Litigation Basics Series: Initial Pleadings

Your Risk of Litigation

Unfortunately, we live in a litigious society.  And if your small business is in the US, the odds of you being sued are high. About 40 million lawsuits are filed every year in the US, forcing businesses to spend more than $22 billion in commercial litigation costs. Walmart gets sued 5,000 per year, or about 20 times every day.

Small businesses are often the target of lawsuits because of improper entity formation or the lack of asset protection. Almost 90% of all small businesses will be sued during their business lifetime. The Small Business Administration study of 65,000 businesses showed that 35%- 53% of small businesses get sued every year.

The Real Cost of Small Business Litigation

And when you and your business are sued, the cost is paid in money, time, and stress. A simple small business lawsuit can take up to a year, with more complex cases taking two to three years. Whether you settle a lawsuit or go to court, the cost to your business can be tens to hundreds of thousands of dollars. But the actual cost is on you and your family. Being on the receiving end of a lawsuit tends to consume your life, causing undue stress for you, your family, and your employees. You live with it every day until it is over.

The best way to avoid litigation is to make your business unattractive to lawsuits. Make sure you form your business correctly, run it properly, and document everything. And since almost 50% of small business lawsuits are for breach of contract, make sure a qualified business attorney drafts or reviews your significant contracts. Also be sure your business is formed and run in a way that ensures the limited liability protections of the corporate form.

What is Litigation?

Litigation is the formal court process where one party attempts to enforce or defend its legal rights against another party to a lawsuit. Business litigation is when two or more parties to a business relationship or transaction become adverse to each other and one party sues the other party to enforce their rights in the transaction or relationship.

Sometimes the parties will try to negotiate the differences without lawyers or going to court. When that approach fails, the next step is often a lawsuit, although some contracts require mediation or arbitration first.

Types of Business Litigation

There are many types of business and commercial litigation. As a boutique intellectual property and business law firm, Res Nova Law deals with litigation every day, including

• Intellectual property litigation

• Business litigation

• Shareholder and member disputes

• Contracts and litigation

• Unfair competition disputes

• Non-competition/non-solicitation breaches

• Trade secrets violations

• Contract and economic relations interference

• Investor and securities fraud

The Initial Pleadings

The Plaintiff Files a Complaint

When two parties to a business agreement or transaction disagree and cannot resolve the issue, one party will often file a lawsuit against the other in civil court. The party bringing the case to court is the plaintiff, and the other party is the defendant. The plaintiff and defendant can be individuals, companies, or institutions.

The “pleading stage” is the beginning of the lawsuit where the parties submit their formal claims and defenses. The lawsuit starts when a plaintiff files a pleading called a "complaint." The complaint is probably the most important pleading in the case, as it states the plaintiff's version of the facts, applies those facts to the law (known as “causes of action”) and specifies the damages the plaintiff is seeking.

While every state's civil procedure is different, complaints customarily have the following elements

• Introduction

• Parties

• Jurisdiction and venue

• Factual allegations

• Causes of action

• Demand for relief

• Jury demand

At a minimum, the complaint has 1) a short and plain statement of why the court has jurisdiction, (2) a short and plain statement of the facts showing why the plaintiff is entitled to relief sought under the legal claims alleged, and (3) a demand for judgment. The plaintiff may ask for more than one form of relief.

The plaintiff files the complaint with the court, along with a filing fee. The complaint is then “served” upon the defendant, who has a certain number of days to respond in the form of an “answer” or a motion against the complaint.  

The initial pleadings can include other types of pleadings in addition to the complaint and answer, including counterclaims, crossclaims and third-party claims.

The Defendant Responds

The defendant has a certain number of days to respond or risk a default judgment against them. And the defendant has two choices: they can reply with an answer to the complaint or file a motion asking the court to dismiss one or more of the claims in the complaint.

Typically, however, the defendant’s first pleading is an answer to the complaint. In the answer, the defendant addresses each of the complaint's allegations and denies or admits each. Some jurisdictions allow a blanket denial of allegations.

The defendant should also file affirmative defenses in the answer. With an affirmative defense, the defendant is asserting a defense that can negate civil liability or damages, even if it is proven that the defendant committed the acts alleged in the complaint. Defendants typically assert numerous affirmative defenses in their Answer.

The defendant may also file one or more counterclaims against the plaintiff if there is a legal basis for doing so. In a counterclaim, the defendant asserts their claims against the plaintiff, similar to how the plaintiff served their complaint.

Concerned About Business Litigation?

At Res Nova we deal with business litigation every day. We are a boutique intellectual property and business law firm based in Portland, Oregon, with experience serving innovative companies and entrepreneurs in the Pacific Northwest and beyond.  We represent small and mid-sized businesses, including startups and more mature companies.

 If you are concerned about or want to institute business litigation, call Res Nova and let us help you with your next best steps.