For a small business a frivolous lawsuit is not just a nuisance. If it’s not handled competently and efficiently – it can significantly impact profitability. There have been several noteworthy frivolous lawsuits reported. People contesting the authority of the U.S. Government to levy an income tax (the 16th Amendment is pretty clear on this). The lawsuit against a drycleaner for $67-million for the loss of a pair of pants. These are just some examples.
It’s true almost anyone can file a lawsuit. However, it doesn’t mean that a frivolous lawsuit will move much further than the initial stages of litigation. There are court rules and laws that can be used to make someone filing a frivolous lawsuit pay a significant penalty for filing it.
Colorado Law on Frivolous Lawsuits
Colorado law provides for an award of attorney’s fees when a party has brought a lawsuit that is frivolous:
[I]any civil action of any nature commenced or appealed in any court of record in this state, the court shall award…reasonable attorney fees against any attorney or party who has brought or defended a civil action, either in whole or in part, that the court determines lacked substantial justification.
A court can award the attorney’s fees incurred against the party or the attorney that brought the lawsuit. C.R.S. §13-17-101 also provides for an award of attorney’s fees incurred in defending a tort or negligence lawsuit that is dismissed for certain reasons.
A lawsuit is “frivolous” not only if there is no valid legal theory to support it – but also if the lawsuit is not supported by credible evidence or a rational argument based on the evidence or the law.
I have encountered a few lawsuits that are frivolous. I have clients that were awarded attorney’s fees and costs payable by the opposing party for these lawsuits. The trick is to attack them quickly and aggressively to obtain a dismissal and an award for attorney’s feesand costs. This way the impact is minimized on the business.