SMALL business owners who have managed a successful company for more than a few years know that lawsuits are similar to death and taxes. The only defense is plenty of solid preparation way in advance of the inevitable.
“The best time to be ready for a lawsuit is long before you are sued,” said Thomas A Kuzmick, a partner in Rawle & Henderson LLP, a Philadelphia, Pennsylvania, law firm, and chairman of the product liability department. “Most small manufacturing companies don't have someone dedicated to monitoring legal claims. So a lawsuit is an annoyance. Unfortunately, it becomes part of your business, and you have to make sure you are organized to handle one.
“Once you are served with a complaint, the clock starts ticking. You only have a limited amount of time to respond. If you sit on the letter and do nothing hoping the lawsuit will go away, you are making the job of the plaintiff's attorney extremely easy.”
Kuzmick provided a product liability workshop in February at the National Association of Trailer Manufacturers annual convention and exhibition in Orlando, Florida. He covered how a lawsuit begins; appointment of legal counsel; the manufacturer's initial response and investigation; allegations in the complaint and responses to them; determining whether to join additional parties; the discovery process, which may include depositions; and the prospects of a case settlement versus a court trial.
Convention attendees also received written examples of litigation documents, such as plaintiff's letter of legal representation; complaint of plaintiff; answer of defendant to the complaint; interrogatories; request for production of documents; confidentiality agreement; and notice of deposition.
Kuzmick began his description of a lawsuit with a fictional family-owned manufacturer that had been making livestock and utility trailers for decades. As the business grew from generation to generation, design applications changed from exclusively off-road to over-the-road. One day the company accepted a request from Joe Customer to build a custom trailer that included a retractable platform on the rear of the trailer.
A couple of years later, Joe gets drunk and drives his car into the rear of his new trailer, which is parked on the side of the road, and he sustains serious and permanent injuries. The manufacturer then receives a letter of representation from Joe's lawyer requesting to discuss the matter.
Notify insurance carrier
“Send the letter immediately by certified mail to your insurance carrier so that there is no question that you legally did the right thing,” Kuzmick said. “Later, you may be served with a summons or complaint, which is the beginning of the product liability lawsuit. Don't talk to the plaintiff or the attorney, but be sure your insurance carrier receives a copy of the complaint. Failure to notify your carrier could result in denial of coverage.
“Start a separate file on the complaint to keep it organized. You're going to receive correspondence out your ears during the lawsuit. Collect and preserve all necessary evidence, such as bill of sale, design documents, and photographs of the trailer.”
The complaint outlines the claims of the plaintiff against the defendant. Because complaints are drafted in such a way to preserve all of the legal claims of the plaintiff when appearing before a judge and/or jury, the reading of boilerplate allegations in the complaint can be burdensome for the layperson.
“A lawsuit is serious and you should treat it as such,” Kuzmick said. “But much of the language in a complaint is overstated legal mumbo-jumbo. The complaint will attack you in every direction in order to cover all possible bases.”
Joe Customer makes the following allegations against the trailer manufacturer:
A platform system on the rear of the trailer rendered the trailer dangerous and defective in that in the event of a rear impact, it enhanced the injuries to the occupants of the vehicle striking the trailer, in violation of the FMVSS;
The platform system, as designed and installed by defendant, was insufficient to withstand the force caused by a rear impact;
The rear of the trailer was improperly equipped in that it lacked reflective striping;
The rear of the trailer was improperly designed in that the platform in the down position concealed the reflective brake lights and/or striping;
The equipment lacked proper warnings about operation and storage with the platform in the down position.
After the manufacturer has the opportunity to carefully read the complaint, always take time for an initial product identification visit, Kuzmick said. “Make sure you have an opportunity to examine the trailer and determine that it really is your product, and whether it was modified after it left your company. There have been cases where the defendants didn't find out it wasn't their product until after much time had been spent on preparing a defense.
Stupidity is not a defense
“One of the most common-sense defenses for a defendant isn't available,” Kuzmick said. “You can't defend your case based on the plaintiff's stupidity. In some jurisdictions, you can't even use the plaintiff's negligence as a defense. The plaintiff is not on trial. It's the trailer.”
Any reference in the complaint to punitive damages should receive special attention. Language such as “reckless indifference, grossly negligent, and egregious conduct” refers to punitive damages, which are not intended to compensate the injured party but to punish the defendant.
“The allegation is saying not only did you do something wrong, but we'll make sure you don't do it again,” Kuzmick said. “Punitive damages are not insurable, and a jury could award punitive damages in such a large amount that it would drive you out of business. If the complaint includes punitive damages, you should determine whether your company needs private legal counsel — in addition to the attorney assigned by the insurance company.”
Most insurance policies give the insurance carrier a contractual right to select legal representation for the insured, Kuzmick said. Attorneys retained by the insurance company are ethically obligated to represent the manufacturing company, not the insurer, but they may not be familiar with the product.
“Because your product could end up in any state across the country, the lawsuit could originate from any jurisdiction,” he said. “When you get a letter from the attorneys designated by your insurance carrier, you won't know if they have any experience with trailers. So you need to meet with them and educate them about your business.”
All communication between client and attorney is privileged and confidential. In order to prepare a proper defense, the attorney must be privy to all the facts that are available to the manufacturer. In this fictional case, for example, the manufacturer advises legal counsel that:
The trailer was not intended to operate or be stored with the platform down.
Reflective tape was affixed on the rear of the trailer.
As originally designed, the brake lights were not obscured with the platform down.
After the attorney gains some understanding of the trailer manufacturer, the next step is to write an answer to the complaint. “Be sure that you read the answer before it is filed with the court to verify correction information about you, your company, and your product,” Kuzmick said.
If an answer to the complaint is not filed in a timely manner with the court, a default judgment can be awarded to the plaintiff. “A default judgment removes your opportunity to defend the case on the issue of liability,” Kuzmick said. “The answer to the complaint is a straightforward denial of everything. Then the burden shifts to the plaintiff to prove the allegations in the complaint.”
Generally, the nature of the allegations should dictate whether the manufacturer should consider joining additional parties to the lawsuit. “After your answer has been filed, you have the opportunity to invite other people to join the party — vendors, suppliers, or anyone else who has been involved with the product,” Kuzmick said. “Not doing so eliminates your right to collect from them later on. However, you may have business reasons why you don't want to join someone. This is an important matter to discuss with your attorney.”
Discovery is a mechanism allowed by the rules of court for parties to obtain information from each other. Interrogatories (written questions served by plaintiff's attorney), request for production of documents, deposition, and inspection/expert investigation generally are the major types of discovery.
The defendant's role is to assist in answering the interrogatories or request for documents issued by the other parties. A deposition is a question and answer session in which someone under oath answers questions in the presence of attorneys and others, including a court reporter.
“A deposition is perhaps the most important aspect of your involvement in the discovery phase of litigation,” Kuzmick said. “Whether you've been deposed once or 100 times, your attorney needs to prepare you for the deposition. You should be tested with much tougher, more detailed intense questions than what is expected during the deposition.
“Be very familiar with the case. Unless you're fully prepared by your attorney for the deposition, plaintiff's attorneys will hang you upside down, gut you, fry the meat, and you won't know you've been killed.”
In addition to producing a permanent court record, depositions can create impressions from both sides of the lawsuit. Some of the legal battle deals with perception — whether one side shows any significant weaknesses. Depositions often are the first time plaintiffs and defendants and their attorneys meet face to face.
This is an opportunity for the manufacturing company to make a positive impression and show the opposition that company management is competent and comfortable in producing their product. But it's not the time to volunteer information.
“I tell every witness being prepared for a deposition that the best answers are ‘yes, no, I don't know, or I don't remember,’” Kuzmick said. “Even though the questioning attorney will try to crawl under your skin, don't fight back. It doesn't get you anywhere. And everything you say during the deposition will be preserved in a permanent record that can be used in this lawsuit and future lawsuits.”
Sometime during the discovery process, the insurance carrier and plaintiff's attorney will determine whether the case should be settled and the amount of the settlement. They are required by law to keep the defendant apprised of any settlement negotiations.
Each side evaluates the strengths and weaknesses of the opposition and tries to assign a monetary value to the settlement. In many instances, a settlement is purely a business decision made by the insurance company and may have little or nothing to do with the facts of the case or the law, Kuzmick said.
“In large monetary cases, or what is called an excess verdict, you might consult with a private attorney to request the insurance carrier to settle the case within its policy limits,” he said. “Insurance companies don't always want to settle, but they also don't like to hear two words — bad faith.”
Consider that an insurance company has an opportunity to settle a case within its policy limits. It refuses a request by the insured to do so. Subsequently, the court renders an excess verdict against the manufacturing company, which is forced to pay monetary damages far beyond the policy limits of the insurance contract.
“If the insurance company acted in bad faith in defending your company, it could be responsible for paying damages of the entire verdict, regardless of the policy amount, and in some jurisdictions responsible for damages more than the verdict,” Kuzmick said. “If there's a potential for an excess verdict, have your attorney request a settlement within the policy limits.”
If a settlement cannot be reached, the case will go to trial. Once trial begins, a defendant has little control over how long the trial will last and its cost. But a defendant should attend the entire trial because of the critical nature of perception during a legal proceeding.
“Juries don't decide cases based on fact or law,” Kuzmick said. “Even though they are instructed by judges that emotion, bias, and prejudice are not part of the decision-making process, it's impossible to detach that from their roles in a courtroom.
“You may not ever testify at trial, but you better be at that trial every minute. The trial is about your product, but the jury will want to see if you take time out of your busy schedule to defend your product. They will be examining you, and they will make it a part of their final deliberation.”