There are definite steps that must be taken when a business has been sued in Texas in state court. This article is addressed to owners, officers and directors of businesses and outlines some of those steps. This article covers suits filed in state court. Federal cases are similar, but somewhat different. For complete information consult your business attorney.
Demand Letters
Although it is not a requirement, most plaintiff's attorneys usually send a demand letter to a business before filing the actual lawsuit. There are a couple of reasons for this. One is to give the business a chance to settle the dispute without filing the lawsuit at all. Sometimes the demand letter will contain sufficient details to allow you to understand where the plaintiff is coming from and sometimes it will be intentionally vague. Demand letters often contain a "deadline" for your response. They sometimes contain a dollar figure that the plaintiff is demanding. There may also be a demand for initial attorney fees. In fact, another reason for sending a demand letter is to trigger the thirty day requirement of Chapter 38 of the Texas Civil Practice and Remedies Code. Chapter 38 addresses some of the ways a successful plaintiff can recover attorney fees. Section 38.002 states that to recover attorney fees under Chapter 38 a claim must be presented to the opposing party and the payment for "the just amount owed" must not have been tendered (by the business) before the expiration of the 30th day after the claim is presented.
Attorney fees are not always recoverable in a lawsuit, but they often are in business litigation. And they can be a significant element of damages. If you take only one thing away from this article, please do not ignore the initial demand letter. Do not believe that if you just ignore the letter the plaintiff will just go away. If a plaintiff is serious enough to hire a lawyer, it is unlikely that the case is going to go away without some action on your part.
Demand letters usually come as certified mail, return receipt requested. They are sent that way to get your attention and so that the plaintiff can later prove the date on which you got the demand. My recommendation is to contact your attorney immediately upon receipt of the demand letter. Perhaps things can be straightened out at this early stage. Perhaps they cannot. But if your attorney doesn't know of the demand letter you are letting this initial window of opportunity pass you by.
Because of the importance of the demand letter, I recommend that businesses have written policies that all certified letters be turned over to someone in management who will give them immediate attention. Certified mail is not routine, and it is seldom good news. Don't let certified mail languish on someone's desk.
Insurance Coverage
After you and your attorney have figured out what the plaintiff is claiming, your next step is to determine if you have any business insurance that covers the claim. This is another area in which the experience of your attorney can be of help. If you have a policy that covers the claim, the insurance company will provide you with an attorney of its choosing -- and at its cost. Your insurance policy almost certainly has a clause in it requiring you to notify them about any claims. That is another reason to deal with the demand letter seriously, and promptly. You don't want the insurance company declining to represent you because they claim that your delay prejudiced them. (Whether that argument works in any given situation is the subject of an entire separate article. Suffice it to say, one can avoid the whole issue by promptly notifying the insurance carrier of the demand from the plaintiff.)
Demand letters are not required before a business can be sued. On rare occasions you may just be served with the lawsuit itself, without ever receiving a demand letter. This usually happens when the statute of limitations is about to run on the plaintiff's claim and the plaintiff's attorney decides to proceed directly to litigation.
Service of Process
There are five common ways a business gets served with process. I will discuss each of these five ways, but remember this: If you are served with a lawsuit, call an attorney that day. Time is of the essence. To delay means you may have a default judgment rendered against you before you even have a chance to present your defenses.
Before we start our discussion of the five common ways a business is served with process, let me define what service means. When a plaintiff files a lawsuit at the courthouse (Plaintiff's Petition) he requests that "Citation" be issued. The citation is the part of the legal papers that tells you that you have been sued. The act of delivering the Plaintiff's petition and the citation to you is called "Service of Process." What you usually receive, whether by mail or by hand delivery, is both a copy of the Petition (the pleading wherein the Plaintiff sets out both his claims of what you did wrong and the damages he seeks) and the Citation (a separate piece of paper notifying you that you have been sued and stating the deadline for your response). When you get the Petition and Citation certain time deadlines are triggered. Action is imperative. Hopefully, you have already contacted your attorney. If not, do so immediately. In county and district court you have until the Monday following twenty days to file your written answer. In small claims court the time is reduced to the Monday following ten days.
The Five Common Methods of Service
The exact method by which you receive the Plaintiff's Petition and Citation is called Service. There are five common methods of serving a business. All work under certain circumstances. All trigger deadlines.
1. If your business has an agent for service of process, that agent may be the one who is served. If the business is a corporation, it is required to appoint an agent for service of process. That original agent was selected when the corporation was formed. The information may not be "current", but the information on file with the Secretary of State is what the Plaintiff will use. Right now, stop reading and call the Secretary of State (512 463 5555) to see who is listed as the corporation's agent for service of process. In small corporations, it may be a now ex-spouse, or former employee. The address may be inaccurate. If so, update the information in writing immediately. The Plaintiff is supposed to serve the person the corporation designated. Make sure the right person is designated for your corporation and the correct address is on file.
2. Your business may be served directly by Certified Mail, Return Receipt Requested. If you receive a Plaintiff's Petition and a Citation by certified mail please note the exact day your business received it and call your lawyer. The Plaintiff may contend that the receipt date is the day the receptionist signed for the certified mail, not the date the letter eventually made it to your office. Remember, if your business is a corporation with an agent for service of process, that agent may forward service to you by certified mail. However, for purposes of calculating the answer day, the controlling date will be the date the agent for service received the Petition and Citation, not the date you got it from the agent.
3. The business may be served by a Constable. This may be the most common method of service. A uniformed constable shows up at your door and asks for the person the Plaintiff has listed as the person to receive the citation. If this happens, accept the Petition and Citation and call your lawyer. Evading the constable does not work. The law has rules to cover Defendants who are never "in." Instead of delaying the inevitable you may just make the Plaintiff enter a default judgment. In some cases the Constable is allowed to leave the Petition and Citation with any adult over the age of eighteen at the address. Sometimes just taping the papers to the door is allowed. If someone shows up with a Petition and Citation addressed to you, accept it and call your lawyer.
4. The rules now allow private service of Citation. That means that a "process server" may show up to serve you in the same ways a constable can. However, process servers do not wear uniforms. Do not be deceived. The individual serving the Citation does not have to be in uniform, or even an employee of the State. Just as with Constables, evading a private process server does not work. And the same "remedies" are available to Plaintiffs if a business evades service. If someone shows up with a Petition and Citation addressed to you, accept it and call your lawyer.
5. In certain circumstances service of process may be on the Secretary of State. This occurs when the designated agent for service of process cannot be found, when no agent for service of process has been designated, or sometimes when an out-of-state business is being served. If the business gets a letter from the Secretary of State of Texas saying the Secretary has been served, treat it seriously and call your lawyer.
Default Judgments
If a business does not file its answer in time, the Plaintiff may take a default judgment. A letter may arrive from the Court stating that a judgment has been entered against the business because of its failure to file an answer. If this happens to your business, call your lawyer immediately. Overturning default judgments is a separate article. Suffice it to say that all is not necessarily lost, but available options depend on what the excuse is and on how long ago the judgment was rendered. Your attorney can explain your options when you call.
Conclusion
Getting that demand letter or Citation is never a good experience. But only bad things will happen if you delay dealing with the situation. Just because someone has sued your business does not mean they will win. But only by acting promptly can the steps be put in motion to present your defense.
Please contact a lawyer if you have specific questions.
Written by Donald Ray Burger, Attorney at Law
Last Revised May 8, 2002