Taking the Sting out of Lawsuits

Jeffrey Greenberger Comments
Posted in Articles, Insurance
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Self-storage operators know too well that lawsuits are a harsh reality in today’s society and, whether you’re wrong or right, anyone with a $200 filing fee can sue you.

Most Better Business Bureaus have instituted mandatory binding arbitration for members. This means you must participate in binding arbitration to resolve any claim any consumer files with the bureau if you are a BBB member. Recently, a restaurant owner was involved in a BBB binding arbitration, which he had to attend because a customer was unhappy his sandwich was served without bacon!

Any lawsuit or arbitration requires time, energy, aggravation and often attorney’s fees. Small-claims actions may be referred to a mediator or arbitrator before going to court, but they’ll still wreak havoc in your life.

Whether your business is selling storage or sandwiches, you need to know the five basic tenets of lawsuits. Employees also should be briefed on these steps:

1. Lawsuits are time sensitive. Every state (and even the BBB) has a maximum time frame for replying to first notice of a lawsuit, otherwise you’ll automatically lose by default. Thus, any lawsuit served must be dealt with the day it is received. You can’t pile lawsuit documents on a desk until next week! Whatever your business structure, identify someone as the goto person for a lawsuit and make certain everybody knows who should receive legal documents when they are delivered.

Lawsuits don’t always come directly from courts. For a corporation, an LLC or the like, your statutory agent or attorney may be served with the lawsuit. Don’t be fooled or misled: Once the papers are served to your representative, the countdown for your response begins.

Many states have other systems for notifying lawsuits. Don’t worry so much about how they’re served; just be sure you or the managers know the documents must get to the right person immediately.

2. Include legal counsel immediately. People who sue and aren’t represented by attorneys often make mistakes in lawsuits. Sometimes, identifying a simple mistake may result in a lawsuit being dismissed and will, hopefully, allow you time to resolve the claim or even discourage the tenant from re-filing.

3. Seize tenant’s file. The highest-ranking person in your business must immediately seize the entire tenant file. Print all computer records regarding the tenant including any computer-generated correspondence, ledgers, communication logs and gate-access logs. You should also seize the hard file.

Too often a document important to the case may accidentally “disappear” from the file before it’s determined to be relevant. Frequently, storage owners only know a missing document was critical to a case when it’s produced by the offense. You never want to be surprised in a case. This carries over to documentation. Make sure you understand all of the facts. Don’t rely on staff representations; see the information yourself. You may find you made a mistake and it’s in your best interest to settle the case before it grows or becomes a class-action lawsuit.

The only way to know the legitimacy of a claim is for you (and preferably your legal counsel) to have a complete picture of the situation and approach it with an open mind. Remember, while you may be sure you’re in the right, somebody is spending $200 to sue because he believes he’s right. Sometimes, the truth is in the middle; keeping an open mind allows the evidence to determine which cases are appropriate to fight and which need to be resolved quickly.

4. Notify your insurance carrier. All insurance policies require you to notify the insurance carrier within a certain number of days or weeks of receiving notification of a claim. If you don’t, you waive coverage by your insurance company for that claim.

While a small lawsuit may not seem like a big deal and your first reaction is to not invoke your insurance coverage, still notify your carrier. If you don’t, and coverage is waived, what happens if the small claim ends up as a full-blown lawsuit? You may end up wishing your insurance company was involved, providing you a defense and coverage.

5. Keep track of all dates. Don’t lose sight of any important dates requiring an answer or filing. Often deadlines can be extended, but failure to file on time waives your rights to defend the lawsuit and you may lose by default judgment. This means the court presumes you are admitting the complaint’s allegations and grants judgment as requested in the lawsuit. Don’t let circumstances lead you to a default judgment—ever.

Discovery

After filing, lawsuits normally enter a period of time called “discovery.” Sometimes small claims and arbitration don’t have discovery, but typically parties are entitled to ask each other certain questions—in writing or in person—requesting allowable documents and rights to inspect physical items.

There is other key terminology related to the discovery period. For example, “interrogatories” are the written questions directed to the other side; a “request for production of documents” is self-explanatory; and “deposition” is the process of taking face-to-face statements of certain witnesses or other parties.

The goals of discovery are twofold: 1) to avoid surprises at trial—Perry Masontype cases shouldn’t exist anymore, and 2) to help both parties understand the other side’s case and narrow down the issues needing litigation.

Settlement

After discovery, one or both parties may find their cases are stronger or weaker than first thought. Often the court recommends settlement negotiations. An attorney may recommend a settlement once he understands the full nature of the case, especially if it appears the case could be settled for substantially less money than the cost to defend or prosecute it.

Some people would rather pay the attorney than settle with a disgruntled tenant. Just understand that in any good settlement, neither side is happy. You may be able to settle the case for a lot less than the plaintiff thought he was entitled to, but you risk the court awarding the him a full judgment if the suit continues. Also remember that litigation brings mental anguish and distraction from business operations, especially when owners, managers, other employees and witnesses are pulled into a case.

Mediation

Of course, the court may order you into a settlement negotiation called mediation. Many storage contracts have mediation clauses, helping operators avoid lawsuit situations in the first place. If not, the court may order you to use a mutual “go between” to try sorting out issues and finding a common ground for settlement.

Your attorney can’t always stop a court from sending a case to mediation, or even arbitration, which is like a trial without the judge. Many court systems require a case be mediated or arbitrated before heard by the judge. So, don’t hold it against your attorney if you’re sent to mediation or arbitration as a precursor to trial.

Court Date

Some cases simply can’t be settled. Our nation’s justice system will give each party a day in court, along with the opportunity to fully present a case to a judge or a jury, both of which are known as “the trier of fact.” The trier of fact decides whether or not one or more parties are liable for damages and, if so, how much the plaintiffs are entitled to.

In self-storage cases, we often see lawsuits over damage or loss to property. If the case goes to trial, it will be to decide whether the owner/operator was actually liable for the tenant’s loss. For example: Is the operator liable if the roof leaked and ruined the tenant’s property? If the court finds the operator liable for the loss or damage, the case then turns to establishing the property’s worth and what percentage of liability the owner had vs. the tenant.

Judgment

Eventually the trial results in a judgment for or against the party. It could be appealed, but at some point the case is fully and finally resolved. Generally, no one is completely happy with the judgment. Moreover, in our legal system, attorney’s fees and other expenses involved to defend claims aren’t recoverable from the other side. (That is, there is no “loser pays” like in England.) The best lawsuit is the one that never happens. Read “Avoiding Lawsuits” for more tips on how to avoid claims at your site and keep operations running smoothly. 

Jeffrey Greenberger practices with the law firm of Katz, Greenberger & Norton LLP in Cincinnati; his article is for general informational purposes and shouldn’t be substituted for the advice of your own attorney. His new website, www.selfstoragelegal.com, contains his legal opinions and insights into the self-storage industry, as well as an article archive. Mr. Greenberger is the legal counsel for the Ohio Self Storage Owners Society and the Kentucky Self Storage Association. You may send questions, comments or suggestions for future topics to jjg@kgnlaw.com; or call 513.721.5151.

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