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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?

  • 2
    I have often wondered why companies with staff attorneys don't have a list of counterparties and issues for their lawyers to pursue when they have spare time. Maybe they do after all? – feetwet Aug 4 '15 at 18:49
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    If you have this threat in writing, I wonder if that is something that could be used as proof to dismiss future lawsuits? – David K Aug 5 '15 at 12:52
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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.

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    That said, we do have the best system money can buy 😀 – Dale M Aug 4 '15 at 20:43
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    OT: " We do not have a perfect system of justice." I hope you are not offended if I state that I find it horrifying? – o0'. Aug 5 '15 at 10:28
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    @Lohoris: Certainly not! I was aiming for understatement ;) – feetwet Aug 5 '15 at 18:17
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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:

  1. Invest in an attorney to figure out your legal position regarding the matter at hand.
  2. Negotiate with your counterparty to reach an amicable settlement.
  3. Go kindly on your way and try to have no further contact with him. (Hopefully, he will forget about you and focus on more constructive things than filing law suits.)
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    This first paragraph is important. This plaintiff is going to need to find a lawyer (or a few lawyers) to file the suits. I don't believe that a corporation uses its in-house lawyers to file lawsuits; they use outside counsel. But let's say he has friends who are partners in big firms who will take the cases. Now he's racking up legal bills... is he accountable to a board of directors? But let's say his whole army just goes along with him and starts filing lawsuits - yeah, it can get expensive answering these complaints but get enough of them dismissed and judges will see the big picture. – jqning Aug 6 '15 at 0:51
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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.

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    Be careful about advising people to record phone conversations, it's not always legal. – jimsug Aug 5 '15 at 12:23
  • You might get awarded fees if the suit was frivolous but winning a dismissal (eg 12b6 motion) is not going to get you paid. – jqning Aug 6 '15 at 0:45
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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

  • repeat themselves for being recorded.
  • do such a stunt in front of witnesses.

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.

TL;DR

  • economic impact on the opponent
  • personal consequences of economic impact
  • counter lawsuits, if the threat is evident

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