Default Judgment

You are sitting in your office on the busiest day of the year, and just when you think nothing else could go wrong, a person walks in and utters the fateful words “You’ve been served”, while handing you a stack of papers.   Your business is a party to a New York civil litigation lawsuit. Your business has  just been sued.  What is the best course of action you can take, and how can you protect yourself as well as your business?

Who?

Read the papers that are given to you to find out the party that is suing you and the type of civil litigation you are involved in.  Is it a corporation, a partnership, or an individual?  Are they a customer or a supplier of your business? Who is the lawyer representing the party that is suing you?  This information will help your attorney obtain a more favorable result for you by researching the other party and its counsel. (Do they settle often?  Are they a big company?  What are their financial resources?  Do they have a reputation to maintain and therefore may want to settle quickly?).

What?

What exactly are you being sued about?  Is it a breach of contract claim? Is it a non-payment claim, or a non-performance claim?  Those are many reasons why a business may be sued.

When?

In Civil Litigation, timing is critical in a lawsuit.  Responses must be filed within a set period, which in New York is  usually within 30 days.  While an extension can be granted, don’t wait until the last minute to contact your attorney.  It takes time to prepare an appropriate answer to the papers.  If you do not respond in a timely fashion, you will be considered in default, and a judgment may be taken against you.  This means you may lose the case without the opportunity to provide a defense.

Also, don’t assume you are judgment proof, because judgments can be collected from future earnings as well as assets.  In addition, do not assume that your insurance covers everything, although it may be wise to notify your insurance carrier as well as your attorney.

Where?

What court are you being sued in?   What county?  State or Federal Court? You may be sued in a state far away if, for instance, you have done business in that state.  In that case, your New York attorney will have to obtain local counsel for your small business in the other state, and this takes time.

Why?

Why did the party resort to a lawsuit?  Is it something you can fix by having your attorney talk to the other side and negotiate a settlement?  Is there a running animosity between your company and the other party, in which case settlement will be difficult?  Do you need to file a counterclaim against the other party?

How?

Immediately notify and supply the civil litigation  lawsuit papers to your attorney.  Make sure you retain a photocopy for yourself.  Inform your attorney of all the facts relevant to the case.  Your attorney will decide what is important and what is not.
Organize your documents pertaining to the case so that you can minimize the time the attorney must spend going through them.  This will save your attorney ’s time, and therefore save you legal fees.  Do not talk to the other party’s attorney.  He works for the other party, just as your attorney works for you.  Let your attorney do this for you.  In addition, remember that in law, just as in any profession or business, there are rules and procedures  your attorney knows and you may not.  To stay out of trouble, leave the legal work to your attorney.

A trial can take several weeks in New York, including preparation time.  Therefore, it may be in your best interest in certain cases to settle.  However, be realistic in your settlement expectations.

Conclusion

Having an ongoing attorney-client relationship will help protect you in the event of a civil litigation lawsuit.  The more your attorney knows about your business, the better the attorney will be able to help you.  In addition, discussing business options and problems with your attorney ahead of time could help prevent a lawsuit from ever starting.  Either way, it will save you money in the long run.

CALL TODAY FOR A CONSULTATION AT 212-233-0666

 

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One of the problems that you may encounter when buying a business in New York is understanding how to structure the purchase.  Basically, there are two ways that you can buy a company:

  1. Asset Purchase;
  2. Stock Purchase.

In most cases, you will be better off purchasing the assets. There are three big benefits to buying the assets and not purchasing the stock:

  • Tax benefits. With an asset purchase, you can give different purchase prices among the various pieces of the company.  For example, certain equipment can be deducted immediately so you may want to assign a greater price for those assets.
  • You can choose not to acquire liabilities of the business you wish to buy. Perhaps the company failed to pay a supplier for goods it ordered two years ago.  The statute of limitations on a breach of contract lawsuit is six years, so you could be hit with a lawsuit four years after buying the company.
  • You don’t have to buy every asset of the corporation. It could be in you best interest to buy only the profitable portions of the company.

Sometimes you are not given the choice of how a business sale could be structured.  Many business that are for sale require purchase of stock only for a variety of reasons. For example, the seller may believe that there are tax advantages for selling all the stock.  If you have to buy corporate stock, it is imperative to conduct a thorough investigation of the corporation’s books and other financial dealings.  You can insert warranties and indemnification clauses in the stock purchase agreement. You may also be able to purchase insurance.

The New York Attorney General announced today that they are suing 35 law firms for improper service of default judgments. A party obtains a default judgment when the defendant does not appear in a lawsuit. American Legal Service, a process server located in Long Island has been named by the Attorney General as providing improper \”sewer\”  service.  The 35 law firms have not been accused of any wrongdoing.

If you wish to re-open a default judgment against you due to improper service based on the Attorney General\’s action today you should:

1.  Go to the county clerk in the county where the default was filed and obtain the court file.  Check the affidavit of service to see if American Legal Service was the process server.

2.  If you are unable to ascertain the name of the process server, check the law firm who started the lawsuit.  If it is one of the 35 law firms listed in the Attorney General\’s complaint then:

3.  File a motion to vacate the default for improper service of process.

At this point, it is unclear what the remedies would be for instituting an action, especially in cases where the statute of limitations has run for vacating a default.  In New York, the statute of limitations is one year.  However, the court or some other governmental body may fashion new law based on this mass fraud.

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