Frivolous Consumer Lawsuits And Small Business Owners: What You Should Know (And Do)

Consumer protection laws against unfair and deceptive business practices vary from state to state, but one thing is common: They give customers some serious legal clout. In ordinary lawsuits, plaintiffs have to suffer actual losses in order to recover damages. Consumer protection laws, however, can entitle someone who suffered no financial loss at all to significant compensation based on a claim of false advertising. Should you be concerned, even if you're an honest small business owner who'd never intentionally defraud a customer? Absolutely. Here's why (and what you can do about it).

You're vulnerable to frivolous lawsuits.

There are plenty of examples of false advertising out there, which is what makes consumer protection laws necessary in the first place. Unfortunately, there are also people who are willing to abuse the legal system to try to make a quick dollar. A frivolous lawsuit against your business might be based on fake or outrageous claims, but it could have very real and tragic results. For example, a pair of allegedly lost pants cost a family dry cleaning business $83,000 in attorney's fees after the customer filed suit. He claimed that the signs in the store declaring "same-day service" and "guaranteed satisfaction" were false based on his unhappy experience.

It can be so expensive to defend against a nuisance claim that some businesses will simply pay up -- offering a quick settlement instead of fighting it out. However, that can leave your business vulnerable to people trying to get lucky through a "lawsuit lottery" or "shakedown suits." 

You need to be cautious with advertising claims.

To protect yourself against these types of lawsuits, you need to take several different steps, no matter the size of your business. First, make sure that you find out the specific laws in your state relative to unfair or deceptive practices and make sure that you and all employees understand them completely. If you have any questions, consult with an attorney before you advertise.

In particular, make sure that you pay attention to certain claims:

  • the quality of your services or goods, including how they will make a customer feel -- for example, a popular energy drink had to settle a class action suit for alleging that its product did more to boost a drinker's energy and physical well-being than ordinary caffeine. 
  • the pricing of your services or items, including offering something for a discount -- for example, a popular discount chain is facing a lawsuit for offering exaggerated sales by misleading consumers into believing that they're getting a bigger discount than they actually are by inflating the item's original price.

You also need to take protective action.

There are also a number of smart financial and legal moves that you can also take to help insulate you from the consequences of a frivolous claim:

  • hire an attorney to help you form a limited liability company (LLC) -- that will make sure that your personal assets are protected if the business is sued.
  • review your insurance to make sure that all of your assets are protected -- that can go a long way toward covering your losses in the event of a suit.
  • transfer assets into irrevocable trusts or retirement plans -- many of these are exempted from creditors, even in a lawsuit.
  • never make personal guarantees for your business -- that prevents your private property from being at risk.
  • be willing to litigate if you are targeted by a frivolous claim -- that prevents your business from getting a reputation for being an easy target.

Navigating the business world can be complicated and full of risks. While nothing can make you totally lawsuit-proof, you can take steps to make yourself a less-than-easy target. For more information, contact a law firm in your area such as D.B. Clark Law Office.