In just one year, small businesses paid $105.4 billion in expenses related to lawsuits, according to a 2010 study conducted by the U.S. Chamber of Commerce's Institute for Legal Reform. Not to mention…
- Small-business owners paid $34.6 billion out of pocket (i.e., insurance didn't cover that amount).
- Of all the business tort liability costs that year, small businesses carried 81 percent of the expenses.
You can read USChamber.com's press release, "Lawsuits Cost Small Businesses $105 Billion, Study Shows," for more details. But the moral of the story is this: lawsuits are no small matter for small businesses. Even when a tort is ultimately dismissed, your business bears the cost of hiring an attorney and has to deal with lost business income for the days you take off work to meet with your counsel and appear in court.
So how much can a lawsuit over a social media slip-up cost your business? Let's take a look at social media user Beth York's case to illustrate how a claim can financially burden your business.
The High Cost of Frivolous Advertising Injury Suits: A Social Media Case Study
The Columbia Daily Herald's article, "Woman Asks for Dismissal of Facebook Defamation Suit," tells the story of a Beth York, a woman caught in the crosshairs of a libel suit that started on Facebook. A developer named Donnie Cameron is suing York for the comments she made on the "I Heart Spring Hill (TN, y’all)" Facebook page. Cameron alleges that the comments damaged his reputation and professional life.
York's attorneys filed a motion to dismiss the case on the grounds that it doesn't meet the legal standards for libel. They argued that her comments were not false or defamatory. The motion also argues that Cameron's lawyers haven't proven how the statements hurt his business dealings.
The Facebook “Libel” That Landed York in Hot Water
Between March 14 and April 4, 2013, York made the following Facebook posts about Cameron:
- "He's a criminal who may or may not be involved in mafia-type underworld illegal gambling. Scary!"
- "We're talking about a guy who can no longer contribute or be a booster for UT Athletics I believe b/c he was so crooked. What exactly do you have to do to get banned from giving money to a huge money-driven athletic program?"
- "One wonders whether progress and common sense has been held up by our 'illustrious mayor' or Donnie Cameron (or both). Why would these candidates align themselves with such a guy who's been incarcerated for 6 mos. on at least one occasion and doesn't even live in our city?"
In response to the posts, Cameron filed a lawsuit against York, alleging that she had committed defamation and libel, tortious interference with business relations, and false light invasion of privacy. He's demanding $250,000 in damages.
York responded to the claim by denying that the posts defamed Cameron. She requested that the case be dismissed because Cameron does indeed have a criminal history dating back to 1991. He was convicted for illegal gambling relating to video poker machines he owned and handed a 10-month sentence to be split between federal prison and a halfway house.
And York was right about UT, too. Turns out, University of Tennessee officials distanced themselves from Cameron for improperly contacting a men's basketball signee.
The fate of the case has yet to be determined. But one thing is certain: the lawsuit is probably a financial burden York wasn't expecting when she voiced her opinion on Facebook in the spring of last year. And if a private citizen could be sued for defamatory remarks, a small business that makes the same mistake could easily face a similar legal entanglement.
The Cost of Hiring an Attorney for Social Media Advertising Injury Lawsuits
If a case against your small business is dropped, you’ll still be responsible for paying attorneys' fees. And even though a judgment or settlement could cost millions, legal expenses alone can easily set you back thousands of dollars.
To give you an idea of the cost of retaining legal counsel, let's look at some financial projections for attorney’s expenses.
Contingency Fees and Retainers
Typically, attorneys are paid through contingency fees, which range from 25 to 40 percent of a settlement or court-ordered award, or hourly rates. The beauty of charging contingency fees is that they tend to weed out meritless cases from the start. After all, the attorney will only be paid if the case is strong enough to go to court or warrant a settlement.
Typically, personal injury lawyers receive 33 percent of any settlement. So for example, if your business settles out of court and agrees to pay $30,000 for damages, the plaintiff's lawyer would receive $10,000.
If you're a defendant, your attorney will likely ask for a retainer fee up front, which is essentially an advance on the case's expected fees and costs. The retainer fee can be as little as several hundred dollars or as much as tens of thousands. It all depends on the claim and a case’s projected expenses.
Attorneys' Fees for Defendants in Advertising Injury Cases
When you’re sued and you lose the case against you, it's your responsibility to pay your legal defense fees – but in many cases, you'll also have to pay for the plaintiff's legal representation.
After the lawsuit is over, if you’re held liable for advertising injuries, the plaintiff's attorneys will file an application for their fees with the court. The application will include time records and an affidavit that justifies their hourly rate.
Meanwhile, your lawyer will try to whittle down this amount as much as possible. They may argue that the hourly rate is too high or that the case was only partially successful. The judge will ultimately decide the final fee amount, and you will be responsible for paying it.
If you have the appropriate small business insurance – in social media advertising injury cases, General Liability Insurance – you won't have to pay these costs out of pocket. Check out "What Is Advertising Injury and How Does It Affect Social Media Marketing?" on our blog to read more about how GL can spare your business from a wealth of social media marketing liabilities.
Costs and Expenses in Advertising Injury Cases
In addition to legal defense costs, advertising injury cases come with other fees. Some attorneys cover these costs and deduct them from the settlement amount. Others bill clients for the costs as they arise.
In an advertising injury case, related court costs may include…
- Medical records.
- Police reports.
- Expert witness fees.
- Filing fees.
- Trial exhibits.
These expenses alone can be a few thousand dollars. But again, with adequate GL coverage, your insurance company can pay for attorney's fees, settlements or judgments, and related court costs.
This post is part of an ongoing series on advertising liability. Stay tuned for more on how your business can make the most of social media while avoiding advertising injury liabilities!