Defending lawsuits is sometimes an unfortunate but necessary part of doing business. Whether the case was quickly dismissed by the court, or whether you won the case after a trial, you and your attorneys knew the case was unfounded from the beginning and yet you had to spend substantial time and money that you could have devoted to your business in order to successfully defeat the case.
Depending on the facts and circumstances and whether the suit was pending in state or federal court, your fees may be recoverable from other side as a sanction for filing a “frivolous” claim against you. However, absent a contract or statute providing otherwise, you will most likely be unable to recover your attorneys’ fees simply because you won your case.
Assuming the suit was filed in Illinois, sanctions may be available. Generally, to recover fees against a party or his or her attorney under either rule, it must be shown that the party and/or his attorney either: (1) failed to reasonably investigate the facts or the law before filing the offending complaint, (2) filed the complaint for the purpose of harassment, delay, or to increase the cost of litigation for the opposing party. One principal difference between the federal rule and the Illinois rule is that under the federal rule, only an attorney can be monetarily sanctioned based on unwarranted legal contentions. Thus, if the complaint was filed in federal court, while both the attorney and client are responsible for ensuring that the facts contained in the complaints are accurate and complete, only the attorney may be sanctioned for a complaint based on a claim or argument that is not warranted by existing law. By contrast, under certain circumstances, the Illinois rule permits the court to sanction both the party and his attorney—even if the complaint is found to have been legally (as opposed to factually) unwarranted.
It is important to note that not every meritless case is considered “frivolous” for purposes of recovering attorneys’ fees. The United States Supreme Court has held that an action or claim is frivolous if “it lacks an arguable basis either in law or in fact.” Similarly, the Seventh Circuit Court of Appeals has characterized a filing that is incoherent and lacks a legal basis as “frivolous.” Thus, “frivolous” does not necessarily mean “meritless,” but rather, a frivolous suit lacks a factual or legal basis, and as such, has very little chance of being won. For this reason, it is recommended that a party wishing to seek sanctions do so at the end of the case, i.e., after the court makes a determination that the claim lacks legal and/or factual merit.
In addition, as the Seventh Circuit Court of Appeals recently determined, whether a case or claim is “frivolous” is not the end of the inquiry. A request for attorneys’ fees may nonetheless be denied where fees that were incurred were “self-inflicted” by, for example, pursuing one strategy over another, or briefing an appeal on the merits rather than filing a motion to dismiss for lack of jurisdiction.
Both the federal rule and the Illinois rule are discretionary and are strictly applied by the courts. As such, sanctions are infrequently granted. Regardless of how and when your litigation was resolved, you and your attorneys should evaluate whether it would be appropriate to seek sanctions, and if so, whether it would be worthwhile from a cost perspective.
If you have any questions regarding a litigation matter you find yourself involved in, please contact:
(312) 368-0100 or firstname.lastname@example.org
 This article is the first of a three-part series: Part II will address the recovery of attorneys’ fees pursuant to various Illinois statutes, and Part III will address the recovery of attorneys’ fees pursuant to a contract where the dispute is resolved outside of the litigation context.
The heading of this blog is a misnomer. There is no such thing as being litigation proof. Anyone can sue your business for any reason and meritorious or not, you will still have to defend the claim.
Still, there are many important steps a business can and should take to reduce its exposure and put itself in an advantageous position in the event a lawsuit is filed. Here are two simple actions that every business, large and small, should take in order to be a little bit more secure in today’s volatile world.
1. An Updated Employee Handbook
Employee handbooks set forth company policy for all employees to follow. Handbooks are useful reference materials that employees can rely upon to guide their day to day activities. They are also evidence of a company’s practices that can be introduced in the event of a lawsuit.
As a business grows, it should be mindful that different laws will apply to it. For example, once a business employs 15 employees, that business is now subject to the provisions of the Americans with Disabilities Act (“ADA”). Once that happens, an employee handbook should be modified to include language related to the reasonable accommodations that the business will make to comply with the ADA. If an employee with a disability were to file a claim under the ADA, a company with a handbook containing reasonable accommodation language would have a stronger argument that its practice is to comply with the ADA, than a company without such a policy in its handbook.
Also, business owners must be mindful that the law is constantly changing. For example, Illinois just enacted a law that requires an employee’s existing sick leave be granted to employees not only while they are sick, but also to care for sick family members (read more about that law here – https://lgattorneys.com/illinois-employee-sick-leave-act). Illinois businesses should amend their handbooks to reflect the change or discuss the pros and cons of moving away from sick leave/vacation time to paid time off that does not differentiate between sick leave and vacation time.
2. Record Retention Policy
If a company becomes involved in litigation, regardless of the issue, there is going to be a records request for all relevant documents in anyway related to the underlying lawsuit. This often involves emails and other electronic communications.
Having a records retention policy is important for several reasons. First, it ensures that all documents are kept for the optimal amount of time to conduct business without clogging servers or storage spaces. Second, it ensures that a company isn’t holding any documents for longer than legally required. Should a business be subject to a records request, a business is required to produce the documents in its possession. A plaintiff in a suit cannot use a document against you if you do not have it (and are not legally required to have kept it). Third, there are many record retention laws specific to different areas of business. A record retention policy can make sure a business does not violate the law by getting rid of documents too soon.
It is important that the business in question follow its policy universally and not on an ad hoc basis. As long as there is not a litigation hold in place requiring a company to keep all related records, then the company is free to follow its record retention policy without inadvertently destroying evidence and leading to a claim of evidence spoliation.
By consulting with an attorney and preparing an employee handbook and records retention policy, a business can take important first steps toward avoiding litigation, or at least being better placed to withstand a lawsuit if one comes its way.
For more information about developing an employee handbook or record retention policy appropriate for your business, please contact:
Robert Cooper at:
email@example.com or 312-368-0100.