Common legal questions answered

Say you’re starting a new practices or healthcare sector start-up, joining a practice or small to mid-size company in an upper management role, how much money is required to be allocated to legal expenses not only initially but on an ongoing basis? The answer is “it depends.”

Before delving into common questions, consider the following two phases – initial and ongoing:

• Initial Costs: include incorporation documents and related state filing fees, cybersecurity/HIPAA risk analyses, potential third-party experts to establish fair market value (FMV), technology costs, assets (e.g., computers, equipment, etc., background checks and licensure requirements), insurance and drug testing and compliance items (i.e., training, adequate technical, administrative and physical safeguards, and policies and procedures);
• Ongoing: with the exception of incorporation documents and state filing fees, unless a subsidiary is added or a corporate structure is changed, the other items are ongoing, as well as considering potential litigation or alternative dispute resolution (ADR) costs and ongoing compliance program requirements.

What I just listed is not exhaustive my any means; however, it should provide a semblance of items that need to be considered. Having a knowledgeable and ethical accountant and lawyer can help any company avoid liability and position the practice or company in a favorable manner in the event of a merger, sale, or acquisition. Regrettably, many persons are “pennywise and pound foolish.” Also, most people have no idea how much it costs to bring a lawsuit or ADR or to defend one. Sometimes it makes sense to settle, other times, it does not.

Here are five common questions that I receive from clients in a variety of industries, not just healthcare.

1. What is a legal hold policy? An internal set of policies and procedures, which the define the process for preserving information in anticipation of or an actual receipt of notice of litigation or ADR, a government investigation or other legal action. A common scenario where a company may get a “heads up” that a legal action should be anticipated is when a soon-to-be former employee who is terminated says, “you’ll be hearing from my lawyer” or a civil investigative demand (CID) is received from a Federal Government agency.
2. Can an attorney defending either an individual or a corporate entity in a criminal action pay utilizing a contingency fee? First, it is important to consult the American Bar Association’s Model Rules and the specific State Bar’s rules of professional responsibility. For example, Texas Disciplinary Rules of Professional Conduct, Rule 1.04(e), which were updated March 1, 2025, expressly prohibits this type of arrangement. Specifically, “[a] lawyer shall not enter into an arrangement for, charge, or collect a contingent fee for representing a defendant in a criminal case.” If an individual has potential criminal liability, they should plan on paying hourly rates to defense counsel and notably, most insurance plans do not cover criminal conduct.
3. What is the general process after receiving a demand letter? The general process is to implement the organization’s legal hold policy and contact an attorney.
4. What is the general process when a complaint (or petition in state court) has been filed in a court? When a complaint or petition is received, immediately contact a lawyer for several reasons. First, there may be contractual language that can be used to prevent the case moving forward in court, such as an express and comprehensive ADR provision, a statute of limitations or statute of repose issue, or more time may be needed to respond. All persons receiving a complaint or petition are beholden to either the Federal Rules of Civil Procedure (FRCP) or the respective state rules of civil procedure – it depends on the court that is filed. In additional to providing service requirements and response times, there may be procedural errors even out of the gate, which may be helpful to defendants. From there, a response or answer is filed by the named defendant(s) with relevant affirmative defenses and received by the plaintiff(s). There are a number of different procedural items to consider; however, as mentioned in Question 1, the first step is to trigger the legal hold policy and follow the procedures accordingly. Failure to do so can raise issues downstream, including spoliation (destruction) of evidence. The United States Courts’ website provides a great general overview of the complete process.
5. How much is this going to cost? The answer is “it depends” on the facts and circumstances. Additionally, market rates differ from city-to-city, local counsel may be needed or a team of lawyers may be necessary. Don’t let an hourly rate necessarily be a deterrent but do consult different law firms to qualify the lawyers and their rates. Also, if an company has an internal or external general counsel, they can be helpful in securing an attorney with specialized knowledge.

No one enjoys paying legal fees. Some persons look at it proactively as risk mitigation, which is prudent. Many established and/or large companies appreciate that litigation may arise and it is a cost of doing business. In business school, we learned that one of the most important actions a company can take is to pay people on time – whether employees, contractors or vendors. Failing to do so raises unnecessary frustrations and may lead to people not being valued. In turn, even more legal action may ensue. If there is a “cash crunch” paying contractors, including lawyers and accountants or vendors, then reach out to them immediately instead of them contacting you multiple times. People are often open to a grace period especially with a good payment history. As for workforce members (and ideally contractors and vendors), a line of credit should be in place so that payments are not missed during a cash-crunch. This is a prudent approach to risk mitigation and financial management.

In sum, when allocating an annual budget be sure to include attorney’s fees for compliance and potential litigation. Be sure that your organization understands the policy coverage and relevant limits. Lastly, generally speaking, don’t view your lawyers as adversaries. Their interests should be aligned with your interests – ensuring compliance and in the event of a litigation or ADR situation, resolving the matter expeditiously and in a manner fitting of a fiduciary. Litigation can take a long time; however, one of the worst steps an organization can take is to ignore a demand or a complaint. Failing to address it appropriately may result in a default judgement being entered by the judge in favor of the opposing party.

Rachel V. Rose, JD, MBA, advises clients on compliance, transactions, government administrative actions, and litigation involving healthcare, cybersecurity, corporate and securities law, as well as False Claims Act and Dodd-Frank whistleblower cases. She also teaches bioethics at Baylor College of Medicine in Houston. Rachel can be reached through her website, www.rvrose.com.