Regardless of whether a company acts prudently and responsibly in negotiating a transaction and regardless of whether a deal gets signed and closes or not, a company particularly a public company can still find itself involved in litigation that can be very expensive and time-consuming. Below are ten best practices from a litigator's perspective that may help reduce the risk of litigation and/or a company's potential exposure if an unhappy shareholder or potential merger partner files suit.
1. Think Before You Type.
Emails are now the most prominent form of communication between both parties negotiating a deal and colleagues discussing a deal internally. These emails are regularly contain real-time thoughts and impressions that often become key exhibits if a lawsuit concerning the deal is filed. In fact, in business disputes, emails now make up a large percentage of the key documents in the case, and the emails of key company executives are often the first documents requested in discovery. Counsel should remind clients negotiating and analyzing a deal that every email and other written statement could become the subject of a document production in litigation.
2. Think Before You Speak.
Like emails and other written communications, oral statements may become the subject of discovery in subsequent litigation and can have a significant impact. Clients often speak in informal language that may give rise to compelling sound bites if a deal falls through. Such statements often may be misconstrued and create a "he said/she said" fact issue that makes it difficult to prevail on a dispositive motion. Counsel should remind clients of this risk.
3. Avoid Overly Emotional Language.
Clients should make written communications as concise and precise as possible, and they should avoid the use of vague and overly emotional words or phrases, sarcasm or hyperbole.
4. Understand Attorney-Client Privilege.
The scope of the attorney-client privilege is not nearly as broad as most clients think. For this reason, clients should be reminded that merely copying an attorney on a communication does not make the communication privileged. Rather, it is only when a client is communicating with an attorney for the purpose of seeking or receiving legal advice that the privilege is likely to apply.
5. Be Aware of Waiver of Attorney-Client Privilege.
Moreover, all too often, clients face a possible waiver of attorney-client privilege because the client forwarded otherwise privileged information to an outside third-party, such as the other party to the transaction, that party's counsel or a financial advisor. Counsel should remind clients that forwarding privileged communications to the intended deal partner or that partner's counsel likely waives the privilege for that communication and quite possibly the entire subject matter of that communication. Clients should be reminded that they most likely do not have a relationship that gives rise to an attorney-client privilege until the deal is closed.
6. Have Counsel Engage Consultants When Appropriate.
To the surprise of many executives, communications with financial and other advisors likely are not protected from disclosure in the course of discovery. If a client does intend to engage consultants to assist the client's lawyers in providing legal advice related to the transaction, that consultant should be engaged by the company's legal department or outside counsel and the scope of their engagement should be clearly defined. Even then, the work of such a consultant may not be protected from disclosure.
7. Copy Counsel When Appropriate.
At times, courts require companies to produce emails or other communications between business people that contain privileged information because they cannot meet their burden of showing that the communication was, in fact, privileged. If the communication involves the contract terms being negotiated or involves advice from or discussions with legal counsel, counsel should be copied on the communication.
8. Don't Underestimate the Significance of Litigation-Related Provisions.
While a company's ability to negotiate contract terms will depend on their leverage, they should keep in mind the significance of a choice of forum, choice of law or waiver of jury trial provision if litigation is filed. A plaintiff's ability to get a jury trial can potentially give that plaintiff additional leverage in the litigation or at least dramatically alter his or her expectations for the case.
9. Engage Litigation Counsel as Soon as Litigation is Anticipated.
As soon as litigation is anticipated, litigation counsel can provide helpful advice about document and privilege issues and can help formulate strategies for trying to avoid or prepare for litigation.
10. Regularly Assess the Company's Insurance Coverage.
The risk of litigation exists in most transactions regardless of the company's actions. Given the costs and legal fees associated with litigation of this sort (i.e., motion practice, lengthy discovery and a possible trial), clients should periodically review and assess the adequacy of entity and director and officer liability coverage. This is especially important if the client reasonably anticipates future transactions that might give rise to litigation.
Conclusion
Given the considerable risk of litigation attendant any merger transaction, employing these cautionary practices from the earliest beginnings of a deal will benefit a client if litigation is filed. As the saying goes, "the best offense is a good defense."
The information in this Top Ten should not be construed as legal advice or legal opinion on specific facts and should not be considered representative of the views of its authors, its sponsors, and/or the ACC. This Top Ten is not intended as a definitive statement on the subject addressed. Rather, it is intended to serve as a tool providing practical advice and references for the busy in-house practitioner and other readers.
