Yes, bad things can happen to good businesses. So what are your legal rights if the phone company drops the ball? They may be better than you think. But a lot depends on where your business is located.

Judges in some states aren’t sympathetic to the plight of the suffering business — usually because Yellow Pages contracts limit the publisher’s liability to a refund of ad charges. But those dollars are rarely enough to make up for lost customers.

Some businesses do sue the Yellow Pages and win big — as demonstrated by two recent cases.

A Pennsylvania caterer had an outdated phone number placed in his ad. The phone number, used briefly in the past, had been assigned to someone else. The result: The caterer lost a ton of money and eventually filed for bankruptcy. He sued the phone company for negligently listing the wrong number. The jury awarded him $200,000.

Even worse than losing business is to see it diverted to your competitors — the nightmare experience by a pair of Texas chiropractors. The doctors placed a Yellow Pages ad for their clinic, Chiropractic Health Center.

When the Yellow Pages arrived, the doctors were shocked to see their names printed under the listing for a competitor — Chiropractic Health Science. The ad listed the competitor’s address and phone number.

The phone company offered to drop the $570 charge for the ad and credit an additional $570 toward the next year’s listing. No way, the doctors said.

The dispute went to court. The judge threw out the case, but the docs appealed. Eventually, the Texas Court of Appeals agreed that they had a valid complaint. Faced with that court ruling, the phone company agreed to pay the pair a reported $100,000 — plus three years worth of free ads.

Other victims of Yellow Pages errors haven’t fared as well, however. When the phone company deleted the ad for a real estate business, the agent sued, alleging negligence. The jury awarded him $109,000 for past lost profits and $40,000 for future losses. But before the real estate agent could break out the champagne, the phone company appealed — and the state Supreme Court snatched away the award. The reason: One of those pesky contractor clauses that limit the phone company’s liability to the cost of the ad.

Similarly, the owners of a California plumbing business reached a dead end after the phone company left out their ad from the Sonoma County Yellow Pages. One of the plumbers told the judge that she’d signed the contract in a hurry and that the phone company sales rep didn’t point out the boiler plate clause to her before she signed. Legally, that wasn’t enough to overcome the contract wording.

One-sided Clauses: While courts in many states enforce clauses that let the phone company off the hook, courts elsewhere — notably Wisconsin, Michigan, Alabama and Indiana — refuse to do so. They see these clauses as too one-sided — “unconscionable,” in legal jargon — to be enforced. Consider, for example, the case of a lawyer whose name was omitted from the Evansville, IN, phone book.

He sued. The phone company responded that under the contract, it only had to refund what the lawyer paid for the ad. Not so, said the Indiana Court of Appeals. “The Yellow Pages is a unique and unparalleled advertising vehicle which permeates the marketplace,” the judges wrote. “There is no means available to the public at this time to obtain advertising penetration equivalent to the Yellow Pages.”

The judges emphasized that the phone company was virtually the only source of classified listing that were distributed without charge to nearly everyone.

They ruled that the phone company “can’t enjoy a virtual lock on this unique and important form of advertising derived from its monopoly status and, at the same time, enjoy exculpation from liability for its advertising errors.” After hearing the court’s ruling, the phone company eagerly settled with the lawyer.

There’s also a way you may win against a phone company in a state that usually enforces clauses limiting Yellow Pages liability: You can establish that the phone company was grossly negligent in botching your ad.

This happened in a case involving a Florida law firm named Southworth and McGill. Formerly, the firm was called Kirtz, Southworth and McGill, but the Florida Bar suspended Kirtz from practice. As a result, Kirtz was no longer a member of the firm. The remaining partners went to great lengths to distance themselves from him.

They carefully put the firm’s new name in their Yellow Pages contract. Somehow, however, the phone company got it wrong and put the old name in the directory. Of course, the partners quickly notified the phone company of the error.

But, guess what? The following year the phone company repeated the mistake. Frustrated, the lawyers sued. The phone company claimed that under the contract, it only owed the firm what it paid for the ad — $645.60.

The court ruled that was true for the first directory. But when the phone company made the same mistake the next year, it was grossly negligent. The firm was entitled to full compensation for the damage it suffered from the second year’s directory.

You can see some businesses do get compensated for Yellow Pages errors — even though others don’t.

Here are a few tips for dealing with potential programs:

• To reduce the changes of a Yellow Pages error, read your Yellow Pages contract carefully to make sure it accurately lists all your ads. Then insist on seeing a “proof” of your ad before the phone book goes to press.
• If the phone company does err, do your best to reduce your losses — perhaps by sending fliers to existing or potential customers. Legally, you can’t sit back and let losses pile up.
• Also, send a letter by certified mail to your sales rep to report any error or omission. The phone company should be willing to at least refund all that you’ve paid for the ad. Whether you can get more will depend largely on the law in your state. You’ll probably need a lawyer to research this point.

If you have a reasonable legal position, you may be able to negotiate a fair settlement with the phone company — a better solution than starting a lawsuit. Another alternative is to see if the phone company will agree to binding arbitration.