If you live in a hurricane zone, you prepare your home for a potential storm. Why then as general counsel of a small or mid-sized company have you not prepared for major, bet-the-company litigation? Navigating the long slog and emotional toll of big litigation can be overwhelming for the unprepared leadership teams of small to mid-size companies.
If you're an in-house lawyer you may work alone or as part of a small busy legal team. With a likely background in corporate law, your exposure to litigation is limited. So what can your company do now to prepare for that lawsuit, giving yourself and your company some peace of mind? Start by following these Top Ten Tips on how to prepare for, and weather, big litigation.
1. Get Your Documents In Order
Long before a suit is filed, you should design and implement a document retention and destruction program. It's easy to procrastinate on a project like this, but document retention has major implications for discovery costs, and striking the right balance between retention and destruction can vary based on circumstances.
You'll also need a litigation hold policy with executive buy-in. There are potential discovery risks or penalties if a hold is not timely or appropriately implemented, and this involves cross-functional commitment and resources, especially from the IT Department.
Litigation should be incorporated into your company's crisis management plan, which you (for reasons far broader than this article) should create if you don't have one already. These kinds of plans often overlook litigation, but you should designate a point person, team, and a process for litigation.
Finally, review and understand your insurance portfolio. Confirm you have adequate coverage, and that the terms of your policies actually cover you, for all realistic litigation risks. Third-party independent risk management audit/consulting firms are available to review your insurance portfolio.
2. Educate Yourself
Learn the basics of the litigation process. Beyond the Civil Procedure class you took in law school or the evidentiary puzzles you may have theorized about in a law review article, you need to understand the practical side of the process. Learn about local judges, the typical discovery schedules in your courts, and the length of time usually allotted for fact and expert discovery, settlement conferences and trial. Familiarize yourself with key terms, such as motion to dismiss, summary judgment, and the legal standards of proof involved with each. Management will have many questions for you when a lawsuit is filed. You'll need to be conversant in the language of litigation.
3. Educate Management
Next, it's never too early to start educating management on the litigation process including the oft-misunderstood attorney-client privilege and the attorney work product doctrine. These protections are easily waived if their requirements are not observed diligently. Labeling appropriate electronic communications as privileged can help.
Explain to management what information should be put in writing, when, and to whom it should be communicated. Be sure those lessons are ingrained in company culture. Assume everything will be discovered and that all electronic documents will be recovered.
Certain communications with third parties can destroy a privilege, so management needs to understand how to communicate with key partners, such as banks and vendors.
Above all, make sure management and employees understand the time and commitment expectations that will be imposed on them.
4. Develop A Communications Plan
The company needs to speak with one voice. External communications concerning litigation can create problems, especially in the early hours and days of a lawsuit, so you'll want to designate a point of contact for public inquiries well in advance. In addition, you'll need to be prepared to communicate effectively with internal constituencies.
5. Select The Right Attorney
Once a lawsuit is filed, an immediate priority is to select the right attorney and fee structure for the litigation. Consider the subject matter of the case, and be sure to look beyond your standard stable of corporate attorneys and firms for an experienced litigator. Key considerations include industry and jurisdictional experience, past results, and subject matter expertise. Explore alternative fee structures that might help to control costs.
6. Implement Your Plan
Don't panic when you're served. Try to be deliberate in executing your litigation, crisis management, and communications plans. Deploy the litigation hold. Invoke your insurance coverage as applicable. Reiterate rules on attorney-client privilege, and remind employees and management alike of best practices for written communications, especially as it relates to the subject of the litigation.
Discuss and refine your strategy with your management team if necessary. Continue to cultivate management's commitment to the strategy. Your ultimate goal should be to ensure, as much as possible, that the end result of the litigation furthers your business objectives.
7. Deal With Management's Issues and Keep the Company Running
Inevitably, litigation diverts management's time and focus away from running the company. Try to set time and commitment expectations for the lawsuit with management, and balance their need to execute their day job with their need to assist in managing the litigation. Having prepared the executive team pre-litigation will help when the actual litigation ensues.
Consider whether anyone else, like lenders or vendors, needs to be notified of the litigation. Keep the board and other key stakeholders in the loop by incorporating periodic litigation updates into regular board meetings. Consider having external counsel participate in some meetings. Frame the litigation as being on par with a large transaction and requiring a similar commitment.
Depending on your fee arrangement, develop a litigation budget and adapt it as necessary. Management will care about the budget and needs to understand that actual spending will vary due to factors both under and beyond your control and that it may take time to accurately shape a forecast.
Crucially, you should anticipate how competitors might exploit the litigation. Your sales and marketing team will need tools to combat customers' fear, uncertainty and doubt. While mindful of the limits of your communications, you'll need to reassure the marketplace. As much as possible, try to frankly address the concerns of customers, vendors, and suppliers, and to cultivate the support of such key stakeholders to spread your public message.
8. Anticipate Collateral Consequences
Litigation can sometimes lead to ancillary governmental investigations, shareholder litigation, or other time-consuming proceedings.
Consider the possibility of governmental inquiries that may result from the litigation or its resolution/settlement. Think of this every time a litigation decision is made. This means considering potential repercussions with regulators from a settlement or adverse outcome.
9. Enforce Rationality
Coach management to view litigation decision points as business decisions. Try to remove emotion from decision-making and apply cost-benefit analysis to key decision points.
Be prepared to play pop psychologist, as management (especially company founders), may be inclined to take litigation personally. Accept management's need to vent occasionally. Try to keep it privileged, and don't let it hamper management's ability to run the business.
Difficult conversations are important, but help management resist the urge to strike back through counterclaims, smear campaigns, or leveraging "dirt." This rarely plays out well. It may be cathartic, but it often expands or complicates litigation and reduces the likelihood of constructive resolution.
Keep your own highs and lows in check. Motions and briefs read in isolation distort your perspective. You can expect the other side to engage in hyperbole and aggressive claims or tactics. Things are never as good or as bad as they seem, so don't be overly confident or pessimistic.
10. Understand No One May Be Happy Regardless Of Outcome
Remember, litigation isn't necessarily about right and wrong, and rarely does it generate a clear-cut winner and loser. As a result, it's important to maintain a team approach even after the litigation is over. Understand that no one may be happy, regardless of the outcome. Unlike a corporate transaction where everyone (hopefully) wins, in litigation, even the winners lose something, whether it's time, attorneys' fees and court costs, opportunity costs, or negative PR. Beware of the potential for after-the-fact internal finger-pointing, and work to maintain management buy-in so that everyone is prepared to own the outcome and continue to build a strong business.