USA Federal Law -
I have a company worth about $6m. I got on the bad side of a person with a company worth well over $750m (with attorneys on staff). The CEO threatened to bury me in an endless sea of frivolous lawsuits, so that I'm essentially paralyzed having to defend myself in court day after day until my legal expenses drain my bank account and put me out of business.
Is this legal? Are there any countermeasures or defenses against it?
There are both statutes and customs aimed at preventing "Malicious Prosecution" and "Abuse of Process." (In Pennsylvania, for example, the 1980 Dragonetti Act allows the victim of a frivolous lawsuit to counter-sue for compensatory damages.)
One can also buy insurance against this type of risk: Umbrella liability policies will generally provide a defense against civil lawsuits and any damages awarded, as will many business insurance policies.
Of course, none of this is to say that a skilled legal team can't avoid all of these countermeasures and, in practice, take up a significant amount of your time and trouble. We do not have a perfect system of justice.
Lawyers can be sanctioned for filing law suits they know have no merit. It's unethical and an abuse of due process.
That said, there are plenty of legitimate reasons someone could find to file a law suit against you if they choose to make you their "pet project." The more business dealings you do with them, the more reasons they could potentially find to sue you.
And, yes, you are correct. The discrepancy in your relative bank accounts gives your counterparty a distinct advantage in this situation.
As a practical matter, I suggest the following:
First some general advice: make sure to record future conversations that you have with him. If it actually gets to a point where he is just trying to push you into legal fees it probably won't hurt to have a recording of him saying this.
Secondly, an economical perspective: If I understand correctly, generally people who press legal charges for frivolous rediculous reasons and lose will be liable for your expenses, and in practice you will probably get this compensation as long as you don't go out of business. So, to succeed he would need to press hard enought to actually put you out of business. Assuming you have at least some ability to cover legal costs, as well as some insurance this course of action should be sufficiently expensive to affect his profit margins to a point that it hurts.
IANAL but I think, if you have legally hard evidence of the threat you can bring that up at the initial hearing of any lawsuit filed against you and/or your company. This should increase the chance the lawsuit will not be accepted in the first place. I guess few judges like the idea of being used as a weapon in a personal quarrel between company CEOs.
It might also qualify for a counter lawsuit for coercion (I'm not a native speaker either, maybe the correct term is "duress"). That's especially, if there was an "if" attached to "I can bury you in lawsuits". It can easily be a case of attempted extortion as soon as any condition was implied.
However "legally hard evidence" is not easily obtained with people too clever to
Plus, a company worth $750m is probably funded via stocks. How do you think investors will like the CEO wasting money on lawsuits in a personal quarrel? And it's not the money actually lost but the public impression of revenue not made that will sway the investors. Getting on the bad side of investors is probably the usual way for CEOs to lose their job.
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