So, you’ve opened your cannabis business. You’ve thought of everything you can to make this business a success. You hired an accountant, got your insurance and retained an attorney? You’re all set to start raking in the big bucks … and then, you get sued.
Everyone shudders at the thought of getting sued. And they should. Lawsuits are messy, ugly, painful and very, very costly. I have testified as an expert witness in several cases and I have personally sued someone. So I’d like to take this opportunity to share some things you need to know so you can be prepared if you ever find yourself involved in a lawsuit.
It Will Rock Your World
Nothing leaves you feeling more upset, anxious and troubled than being served with papers that have you or your company’s name on it along with the word “Defendant.” It is a real punch in the gut.
Plaintiff’s attorneys thrive on knowing how and when to serve you to inflict the greatest harm. I knew a lawyer who hired a private investigator to track someone he was going to sue. The investigator friended the soon-to-be defendant on social media, found out everything about her, including the fact that she was leaving the country for two-and-a-half weeks. The private investigator served her with a federal lawsuit summons just hours before she left for the airport. Federal lawsuits generally require a response within 21 days, which was approximately the amount of time she planned to be out of the country. The tension she suffered on that 14-hour airplane trip was unimaginable for someone who has never been sued.
If nothing else, it’s always “fun” to serve someone at 5 p.m. on a Friday. They are left to stew all weekend about it and generally won’t have access to an attorney to calm them down. So, don’t be surprised if that happens to you.
10 Lawsuit Survival Tips
Being sued puts you at an automatic disadvantage as the plaintiff has had weeks, months or even years to collect information, secure evidence and prepare a complaint (the nasty pieces of paper that get filed in the court and served on you). As a defendant in a lawsuit, you will always start “behind the starting line,” but there are best practices that should be followed to limit how far behind you actually are.
1. It is critical that you remain calm
Your first instinct will be to call or write someone (pretty much anyone who will listen). Or you may be tempted to post on a blog or social media. Don’t. Just don’t! Calm down. You have to stay calm, and do nothing, except …
2. Call your attorney, then be quiet!
In my article in the December 2018 issue of Marijuana Venture, I talked about having a risk management dream team, including an attorney. Call your attorney and follow their advice to the letter.
Resist the urge to call the attorney who filed the lawsuit against you. Resist the urge to call the person suing you. I can tell you with great certainty that all you will do is give them ammunition to use against you later. There is nothing you can say to them that will convince them to drop the suit or go away. Nothing. So don’t waste your breath or your energy.
And again, for goodness’ sake, don’t write anything! Stay off social media. I guarantee they are already watching everything you publicly say and do, and they will use it against you in the lawsuit. All of your emails and your computer’s contents are discoverable in the lawsuit, with the exception of correspondence with your attorney. So don’t bang out an email to your best friend or send a nasty-gram to the person suing you.
Voicemails, emails and social media posts will never go away and will never be completely deleted. These types of communication are like the “zombie apocalypse” of litigation and will haunt you until the end of time.
3. Call your insurance agent
Another member of your risk-management dream team is your insurance agent. They should have provided you with adequate liability insurance. You must promptly notify them about the lawsuit so an adjuster can be assigned and the insurer can start handling your claim.
One word of caution: Do not tell your agent or adjuster all the sordid details of the lawsuit. Tell them what you are being sued for so they can notify the proper insurance carrier and get the ball rolling. Say nothing more, though, because your conversations with your agent are not confidential. The other side can, and most likely will, subpoena your agent to testify in the case. Less is more until you have secured an attorney to represent you.
4. Understand your liability insurance
You bought liability insurance for a reason. That reason was that you might end up getting sued someday. Unfortunately, that day has arrived. Hopefully you have read your policies and understand what you are covered for. If not, then you have a practice to implement going forward.
Your liability insurer has a duty to defend you. On the bright side, that painful insurance premium that you’ve been paying is now going to pay off in terms of a defense. Trust me, it is money well-spent.
Get out your policy and read it again. You will see a section called “Insuring Agreement.” That will be where you find the language about your coverage. What you will also see is that in most policies the duty to defend is mentioned prominently, but the insurer may also choose to settle the claim at its discretion. This is the disappointing part, especially if you feel you did nothing wrong in the first place (which is how most people feel). Just understand going in that your insurer is going to try to get the claim resolved as quickly and inexpensively as possible. The choice to settle or fight is a conversation you can and should have with the counsel retained by your insurance company to represent you.
5. The reservation of rights letter
In most cases, your insurer will immediately send you what is called a “reservation of rights” letter. This is a formality that simply says, “We will defend you unless we find out that the lawsuit is not covered by the policy, in which case we’ll stop defending you.” Don’t let that letter scare you or concern you, as long as you are in compliance with your policy’s terms and conditions.
6. Choosing an attorney
Many attorneys do not handle lawsuit defense work, so your cannabis business attorney may or may not be able to defend you in the suit.
In many cases, the insurer provides the defense for you, so it will select the attorney. If the insurer allows you to choose your own attorney, do your research carefully. Your regular attorney probably has recommendations for you, but you need to make sure that whoever you choose is really good at defense work. You can also ask your insurer for recommendations.
Additionally, there are options in having defense counsel added to your policy so you can have a say in the selection of counsel. Melissa Roeder, a cannabis counselor and trial attorney with Foley & Mansfield, knows full well the risks clients take in selecting counsel not suited for the task at hand.
“All too often, a young company, in trying to save money, will hire an attorney friend or relative who, although he/she may be well-versed in contracts, just does not have the litigation background and courtroom skills to mount an effective, rigorous defense,” she warns.
In addition to business counseling, Roeder’s firm regularly defends clients in high-risk lawsuits throughout the country, either directly or, oftentimes, through their insurance carriers. The key phrase to look for is “trial experience” says Roeder, whose firm’s “seed-to-sale” approach provides cannabis clients with both business counseling and defense services.
“Especially in a high risk, evolving marketplace, we find that integrated legal representation more often leads to client success,” she adds.
7. Be patient
Your ears are ringing, your mind is racing and you just want this lawsuit to go away! But you are now officially involved in a legal proceeding and I can assure you it is NOT going away any time soon. Lawsuits take time — typically years, not months. There are civil procedures involved and you must be patient. While this is the biggest issue in your life right now, the court and the lawyers involved are working on many other cases. The best thing you can do is have the best possible counsel on your side. This will ensure that you feel like a priority.
8. Listen to your lawyer
Take notes in your meeting and write down the items your attorney tells you to do and not to do. Listen and follow their instructions. All the instructions. Yes, all of them. This attorney (and it may even be a team of attorneys) represents you and is being paid to do what is in your best interest. You are the attorney’s client (not the insurance company that represents you), so it is imperative to rely on the attorney’s expertise.
Your liability insurer is paying the attorney fees and related costs so don’t rush your visits to save time or money. Use the attorney’s skill and expertise faithfully, and don’t pick and choose which instructions to follow. Do exactly what the attorney says and don’t do anything without checking with your attorney. Do not destroy evidence, do not erase computer files or do anything else regarding this lawsuit without consulting the attorney. Again, remember, that social media is the “zombie apocalypse” of litigation, so it bears repeating — stay off social media and stay off your computer in general!
9. Tell your lawyer the truth
You must be honest with your attorney. They cannot help you if they don’t know everything. Tell them everything, including the embarrassing parts. Even if you know you did something wrong, or you know the other side is right, it is important to share that with your lawyer. Your conversations with your attorney are confidential due to attorney-client privilege, so it is imperative that you speak freely and honestly. What happens with your attorney stays with your attorney.
10. What?!? You didn’t buy insurance?
I know some of you are reading this thinking, “But I don’t have liability insurance.” That sucks. Remedy the situation by getting a broker and proper coverage today. But if you find yourself being sued and don’t have insurance coverage, most all of what I have said still applies. But you better get out your checkbook, because good defense attorneys do not work cheap.
Time is money, so select the attorney that can do the work efficiently and effectively (not cheaply).
While plaintiff’s attorneys often work on a contingency fee basis, taking a percentage of whatever money they get, defense attorneys charge either by the hour or some may have flat fee agreements. They charge for pretty much everything they and their staff members do, including making photocopies, responding to emails and taking brief phone calls. But you have to respond to the lawsuit, and you cannot do that on your own. Do not try to represent yourself! You definitely need a competent attorney on your side.
Protect Yourself Going Forward
“I cannot emphasize the importance of having a good attorney on retainer before you ever get sued,” Roeder says.
This attorney can advise you on daily business practices and procedures that you should implement to minimize the chances of a lawsuit. For instance, having a policy and procedures manual for employees to follow can minimize the chance of costly and potentially harmful mistakes. Your attorney, in conjunction with your insurance agent or broker, can make certain you have the proper liability coverages in place. Your attorney can also help you with lots of specialized services you may not ever know you need, such as crisis media management.
There’s a great line from the movie “Zombieland”: “It’s amazing how quickly things can go from bad to total s#@tstorm.” How true that is, especially if you end up being sued. If that happens, let your insurer and your attorney take the monkey off of your back and help you keep your business intact while dealing with a pending lawsuit.
Brenda Wells, Ph.D. is the Robert F. Bird Distinguished Professor of Risk and Insurance at East Carolina University and the owner of Risk Education Strategies. She has published numerous articles on the risk management implications of cannabis legalization and is a sought-after expert in the risk management and insurance field. She has received the Chartered Property Casualty Underwriter (CPCU) and Accredited Advisor in Insurance (AAI) designations. She can be contacted at brenda@riskedstrategies.com.
Melissa K. Roeder is of counsel in Foley & Mansfield’s Seattle office. She is well-recognized in the Pacific Northwest defense community, and she delivers effective and practical solutions in the fields of marijuana law. Foley & Mansfield is a nationwide civil defense firm specializing in the representation of individuals, companies and premises owners in civil litigation matters. She can be contacted at mroeder@foleymansfield.com or 206-456-5068