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When Things are About to Hit the Fan, Make Sure to Point it Away from Your Face—Tips for Positioning Your Company for Imminent Complex Litigation

Authors: Chad Colton, Shareholder, Markowitz Herbold

Sometimes you can just feel the lawsuit coming.  For example, let’s say that your company has been working on a massive project with a new customer.  Things started out well enough.  But lately, the customer has been complaining.  Your CEO is furious.  And suddenly, your client service team has been getting radio silence.  Nobody has made a demand or filed a lawsuit yet, but you can feel it—things are about to hit the fan.Those moments before the lawsuit strikes are crucial.  How you position the company in those final moments can make a huge difference in the ultimate outcome of the case.  Below are a few tips on how to do that. 

A.        Get the executive team under control.

Whoever said business litigation is “just about money” had no idea what they were talking about.  In a business dispute, it’s never just about money.  Reputations are at stake.  Egos bristle.  And emotions run high.

Most of the things we regret saying in life happen when we’re angry.  That truism is amplified in litigation.  For example, that email that your CFO sent to the office manager to blow off steam?  It’s going to look awfully bad projected on a screen at trial.  Teach your team the following proverb:

Dance like nobody is watching.

Email like it will be read in a deposition.

– Olivia Nuzzi, The Daily Beast

When litigation is on the horizon, give your team an opportunity to vent their frustrations and tell their side of the story—and do it within the confines of the attorney client privilege.  Call a meeting with those who are involved in the dispute.  Don’t just ask them what happened; ask them what they are feeling and thinking about the situation.  Make sure they feel heard.  Then counsel them, extensively and forcefully, about the need to keep their emotions under control when communicating with the potential opponent and with each other when discussing issues that might be relevant to litigation.  Counsel them not to put anything in writing unless it is necessary, and to have as few non-privileged conversations as they can.  This simple step will help avoid another “bad document” that the company has to explain away once the litigation begins. 

B.        Call in the trial lawyers. 

One of my early mentors used to tell me that in litigation, “You don’t write the music, you just play the piano.”  No matter how talented the proverbial pianist may be, they’ve all watched a client sit through cross-examination about an unsavory—and perhaps wholly unnecessary—document and thought, “I wish I had some better music.” 

When litigation is imminent, give the trial lawyers a chance to help you compose some of the music.  Good trial lawyers see the world differently—through a protective, evidentiary lens.  A few words in an email or agreement that seem innocuous to the executives or transactional lawyers might jump out to the trial lawyer as fertile ground for a line of cross-examination.  Bring the litigators in early and ask them to help shape some of the facts that end up in the court record.

C.        Set up a contemporaneous record of your good deeds.

A few years ago, a client of mine partnered up with another company on a contract to plan a massive tournament for a professional sports league.  My client and its partner eventually developed creative differences on the project and were unable to complete their work on schedule, placing them in danger of breaching their contract with the league.  A multimillion dollar lawsuit looked imminent, and would undoubtedly result in my client and its partner pointing fingers at one another for the breach.  This was a crucial time for my client’s legal team to not only try to resolve the dispute, but to stake out the company’s litigation position in case things couldn’t be worked out. 

In the haze of a dustup, companies too often overlook an obvious, key tool in positioning the company for upcoming litigation:  setting a clear, written record of the company’s efforts to avoid a breach and keep the project on track.  Witness testimony about what the company did is fine and good, but adding physical evidence—in the form of contemporaneous, written exhibits—to that testimony is powerful at trial, and your opponent will know it. 

As a dispute progresses, think carefully about written communications that the legal and executive teams can send to your opponent outlining the company’s efforts to comply with its obligations, the specifics of your opponent’s failures, and instructions or invitations about how your opponent can remedy the situation.  Importantly, outlining those issues in settlement communications is not sufficient, since the communications will be excluded or dramatically limited in the litigation under Evidence Rule 408.  In addition, the company should also work to create an internal record of the precise steps that the team took to comply.   

My client used this tactic effectively in the sports league dispute outlined above.  Legal counsel and the executive team worked hard to settle the dispute between the partners.  But on the side, the legal team crafted an internal and external record of the company’s efforts to avoid a breach.  My client’s partner, on the other hand, failed to pay attention to the record we had created or to adopt our recommendations.  The partner soon realized how things would look once the case proceeded to litigation, backed off its position on the creative issues, and renegotiated an internal partnership agreement that gave my client almost total control of the project.  The partners then placed the project back on track and avoided a lawsuit from the sports league. 

D.        Start thinking about the attorney fee petition early.

Many complex business cases involve contracts with attorney fee provisions.  But what hardly anybody thinks about at the beginning of a dispute is that the victor in the case will be limited to recovering the “reasonable” attorney fees and costs incurred in the case.  And with the cost of complex litigation these days, judges often look for good reasons to slash the winner’s bill. 

One of the key issues that judges look at to determine attorney fee awards is the parties’ efforts to settle the case without having to proceed to summary judgment or trial.  Not only are the timing and frequency of the parties’ settlement efforts important to that analysis, but so is the substance of the parties’ settlement exchanges.  So if the record shows that one party was particularly obstinate during early settlement negotiations, the judge is more likely to adjust the fee award in favor of the more reasonable party. 

If litigation is imminent or in its early stages, invite your opponent to the table early to discuss the possibility of settlement—and do it in writing.  Even if settlement isn’t feasible, your well-documented efforts to resolve the case will show the judge that you tried.  You were reasonable.  You did what you could to resolve the case early and avoid wasting the court’s precious time and resources.  Give the judge a clear record that you acted like an adult, but that your opponent just didn’t reciprocate. 

E.        Never underestimate the power of having the first (and last) word.

To most companies, “litigation” is a dirty word.  That notion is perfectly understandable.  Corporate counsel may spend their entire career mitigating risk and developing plans and policies to keep the company out of court.  So when a dispute starts brewing with another company, most corporate counsel just aren’t programmed to initiate a lawsuit.

That can be a strategic mistake in a complex business dispute.  Typically, both sides have claims against each other, and the identity of the plaintiff is a mere matter of who pulled the trigger on the lawsuit.  If you strike first and take on the mantle of the plaintiff, you are in a position to control the pace, forum, and—most importantly—the message of the litigation. Your opponent will know that if the case ever proceeds to trial, you will get put your case on first.  And if the case is complex, you may have weeks or months to parade your evidence and trial themes in front of the jury before your opponent puts on a single witness.  Once the defendant is done putting on its case, you then get to put on rebuttal evidence—effectively getting both the first and the last word.  That is a powerful position to be in. 

Granted, there might be solid strategic reasons to be the defendant in the lawsuit.  But make sure that you are at least thinking about the advantages of striking first, even if it is just to get the lawsuit on file and then hold off on formal service.

When things are about to hit the fan, there are often plenty of things that you can do to position yourself away from the impending mess.  Skillful positioning of your company in advance of the lawsuit can shorten the litigation and put the company in a much better position to prevail in the end.  Proactive thinking with an eye toward how your company will look in an evidentiary record is the key, and can save you and your executive team plenty of unnecessary headaches and expense.  

Originally published in the Spring 2017 edition of the Association for Corporate Counsel Oregon Chapter newsletter.