There are a few exceptions, like an uncontested quiet title action or uncontested probate, but generally the length of time and amount of work involved in a case depends very much on what the other side does. If the opponent files a motion, you will have to respond. That slows things down and creates more work — i.e. more fees.

The same is true for actions the judge takes in the case.  Judges impose deadlines and, sometimes, take other actions.  The lawyer has to respond accordingly.

And, what if you settle the case along the way?  What about appeals?  What if the case is removed to federal court?

You get the idea.  It is essentially impossible to tell a client just how much a lawsuit will end up costing.  However, that does not mean you cannot have some idea of what to expect.   That is the purpose of this article.

General Rule 1:  It is less expensive to defend a case than to prosecute a case.  It is up to the Plaintiff to move the action forward, so the pressure is on the Plaintiff to get things done.  With some exceptions, it is usually less work for a Defendant because the Defendant has the luxury of doing nothing until the Plaintiff forces the issue.

General Rule 2:  State court is less expensive than Federal court.

Now, the different stages of a lawsuit are predictable, so we can break down what happens at each stage and come up with some ballpark idea of the costs and fees for each — though always with the caveat that things can be more or less expensive depending upon what the other side does.

Stage 1 – Initiation

If you are the Plaintiff, then your lawyer will need to draft the Complaint and Summonses to get things started.  Depending upon the complexity of the case, that could take around five (5) hours of work.   Remember, the lawyer (and staff) first has to understand the case and go through the evidence to determine a strategy.  Then, the writing can begin.  So, it is going to be a couple of grand or so just for the research and drafting.

Then, when the Complaint is ready, the Court charges a filing fee.  The amount may vary a bit, but it is probably in the range of $400 to $600.  (Caveat:  It’s much more than that if your the plaintiff in a foreclosure action.)

After that, the Complaint and Summons have to be served by a process server.  You can have the Sheriff’s department do that, which is cheaper, but they take longer . . . and you cannot really bug them to hurry up.  Most people go with a private process server, which will cost around $100 per defendant.

So, if you add it all up, you are looking at something like $2,500-3,500 to get the case off the ground.

If you are the Defendant, then you only need to file a response to the Complaint.  There are a few different types of responses you might file, such as a Motion to Quash, Motion to Dismiss, or an Answer with Defenses.  Your lawyer will decide which approach is best, but any one of these responses is about 1-3 hours of drafting.  So, you are looking at about $800-1,000 for each of these responses.  Bear in mind your attorney may use just one of these responses or, perhaps, all three, depending upon the situation and your overall case strategy.

Stage 2 – Discovery

This is the stage where the parties get information from the other side or third parties.  There are cases that require only minimal discovery or, even, no discovery at all.  Also, the type of discovery utilized makes a big difference in costs.  So, results may vary wildly at this stage.

There are three types of written discovery requests:

• Interrogatories,
• Request to Produce, and
• Request for Admissions.

These “discovery products” are somewhat predictable and template-based.  So, it is simply a matter of drafting requests that are specific to your case.   You can expect about 2-3 hours of work ($800-1,600) per discovery product.  Your lawyer will decide whether to use some or all of these discovery options.

Depositions  –  Another common discovery tool is taking a deposition.  That’s a different beast altogether. 

First, you may have to issue a subpoena, which is additional drafting.  And, you’ll need a court reporter present to transcribe the proceedings.  That’s an added costs.  Nowadays, depos are often done by videoconference, which makes things more convenient but — in my experience — not really less expensive.

But the main thing is that grilling a deponent in person is very often a full-day affair (or, even, multiple days).  Once you go to the trouble of getting the person in the seat and under oath, you will want to take full advantage.  And, usually, the deponent will put up some resistance, which slows things down.

So, you can expect a single deposition to cost between $1,000-5,000.  Depos are much more expensive but, depending on the deponent and the case, the can be very effective.  Think about it.  Nobody likes being deposed, so you can really put some pressure on the other side with this technique.  If that leads to a quicker settlement, then it was worth every penny.

Rounds of Discovery

For complex cases, you may have to go through more than one round of discovery.  So, your lawyer may be sending out a first set, second set, third set, etc.  If so, multiple the estimate above by the number of sets that go out.

Motion Practice

Another thing to keep in mind is the motion practice that can happen at this stage.  For example, if the party receiving the discovery request does not respond, or does not provide good responses, then your lawyer will have to file a Motion to Compel and, probably, go to a hearing.  That additional motion practice means additional expense.  Call it about $1,000 for a motion to compel and hearing attendance, assuming remote appearance (Zoom) is permitted.

Stage 3 – Summary Judgment

Some cases can be disposed in whole or in part without going all the way to trial, such as cases based on a contract.  That usually happens by filing a Motion for Summary Judgment.  If you are the Plaintiff, you are hoping to end the case with this motion, so your lawyer is going to put some extra time into researching and drafting this motion.  Again, if this works, it will be worth every penny, so you might as well give it your best shot.

Then, there will be a hearing on the motion.  I would estimate the whole process will take from 3-6 hours of work ($1,200-3,000), depending upon the complexity of the issues.

Stage 4 – Trial

Summary judgment is for cases that do not involve evidentiary issues.  In other words, the judge is not required to hear testimony or deal with disputed facts.  Whenever that is not possible — which is most often — then the case will have to be decided through a trial.

H&S deals mostly with business and real estate disputes, which do not typically call for a jury.  So, the analysis here is on non-jury trials.  Just bear in mind there are additional steps (and, therefore, additional cost) involved for jury trials.

Preparation

All the exhibits and witnesses have to be prepped.  The research has to be finalized and all the evidence reviewed — i.e. we want no surprises at trial.  The strategy needs to be discussed, and everybody involved, including you, has to be ready to go.  It’s a big deal.

Show Time

Then, there is the trial itself, which can take one day or a week, depending on the case.  So, again, results can vary wildly.  But, just to give you some idea, this stage is likely to cost somewhere in the range of $3,000, for a relatively simple case, to $10,000 for a fairly complex case.  I’m referring, of course, to typical small business litigation in State court.  Obviously, big corporate cases are a different statosphere.

Other Costs

Another thing you probably need to count on is mediation.  At some point, one of the parties will ask for mediation, or the judge will simply send you to mandatory mediation in the hope of getting the case settled and off the docket.  That will be a full day of work, plus the mediator’s fees, so count on $2,000-$3,500 for that.

Then, there are appeals.  There is even something called an “interlocutory appeal,” which can happen before the case is actually decided.  So, there can be costs of appeal both during and after the case.  There is no “motion practice” in appeals, and oral arguments are somewhat uncommon, so the costs are fairly predictable.  But, appellate work is notoriously expensive because the level of “lawyering” goes up.

Conclusion

Hopefully, the analysis herein helps you to better understand the factors involved in litigating a case, so you can better prepare and make informed decisions.  Never forget that a case can settle anywhere along the way, which puts an end to the expenses.

I’ve also done a video on this topic, which you can access here.

~ Jeff Harrington, Esq.

¿Estás pensando en demandar a alguien? ¿O tuvo una mala experiencia en un pleito? No se pierda esta discusión inusualmente franca sobre los lados buenos, malos y feos del litigio.

This expression is used when the court allows a plaintiff to reach the personal assets of the owner(s), rather than limiting exposure to just the company’s assets.

It has long been the case that American courts protect owners and directors from being sued personally for the negligence or misconduct of their companies.  That protection has been eroded, however, as a result of corporate abuses.

So, as a business owner, what can you do to protect yourself?  After all, you do not want to be sued personally when a business investment goes bad, a customer slips in your store, your company breaches a contract, your employee is negligent, etc.  The place to start is understanding the factors the court considers when determining whether to pierce the corporate veil and make the owner personally liable for damages.

Limited Liability: Relevant Factors

In business litigation, Florida courts focus on three key factors in deciding whether or not to shield owners from personal liability:5

• Was the company controlled by its owner(s) in such a way that it was merely an “alter ego” used for the owner’s benefit,6
• Some sort of improper conduct in either the formation or the use of the corporate form,7 and
• The improper conduct imposed an injury on the claimant.
• Most courts tend to focus the analysis on the second element: “A critical issue in determination of whether the corporate veil will be pierced for imposition of personal liability is whether corporate entity was organized or operated for an improper or fraudulent purpose.”8
• The central issue then becomes identification of the degree and types of misconduct that results in personal exposure. Example of what the court might look for include the following:
  • use of company to evade existing obligations (i.e. defraud creditors),9
  • a perpetual monopoly, or
  • use of company to protect against criminal liability

While understanding the legal standard provides some guidance, the courts have purposefully made the standard broad and somewhat vague.  After all, judges have learned from recent events that business owners and directors can be very creative when it comes to filling their pockets while at the same time covering their hides.

There are few things that offend the public more than seeing a rip-off end with the responsible person sipping drinks on his yacht instead of facing punishment.  Judges and legislators want to avoid that embarrassment.

For that reason, there is some “wiggle room” in the law that allows judges to use their discretion when faced with the scenario. 

Limited Liability: Guidelines

Notwithstanding the current political climate, owners can take certain precautions  with their business practices to minimize exposure. The upcoming parts in this series will delve more deeply into techniques for limiting liability, but here are a few general guidelines for starters. 

Good-Faith Dealings

Owners can limit the risk of personal liability by making good-faith attempts to pay the company’s creditors. This is not to say owners must necessarily pay company bills from their own pockets in order to avoid being held responsible for company debts. Rather, the emphasis is on “good faith.” If there is no perception of misconduct, then the company’s inability to pay its creditor’s should not obviate the liability protection. 

Criminal Activity

Also, be advised that, given today’s political and legal climate, any criminal conduct will likely expose owners to personal liability. Courts are alert to owners filling their personal pockets through unscrupulous means while allowing the company to bear the repercussions.

Commingling Personal and Corporate Finances: “Alter Ego”

The final guideline is for small business owners who are perhaps less careful about separating personal assets and liabilities from those of the business than they could be. For example, it is common for some owners to pay personal expenses with the company credit card or utilize company equipment for personal business, etc., especially when there is just one owner or the owners are a couple. While common, this kind of disregard for the corporate entity can lead to exposure.  This is a key issue, so let’s a moment to understand the rationale behind it.

The court’s concern is that commingling resources may leave the company undercapitalized, so the company may not be an autonomous entity capable of assuming its own liabilities. For example, the company might be unable to pay its debts because the owner improperly spends company funds for personal use. In that scenario, it might be unfair to leave a plaintiff whose suit is against the company without any means of recovery.

One way to alleviate this concern is for the company to maintain adequate insurance, but perhaps the easiest and most cost-effective thing to do is to respect the company’s autonomy and keep personal and business finances separate.

Of course, this short article is meant only to be a broad overview of the topic. There are other factors to consider and a myriad of strategies that can be employed to limit an owner’s personal exposure, which will be the focus of upcoming parts to this series.

If any of the points in this article strike a chord, consider meeting with a business attorney to discuss your particular situation.  Despite the cautionary tales described in this article, when it comes down to it, the burden is on the plaintiff to convince the judge to deviate from the status quo and impose personal liability on the owner/director.  With an experienced business litigator at your side, your chances of avoiding liability are still pretty good.

1 The same protection entails under certain other business forms as well, (i.e. limited liability company).

2 Also known as “disregarding the corporate fiction.”

3 The term “owner,” as used here, encompasses shareholders, directors, and other controlling parties, as the case may be.

4 Under the same principle, plaintiffs can reach assets of other companies belonging to the owner.

5 8 Fla. Jur 2d Business Relationships §13 (2006); Mullin v. Dzikowski, 257 BR 356 (SD Fla. 2000); Dania Jai-Alai Palace, Inc. v. Sykes, 450 So. 2d 1114 (Fla. 1984); Seminole Boatyard, inc. v. Christoph, 715 So. 2d 987 (1998).

6 For example, where the owner commingles his money with the corporation’s money, or the owner uses corporate property for private purposes. Basically, any evidence that the owner does not respect the corporation as a separate entity could be used to meet the “alter ego” element.

7 Dania Jai-Alai Palace, 450 So. 2d 1114; Hilton Oil Transp. v. Oil Transp. Co., S.A., 659 So. 2d 1141, 1151 (Fla. 3d DCA 1995); Ally v. Naim, 581 So. 2d 961, 962 (Fla. 3d DCA 1991).

8 Kanov v. Bitz, 660 So. 2d 1165 (3d DCA 1995).

9 Undercapitalization of the business and/or failing to maintain liability insurance to cover damages resulting from the company’s negligence or intentional wrongdoing are traditionally looked at to determine these first two elements.

~ Jeffrey Harrington, Esq.

The purpose of this article is to make both parties aware of the common considerations after default on a commercial lease. 

Uncollectible Tenants

Personal Guaranty

It is hard to blame a commercial landlord for insisting on payment of every dime owed, but that does make it nearly impossible to cut a deal quickly.  So, very often, we end up with Scenario #2, which is protracted litigation.

Real Estate Litigation

Once the lawsuit starts, it’s basically for “all the marbles” because the landlord will be entitled to ALL the costs and fees resulting from this lawsuit, along with unpaid rents and other damages.

But, be aware, landlords.  Sometimes the commercial tenant does have an exit strategy.

I realize that all sounds good from the landlord’s perspective.  Just remember, though, getting a judgment is one thing.  Collecting on the judgment can be quite another.

Executing on the Judgment

The tenant may start transferring assets out of the landlord’s reach.  If you start seeing the tenant’s attorney utilizing delay tactics in the lawsuit, it may be that the tenant needs time to get the asset-protection plan in place.  

Conclusion

It is true the American legal system is set up to shield owners/officers from corporate liabilities, but nothing draws public outcry like an executive who fills his pockets through misdeeds and then hides behind the corporate skirt.  

It is the perception of corrupt business practices with no punishment that leads judges and legislators to weaken corporate protections and put officer heads on the chopping block.

So, in this climate of suspicion, what can a business owner do to limit liability for company activities? in this section, we will focus first on what not to do.

I. Shell Companies

By “shell company,” we mean a company that is set up for specific business transactions but which has no significant assets.  In Florida, where our firm is headquartered, it is extremely cheap and simply to set up a new company.  That is intended to encourage entrepreneurship, which is a good thing.  What is sometimes not a good thing is the ease of setting up a new company also lends itself to creating “throw away” companies.

So, if an unscrupulous person wants to rip people off, he or she can open a company, do bad things and then abandon the company.  And repeat . . .

Judges are wise to this tactic.  If your company is accused of misconduct, a judge will be curious to see how vested you are in the company.  Was the company properly capitalized at the start, or was it run on a shoestring?  There is nothing wrong with running a company on a tight budget, but you do not want it to seem like you were never serious about building a viable business.

Consider other countries around the world, such as European countries, where it is not nearly so quick and easy to start a new company. In fact, the process is rather involved and requires significant capitalization upfront.  This tends to have a chilling effect on startups and, perhaps, reduces the likelihood of abuse.

Of course, many small businesses will be started with minimal capital and grow organically. There is nothing wrong with that. It is one of the things that makes the United States an attractive destination for the entrepreneurial-minded.

If you are starting your company on a small budget, then consider purchasing an insurance policy (such as an “errors and omissions” policy).  Judges tend to view that as a good-faith attempt to be a responsible business owner.

II. Alter Ego

Another important consideration is whether the business owner treats the company as a separate entity, rather than just an extension of himself.  As a small business owner, it is easy to form bad habits — such as using the company card to pay personal expenses, commingling company funds with personal funds, using your personal card to pay company expenses, making company decisions with no semblance of corporate process, etc.  These are very common practices, which Florida courts tend to view as reducing the company to a mere “alter ego.”

Many small business owners think: “What difference does it make? It’s all my money, anyway.”

Of course, there is some truth to that. That is why in business litigation we refer to the “corporate fiction.”  After all, it is a fiction . . . one that you should foster, not disregard.

Think about it this way. If your company gets itself into a situation where it cannot pay its bills or is being sued, then you are going to want to separate yourself from the company’s creditors as fully as possible.  If someone gets a judgment against the company, you do not want him coming after your personal property, your personal bank account, etc.

Should that situation come up, your argument will be “Hey, that is the company’s debt, not mine.”  By and large, that is a good argument, and the courts will support it.  However, you can’t really have it both ways.  If you want the judge to treat your company as a separate entity that is responsible for its own obligations, then you need to have treated the company that wayall along.

More on Business Law

To protect against corporate liability, you want to avoid weakening the corporate fiction. So, you do not want to give the impression that you were planning to “tank the company” all along, and you do not want to make the company your alter ego.

Next week, we will discuss affirmative measures you can take to foster a strong corporate fiction, thereby strengthening your protection against corporate liability.

~ Jeff Harrington, Esq.

The post BUSINESS PRACTICES: Limiting Personal Liability (Part II) first appeared on Harrington Legal Alliance.]]> https://Harringtonandsheppard.com/business-practices-limiting-personal-responsibility-part-iii/ Mon, 05 Feb 2024 21:54:07 +0000 https://www.harringtonlawassociates.com/?p=1406 This is the final part to our discussion aimed at helping owners and officers avoid personal responsibility for the obligations and liabilities their companies take on in the course of doing business. The first part provided an overview of the key issues related to corporate liability. The second part focused on what not to do. Here, we get to proactive techniques for guarding against personal responsibility.