Odds And Ends
Uncle Gene’s Three Rules to Follow to Avoid Getting Sued
Rule One: Treat People Well
Rule Two: Follow the Law
Rule Three: Be Invisible
Rule One: Treat People Well
Angry people start lawsuits. If you treat people well, they will not get angry and will thus be unlikely to sue you. Treat your customers, your employees, your vendors, and – yes – your competitors with courtesy and patience. Listen to them if they have complaints, and resolve their complaints if you can. If you cannot, explain your reasons why. Avoid being defensive or argumentative. Remember that they, like you, are simply trying their best to earn a living, balance their budgets and otherwise muddle their way through life. They may not be abrasive people, they may just be having a bad day, perhaps because something awful has just happened to them. Give them the benefit of the doubt. While their complaint may seem a small matter to you, it may be huge to them. Remember that customer service is a vital part, perhaps the most important part, of your marketing program. If you’re not the one who is interacting with your customers or clients, imbue those who do with the importance of their role. And check up on them.
A corollary of treating folk well is that when you or one of your employees makes a mistake (we all make mistakes), admit it promptly and do what you can to rectify it. Sometimes the cost of making things right will be high, but owning up to your mistakes will rarely lose you any customers or friends. Indeed it will burnish your reputation – which is all that most of us have to trade on. Paying for your mistakes is just one of the normal costs of doing business – no matter what your business is. One benefit to owning up is that we free ourselves to learn from our mistakes and to be the better for that learning.
Never, however, try to cover up your mistakes. You may think you’re clever, but you really aren’t that good at lying. The person you’re dealing with probably won’t believe you, and if his lawyer catches you at trial in that lie (and he probably will; the trial lawyer’s best-honed skill is trapping liars on the witness stand) you will lose your case. As I always tell my clients, there is one sure rule in the courtroom: Liars Lose. And one of the beauties of telling the truth is that you don’t have to remember what you’ve said.
There is one further step in avoiding litigation. The Bible admonishes us to be “wise as serpents and harmless as doves.” We’ve just gone through the harmless-as-doves side of this saying. But why do you need the wisdom of serpents? Simple. Because there are two other categories of people of whom you must be wary: the Crazies and the Crooks.
The Crazies are those who will never be happy with you, no matter what you do. Nothing you can do will please them. Whether they are born that way or something in life put them on that road is unimportant; all that matters is they will be unhappy with you and will be sure to tell their friends of your incompetence and post their low opinion of you on the internet. A hint: if their opening conversation with you is a litany of their woes and of all who have mistreated them, gracefully find yourself too busy to handle their job. And never hire them. Trust your hunches. I do not know anyone who has been in business for more than a few years who has not been stung by at least one of these folk. If we are lucky, our losses will be small, but whatever the loss, the education we get is, again, invaluable.
The Crooks are those who lie, cheat, swindle and cut corners throughout their lives. They poison everything around them. One red flag: if they ask for a discount rate the first time you deal with them, promising that you will make it all up on the additional work they will send you, decline their business. Trust me: that repeat business ain’t happening, and if it does, it will be at the same discount rate you gave them the first time . . . or lower. Or if it sounds to you that the deals someone is talking about don’t seem on the up-and-up, avoid those deals even if you can’t figure out exactly what’s wrong with them. The Crooks are particularly dangerous to you and your business because they are habitual liars who will never take responsibility for their actions. They may even arrange things to that they can plausibly pass their misdeeds off on you. They will tell the victims of their frauds that it was all your fault, and you, who have done nothing wrong, will end up in the victims’ lawsuit.
Lesson from Rule One: Treating folk well and being careful about who you deal with will save you a lot of courtroom suffering.
Rule Two: Follow The Law
This seems both obvious and simple: Follow the Law. It is obvious because you would like it when your angry client/customer/employee (hereinafter: The Angry One) goes to a lawyer and the lawyer looks at what you did and says: you haven’t got a case, forget about it.
But it isn’t that simple. First and foremost, to follow the law, you must know the law – and the truth is that the law is not always simple. Many think that there is a book out there with all the rules written down and that all the lawyer has to do is look up the rule and tell you whether what was done is legal or illegal. There is no such book. The process of determining what is legal and what is not can be difficult. The law, whether it is embodied in statutes or based on the ruling of courts – what’s called the Common Law – only enunciates general principles and fitting the facts of a specific situation into those principles takes education, intelligence, and most important of all, practical experience. Mr. Justice Oliver Wendell Holmes famously stated that “The life of the law has not been logic; it has been experience.”
Rule Three: Be Invisible
What on earth do I mean by “Be Invisible”? Do I want you to run out and get Dumbledore’s Cloak of Invisibility? Hardly. What I want you to do is keep your name out of public records and fly under the radar in your personal life. Here’s why. When The Angry One (you remember him from Rule Two, right?) goes to his unscrupulous lawyer, the first thing that lawyer will do is start look in public records to see what you own. And why does he do that? Because he wants to see if you have any assets for him to sell to pay off a judgment against you. 1
There are two places where every lawyer will look. First is real estate records and real estate tax records to see what real property you own. All states have some form of homestead protection, so finding the house you live in may not help him much, but if you own commercial properties, or a second house, he can certainly get those with a writ of execution. The rule here is: don’t own real property in your own name.2
The second place he will look is the records of the Secretary of State of the state you live in. Why? Because records of every entity operating in your state – whether limited liability company (LLC), limited partnership (LP), limited liability partnership (LLP) or corporation – are lodged with the Secretary of State. In those records, the lawyer can probably find your name if you are one of the owners or officers of the entity which holds some of your assets. Many of my clients are amazed at how much information about them I can pull from state records in just a few minutes. It may even be worthwhile for the lawyer to look into your county’s assumed name (d/b/a) records to find the name of the business you are running in your own name (and thus totally unprotected from a writ of execution). You have read my article “How to Protect your Assets from a Judgment Against You,” (it was the first thing I sent you) where I briefly discussed entities in which you can hold your assets. All of those entities except a trust (and you will remember the downside of trusts) will be in the records of the Secretary of State. And if that lawyer sees that you own something, whatever it may be, he will have an incentive to bring suit.
Remember that lawsuits have a blackmail value: people will pay to get rid of them rather than follow the vastly more expensive and riskier route of taking the case to trial and hoping to win. So a lawyer brings a lawsuit knowing that he may not be able to get your assets with a writ of execution, but also knows that you will have to reach into those assets to pay defense costs. He files his suit to get indirectly the assets that he cannot get directly. The choice of the defendant is either to pay his lawyer on the chance that he will win at trial or to pay the same amount, or perhaps a little less, on the absolute assurance that the lawsuit will end. In business cases, where only money is at issue, the responsible attorney will try to steer his client towards a settlement. Lawyers don’t like to call it blackmail value; they call it settlement value. But it’s blackmail.
You think, however, what if the plaintiff’s attorney only wants his fees paid and is indifferent to whether the judgment he gets will be collectible. His plan is just to bring the lawsuit and, after he gets a verdict, walk away from it. Remember, he has The Angry One for a client, someone who is spitting fire at the very mention of your name. He’s a very easy mark for a greedy attorney; spare no expense is his motto – I want revenge. At the end, his lawyer will say to him: “I did what you paid me to do. I got you a verdict. Collecting it is none of my business.” 3 That’s a risky business model. If his paying client’s judgment comes up uncollectible, he will be furious to find out that after shelling out mightily for a verdict that the defendant has no assets to pay – and perhaps even angrier if he finds that the lawyer never bothered to investigate the defendant’s asset situation. There’s a real risk that this Angry One, angry enough to pay for a lawsuit against you, now doubly enraged, will be angry enough to turn on his lawyer and sue him for malpractice. Since the lawyer probably has malpractice insurance, that judgment is not going to be uncollectible.
I have digressed, but I think you are beginning to see the value is keeping your ownership of assets private. Through the use of trusts (which are not public instruments) in conjunction with formal entities, an attorney can put a client into, for example, a limited liability company (“LLC”) where the only name of a human being in the Secretary of State’s records is the attorney’s and the only physical address is the attorney’s. And if the attorney is asked what person owns the company, he cannot reveal that information because it is protected by the attorney-client privilege. Entities can be owned by trusts and can be the beneficiaries of trusts. There is almost no limit to the ways that these various devices can be combined to shield your ownership from public view. By the same token, you do not want to flaunt your assets. If you drive a Rolls Royce or a Ferrari, you are putting a target on your back for lawyers to aim at. Live modestly
The same carries over when you are running a business where your ownership is not public knowledge. Don’t tell your customers that you own the business. Tell them that you are the manager and are responsible to the owners. If your customers know it’s your shop, you will be subjected to heart-rending sob stories, and you will not find it easy to tell them that their stories are utterly bogus, obviously ginned up for the purpose of getting a mercy discount. It’s a lot easier to say: “I just work here. The owner won’t let me do that.” That way if they turn into Angry Ones, they won’t be angry at you.
Lesson From Rule 3: No shark will attack a bloodless being
1 Those of you who have heard my talk “Case Closed: Why You Shouldn’t Bring A Lawsuit Unless You Are Ready To Lose,” know that getting a verdict is not like drilling an oil well. Money doesn’t just spout out of the earth like a gusher when you get a verdict. What you get when you get a verdict is another piece of paper: a Writ of Execution (in Texas; called other things in other states), a piece of paper that allows a public officer, usually a deputy sheriff or a deputy constable, to hunt for the losing defendant’s assets, and if he finds any, to sell them. More a hunting license than a cashier’s check. The problems with this process will be dealt with in a later newsletter.
2 Unless less it is your homestead, and you live in Texas or Florida where your home is 100% protected from judgments.
3 It reminds one of the lyrics to Tom Lehrer’s ode to Wernher von Braun, the Nazi missile expert (father of the V-2 rocket that pounded Britain) who came to work on the American space program: “I make them up go up, but where they come down, is none of my business, says Wernher von Braun.”