Litigation is, by its nature, unpredictable, time-consuming, expensive and can become a threat to your bottom line if not your entire business.

What type of lawyer do you need? Do some Shopping!

Chapter 3

The choice of lawyers in a business dispute matters. Pick someone you trust or think you can trust. Let their actions, advice and service to you as a client earn your trust. If you don’t trust your lawyer, you need to get another lawyer. You should “shop” for the lawyer that meets the needs of your case. You don’t want someone who is a great personal injury or criminal lawyer but does 6 Copyright 2015 Stephen R. Cochell

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not regularly represent clients in business disputes. If your lawyer is inexperienced or is an “SOB litigator” who alienates everyone in the courtroom, you lose and the other side obtains judgment against you. Your lawyer is an extension of your business in every sense. If the lawyer is arrogant, rude, obnoxious, or condescending to any party or witness or to the trial judge, you suffer the consequences (and pay their fees). Most trial judges generally hate lawyers who appear dishonest and unethical, but must rule in accordance with the law. However, they also have broad discretion in ruling on evidence at trial which affects the outcome of a case. So, if you have a lawyer who talks down to the judge, the court staff or to the jury and witnesses, don’t be surprised if the close rulings go against you. Similarly, juries spot dishonest lawyers who misrepresent the facts at trial and are predisposed to vote in favor of the other side. The lawyers who endure and succeed in the courtroom are honest, ethical and honest in their dealings with opposing parties, their attorneys and the Court. Many clients make the mistake of going to the family lawyer who wrote their will and trust their judgment in selecting one of their partners or friends to do the litigation. By all means, you should trust your family lawyer, but as one of our ex-Presidents used to say: “Trust, But Verify!” In other words, find out more about them, their background, why they are the right lawyer for your case and why you should trust them to get a good result in this particular case. Reputations, experience and a lawyer’s track record are the most important factors in selecting an attorney. Ask the attorney for his resume and a list of prior cases and results so that you can do some research. Don’t be misled by reputations, fancy offices, or prestigious law schools and a list of impressive associations or awards. Every case is a new case and is won or lost by the skill, tenacity and persistence of a trial lawyer. 7 Copyright 2015 Stephen R. Cochell

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If your lawyer has not done the homework, you will lose and the other side will win a verdict against you. As with everything else in life, you will have to address the fact that good lawyers are more expensive than other lawyers and may not fit within your budget. Regardless, you must invest sufficient resources (i.e. your hard earned money) in making sure that your lawyer has a firm handle on both the law and the facts in your case. In some cases, it is important to find a lawyer who specializes in a particular area of practice, such as taxes or patent prosecution. In most cases, however, business litigation requires a lawyer who has experience in litigating disputes and understands your business. This often requires a blend of different practice areas involving from contracts, intellectual property, employment, collections, benefits, real estate, corporate, internet, and sometimes even criminal law! In sum, find a lawyer who has substantial trial experience and is prepared to work hard to protect your business.

The Cycle of Litigation

Chapter 4

Weâ&#x20AC;&#x2122;ve all seen litigation and trials on TV. Some of it, the small part of it involve the drama of the courtroom and depositions. You need to view litigation like you would view an unguided missile. No matter who launches first, very few people know where the lawsuit will ultimately land, or whether it will blow up in your face! 8 Copyright 2015 Stephen R. Cochell

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Leading up to trial, however, the preparation of a lawsuit is very methodical, requiring a detailed factual and legal investigation that can be partially accomplished by you, the client, as well as the attorney. For those of you who have not participated in the litigation process, here are the highlights (or lowlights depending on your perspective!).

Discovery in General: Discovery is the process of dis-

Answer/Counterclaim/Motion to Dismiss: Your law-

covering the other side’s case, and usually winds up being a process of discovering your own case. Under the rules in almost all courts throughout the United States, the scope of discovery is very broad. A party may seek discovery of unprivileged information that is relevant to the subject of the lawsuit, including inadmissible evidence, as long as the request is reasonably calculated to lead to the discovery of admissible evidence at trial. Discovery, however, can be limited by the Court if a party tries to engage in a “fishing” expedition, seeks privileged trade secret, confidential legal, medical or other information that is, depending on the case, none of their business! Your attorney can file a protective order motion depending on the facts and circumstances of your case.

yer will file your answer or counterclaim. The attorney may need to file a motion to dismiss for lack of jurisdiction or other grounds. In addition, your lawyer may need to file a Motion for Change of Venue if the plaintiff is trying to make you appear in El Paso, Texas but all the defendants are in Houston. If you fail to file certain kinds of jurisdictional or venue motions prior to, or at the time of filing your answer, you could be stuck in El Paso instead of Houston. I’ve personally never been in El Paso…I just know that I don’t want to go to 9 Copyright 2015 Stephen R. Cochell

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El Paso for a client if the case should have been filed in Houston!

Automatic Disclosures or Request for Discovery:

Interrogatories & Document Requests: Under both

Requests for Admission: These are generally short re-

Both federal and state rules require the parties to disclose certain basic information about the nature of their lawsuit, their witnesses, expert witnesses and their alleged damages. Failure to disclose this basic information results in exclusion of evidence at trial and potentially sanctions by parties who try to “game” the rules. federal and state rules, all parties can serve interrogatories (written questions) designed to obtain basic information about the parties and the lawsuits. Similarly, you may serve requests to another party to produce documents. If it is within the scope of discovery, the other party has to produce the documents and answer your questions.

quests that the other party admit or deny a certain fact. “Admit or Deny: Company A entered into a written agreement with Company B on April Fools Day.” Unless the party served with the requests lacks sufficient information to answer the request, they must admit or deny the request. Failure to respond or to admit, deny or assert lack of information may result in the request being deemed admitted for all purposes of the case. If you are served with a complaint that also has a “Request for Admissions”, you need to promptly see a lawyer and make sure that you either answer the admissions or obtain an extension of time to provide answers.

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fore a certified stenographer and/or a videographer. This is a key point in the litigation process where a party’s attorney gets to question the other side. This usually takes place in an attorney’s office and is somewhat informal. However, you need to be totally prepared to respond to the questions of various lawyers. Know your facts and work with your lawyer to understand the process.

Summary Judgment: This refers to a motion that is usu-

ally filed after discovery is substantially completed. If the discovery, interrogatories, admissions and deposition testimony show that there is “no genuine issue of material fact”, then the moving party is summarily entitled to judgment against another party as a matter of law. If successful, you need not go to trial and you get your judgment against the people that sued you. Sound easy? Unfortunately, it is not so easily obtained in state court whereas, due to different standards in federal court, district court judges routinely decide cases on summary judgment. As mentioned above, this is a list that very generally describes some of the procedural steps available in both state and federal court. Whether you engage in all discovery tools or only one of them depends on the needs of your case and the recommendations of your attorney.

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When to Settle?

Chapter 5

Knowing when to “hold” or when to “fold” and settle varies dramatically in business cases. If a case does not present any significant principles to your company’s operation, then you should consider settlement as soon as possible to avoid unnecessary litigation costs and minimize potential risk of loss to your company. It is also important to consider early settlement in “you-bet-the-company” cases where you may lose the company if you or lawyer misjudge the case and a verdict is entered against you. The “risk of loss” is the potential loss of revenue, assets or intellectual property of your company if you lose the entire case. Can you settle early and minimize any anticipated losses? A good lawyer will not only let you know when you have a valid defense or counterclaim, but will tell you when

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you have a risk of liability and loss. Sometimes this can be done early in the case but oftentimes, a case requires factual development and discovery of the other side’s case to determine your risk of loss. The best lawyers help a client analyze, understand and help their clients solve their immediate litigation problem and then get on with their business. The problem often rests with either parties having unrealistic expectations or a misunderstanding of their own case. Even in relatively straightforward business cases, it takes time and money for both client and lawyer to predict their risk of loss. Two competent business lawyers can usually settle a case. However, the key is having experienced counsel on both sides of the equation, or being faced with an attorney who is more interested in billing the file than solving the problem. The unfortunate truth is that, in many cases, the only people that “win” in a lawsuit that is “personal” are the lawyers getting paid the fees, and some of them are downright dishonest and immoral. The role of a business litigator and trial attorney is to identify a client’s goals, help them achieve those goals through legitimate litigation strategies and to do so with a cost-effective strategy. Ultimately, it is up to both clients and lawyers to figure out “when to hold and when to fold” regardless of the opposition. You may need to complete discovery, file and argue summary judgment arguments before you get a good reading on your risk of loss. The trial judge is also a huge factor in determining whether to hold or fold. Your lawyer needs to provide you with the best assessment of the trial judge’s capabilities and track record. In Texas and in many states, judges are elected every four years and are party members with politics and potentially 13 Copyright 2015 Stephen R. Cochell

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have an ideology that affects your case. If possible, the attorney should investigate how the trial judge has resolved the same or similar cases. Like lawyers, not all judges are created equal. Some are smart and talented trial judges and others are beloved among the public and bar for other reasons. There is often a balance that a lawyer must strike in trying to “please” a judge and failing to zealously fight for his or her clients. The best attorneys know how to challenge a trial judge on the law or to respectfully disagree with a ruling that they think is a mistake. However, once the trial judge is against you on the law or the facts, you need to decide whether that affects your decision to settle or for how much. The use of mediation has helped dramatically in the settlement process. It is estimated that over 96% of civil cases reportedly settle before trial. The majority of states, including Texas, have established mediation as an integral part of the litigation process. Mediation is successful in cases where sufficient discovery of each party’s case has shown the strengths and weaknesses of their respective cases. Lawyers seldom have the opportunity to talk directly to the plaintiff and tell them why their case is weak and should be settled for nuisance value or something that their client thinks is reasonable and can afford. I frequently remind the other side (and my client) in mediation that even if you think you have the facts, the law and the equities on your side, the facts or the law can turn against you with an email, or a key witness who falls apart on the stand, or dies before they testify. Sometimes, you have to settle to “live and fight another day.”

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When to Fight?

Chapter 6

We just talked about settling. Whether we like it or not, there are some cases that should not or cannot be settled regardless of whether there is a high risk of loss or whether the trial judge likes or hates you or your attorney. These cases include the â&#x20AC;&#x153;personalâ&#x20AC;? cases, but the majority of cases frequently turn on closely contested facts, an issue of law that needs to be decided, or where either party has spent so much money on legal expenses that they do not feel that they can compromise their claims. Many businesses and corporations litigate cases based on principles critical to supporting their customers or business, or take a hard line on employment cases unless it can be shown that they clearly did something wrong or that a jury or judge will likely return a verdict against them. In these cases, you need to have the most competent, experienced trial lawyer to go before a jury and kick the other sideâ&#x20AC;&#x2122;s butt! There is nothing wrong with putting the other side to their proofs and letting the jury decide. 15 Copyright 2015 Stephen R. Cochell

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Jury Trial or Judge?

Chapter 7

The choice of asking for a jury or having a trial judge decide your case is extremely important. In large urban areas of Texas, almost all state or federal trial judges are assigned cases by random selection. In rural areas, you know your assigned judge before you file your complaint. If you want a jury trial in federal court, you need to make the decision almost immediately, because the procedural rules require you to make a jury demand within ten days of filing your complaint. In state court, the Texas rules allow you to ask for a jury trial up to thirty days before the trial date. When should you pick a jury instead of a judge in a business dispute? There is no set answer and, of course, it depends on the judge! Many clients express concern about state court judges who, in Texas, are elected every four years and feel that elected judges are prone to making decisions that assure their re-election. In contrast, federal judges are appointed for life and are not vulnerable to changes in the electorate. Federal judges are nominated by the President and virtually always are members of the Presidentâ&#x20AC;&#x2122;s political party, and subscribe to some of the political views 16 Copyright 2015 Stephen R. Cochell

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of the President or the party. The Senate then investigates each nominee for their judicial philosophy and either confirms their nomination or rejects the nominee. Once appointed, federal judges do have more resources the broad range of cases on their dockets and have undergone confirmation by the United States Senate. While some federal judges tend to be idealogues who follow either a “conservative”, “moderate” or “liberal” agenda, the reality is that many trial judges change with experience and training. While you cannot ignore their background, good lawyering and strategic planning of your case may carry the day with a judge who may not like your case. Having litigated or tried cases throughout the United States, my view is that you have to make an informed decision about the trial judge based on their track record, education, work experience prior to the bench, but mostly their track record in the type of case you have before that court. When I’m in a rural part of Texas, I usually associate with a local lawyer to help me understand the “judicial landscape” and emphasize aspects of the case that will attract the trial judge’s interest. If you have a smart, hard-working judge who reads the pleadings before coming on the bench and has a track record for impartiality and following the law, you may want to have your case decided by a trial judge. If you have email or testimonial evidence that will upset or anger a jury, you want to select the trial judge and avoid having your case decided based on anger, bias Clients often express concern about “home cooking” in a Texas rural courtroom. While there is some history of trial judges ruling in favor of local lawyers, such stereotypes should not be blindly accepted. If you have a substantial “you-bet-the-company” case in a rural Texas county, you should almost always retain local counsel to work with a trial attorney that you trust. 1

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or an emotional reaction by one or more jurors. A trial judge presumably, but not always decides the case based on legal principles and will award the damages that are supported by the evidence. On the flip side, many clients and lawyers want a jury to decide their business dispute in the belief that they can persuade a jury with the equities of their position and present evidence that will persuade, or even inflame the jury against the other side. If you have a strong case where, for example, a competitor stole your trade secrets and maliciously set out to destroy your business, you not only want to obtain compensatory damages but you will want to be asking for punitive damages. This is when you usually want to be in front of a jury and not a judge. You should always discuss the decision of asking for a jury versus trial by judge before filing the complaint, or if you are sued, when you file your answer to the petition or complaint.

How Much is This Going to Cost?

Chapter 8

It is never cheap to defend or to prosecute a business dispute. Like everything else, you get what you pay for. The best approach is to have a frank discussion with your attorney as to their billing rate and practices, and formulate a litigation plan that will cost effectively implement a plan to win your case or achieve an acceptable result. The high cost of legal services, as well as the uncertainty of litigation accounts for the high rate of settlement in civil cases. Make sure you know the 18 Copyright 2015 Stephen R. Cochell

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facts and the controlling law at the “front end” of your case. It will save you time and money because you will then be able to make an informed decision as to whether you should “hold or fold.” If you are pursuing a claim or counterclaim, you need to make a business decision about three basic questions: (1) Do I have a cause of action against my adversary; and (2) If I win, what are the damages; and (3) Can I collect on the damages if I get a judgment in my favor? While you may have a great claim/counterclaim and suffered severe damages, you and your attorney need to make a judgment as to whether you should spend “good money” to get zero recovery. A talented business litigator will recommend that you first evaluate your case and then provide you with a plan and a budget to achieve your goals. If you have a case involving significant issues or high damages claims, you should ask for that plan in writing. Most clients are reluctant to have their attorney undertake a detailed review of the evidence prior to filing a complaint or undertaking the defense. Although this saves money, this is often a serious mistake because all cases turn on their facts. Clients frequently think the facts are on their side, only to discover that 19 Copyright 2015 Stephen R. Cochell

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their employees did not follow company procedure, or that the contracts that they thought protected them had a loophole. Contracts and business transactions are paper intensive. Both client and attorney must spend time and money at the “front end” of the case to determine the risk of loss to the company. There are different billing philosophies in business cases, but virtually all business litigators bill by the hour. In some cases, you may have claims that lend themselves to a contingent fee or blended rate approach with a reduced hourly rate and a contingent fee arrangement. Many states require lawyers to enter into written retainer letters with clients and virtually all states require contingent fee agreements to be in writing. However, a written retainer letter is not required in Texas. Most Texas lawyers, however, provide an engagement letter on hourly cases and, if the terms and conditions of the representation is not reduced to writing, are required to inform their clients of the basis for their charges. If any part of an attorney’s compensation is contingent on the outcome, the Texas Professional Rules of Disciplinary Conduct require the agreement to be in writing, or the contingent fee portion of the fee is unenforceable.

You’ve Won, or You’ve Lost—Now What?

Chapter 9

You may “win” your case if the Court grants all or part of a motion for summary judgment on your claims, or if you go to trial and obtain a verdict in your favor. A judgment on the verdict is entered by the Court. After waiting the statutory period allowing for appeals by the losing party, you can collect on your judgment assuming that the defendant or counter-defendant has assets. As previously discussed, you need to exercise business judgment in determining what effort and resources are warranted in pur20 Copyright 2015 Stephen R. Cochell

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suing litigation, including collection on a judgment. Many clients decide to enter into a payment plan with a losing party if it is apparent that the assets are not available to satisfy their judgment, or that the effort does not justify the reward. If you are the losing party, you also need to determine if you can negotiate a reasonable payment plan or alternative to having your assets seized and sold. In many cases, you can reach a settlement by paying a part of the judgment in exchange for a reduction of the overall amount. Business cases often involve injunctive relief being entered against the losing party. We then go back to whether there are principles at stake in the litigation, such as intellectual property rights, or whether the lawsuit became personal. You may be able to negotiate a license or royalty payment for future use of intellectual property. Indeed, a court may have already fixed a reasonable royalty as part of a judgment against your business. If the lawsuit became personal and you lost, you may have a problem, which is why I caution clients about getting personal in lawsuits or being unreasonable. Everyone has a right to be personal or unreasonable in a lawsuit, but most lawyers and business people ultimately recognize that “what goes around, comes around.” Earlier settlement offers are often remembered with regret. So…whatever you do in litigation, be prepared for the worst case scenario. Of course, if you lose, there’s always the appeal. 21 Copyright 2015 Stephen R. Cochell

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Appeal to the Court of Appeals Chapter 10 and Supreme Court IIn both state and federal court, there are two levels of appeal above a Texas trial court. In federal court, the first level of appeal is the Fifth Circuit Court of Appeals and in state court, it is the Texas Court of Appeals. If you donâ&#x20AC;&#x2122;t get a good result in the intermediate courts of appeals, you may apply for a discretionary review by either the Supreme Court of the United States or, in state cases, in the Supreme Court of Texas. Appeals in civil cases generally requires a supersedeas bond to assure 22 Copyright 2015 Stephen R. Cochell

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a source of payment of the judgment in the event that the losing party fails to obtain relief at the appellate level. You may be required to post the entire amount of the judgment or secure a portion of the bond with property and assets. A record of the trial and pertinent rulings is required. This, in itself, can get costly. Of course, you also need to retain counsel if your trial attorney is not competent to pursue the appeal. Many trial attorneys have never filed or prepared an appeal, so there are attorneys who specialize in appellate work. In complex legal cases involving novel legal issues, many trial attorneys have an appellate attorney on the â&#x20AC;&#x153;teamâ&#x20AC;? to assist in laying the foundation for an appeal or to educate the trial judge on significant legal issues that lack precedent. The time for obtaining a ruling from the appellate court varies based on the type and complexity of the case because most appellate courts assign priority to cases pending before their courts. Complex cases often take longer for a decision. You should assume that your appeal will take twelve to eighteen months or more from start to finish. Discretionary reviews to the Supreme Court or the Supreme Court of Texas are accomplished by a writ of certiorari (federal) or petition for review (state). The statistics are against your case being granted review, but if you have a significant undecided legal issue of importance to the law, or if there is a conflict among the intermediate courts of appeals, an appeal may be worth the time and cost to your business.

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Conclusion

You now have the basic issues to consider after youâ&#x20AC;&#x2122;ve been sued. There are many competent business litigators and trial attorneys. Select the one that you trust with what may be the most significant thing you own--your business.

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â&#x20AC;&#x153;When you litigate, you need to play chess--not checkers.â&#x20AC;?

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About the Author Houston Business Attorney STEPHEN R. COCHELL is a Shareholder of the Firm His practice focuses on complex civil and criminal litigation, including commercial, intellectual property and employment litigation as well as civil and criminal racketeering, fraud, tax fraud and insider trading. Starting his practice as a criminal lawyer and federal prosecutor, Mr. Cochell utilizes extensive experience from a broad range of practice areas to achieve success for his clients. 26 Copyright 2015 Stephen R. Cochell