Be Smart In Your Litigation DefenseGordon Coffee
June 5, 2008 — 1,241 views
WE'RE BEING SUED. Sooner or later, every corporate counsel has to announce that news to management. What follows, typically, is a well-rehearsed drill: In-house counsel reviews the complaint, talks to the employees who dealt with the plaintiff, and gathers key documents. Armed with this information, counsel taps an outside law firm to defend the suit, sends the background information to the firm, and discusses a defense strategy and an overall budget.
The case then proceeds along a well-trod path. There are claims and counterclaims and motions. Each side gathers and exchanges documents and interrogatories. Disputes arise over privilege assertions and the scope of document requests. Witnesses are prepared and deposed. Experts are selected. A trial date is set. The case settles or, occasionally, goes to trial.
All too often, neither the process nor the ending is entirely satisfying for the company. In the aftermath, many companies are left shaking their heads and asking: “Could we have done better?” The answer frequently is yes. Often decisions and choices are made that seem innocuous at the time but which ultimately hamper the defense, leading to increased settlements, adverse verdicts, and unhappy employees.
More productive than chronicling past mistakes is providing recommendations for avoiding them. Here are a few ways a company can sidestep some of the more common pitfalls in complex litigation.
1. Gather all documents relevant to the suit at the outset
Many executives and attorneys do not fully appreciate how significant a factor internal documents are in a civil case. While live testimony may make more of an impression on judges and juries, documents especially e-mails shape that testimony. Even the most polished witness can stumble in trying to explain away bad documents or less-than-flattering e-mails. Conversely, contemporaneous, corroborative documents can make the most inept witness appear credible. A company accordingly needs to pull, organize, and review all relevant documents and e-mail traffic at the outset of the case. Armed with the results of that analysis, corporate counsel can make an informed judgment about the seriousness of the case and how best to defend it.
The temptation to avoid this process is great. Gathering, organizing, and analyzing documents and electronic data is time-consuming and expensive. Not surprisingly, defense counsel commonly choose not to begin the process until their litigation opponent serves a set of document requests. The document requests are then circulated to company employees, who are charged with finding responsive documents. This path is appealing because the document requests define what needs to be pulled and why. It also provides cover for counsel -- the employees perceive that the litigation opponent, not counsel, is causing the intrusion on their time and the need to rummage through their files.
The problem with this approach is that it may be too little, too late. The company may have staked out a legal position that turns out to be ill-advised once certain documents are unearthed. Equally troublesome, documents may get lost or destroyed between the filing of the suit and the time company employees are asked to turn over their files in response to a document request. When that happens, judges and juries are rarely sympathetic, no matter what the explanation.
Waiting to pull and analyze the files may also cost the company a chance to settle cheaply. In every case, the company's files contain bad documents (or, more typically, bad e-mails). In some cases, the documents are toxic. Too often, companies blindly turn over the toxic documents and only fully appreciate them when they are used with devastating effect at the deposition of a company employee. By that point, the cost of settlement has escalated. Knowing about the presence of damning documents at the outset gives the company the chance to settle on reasonable terms before its opponent asks for those documents in discovery.
Conversely, failing to know about helpful documents in its own files may cause the company to pay too much. Sometimes what appears to be improper conduct by the company looks much less sinister in light of an explanatory note or e-mail. In short, a company cannot effectively craft a litigation strategy and settlement posture without having uncovered all relevant documents.
2. Schedule your interviews after you have gathered all your documents
A corollary mistake companies often make is to undertake interviews of witnesses and to begin taking depositions before collecting and analyzing all documents. For some reason, many attorneys seem to put more stock in the imperfect and usually selfinterested memories of company employees rather than in the contemporaneous document trail. Frequently, defense counsel will conduct initial interviews without any documents, develop a legal strategy based on those interviews, and then have to start from scratch after learning that the stories given in the interviews do not match the documentary record. This is not only inefficient, it is a recipe for disaster.
While it makes some sense to talk initially to a few employees to get a rough understanding of what happened, it makes no sense to conduct wide-ranging interviews without a complete set of documents. Few witnesses have perfect recall; most need the benefit of documents to refresh their recollection. Moreover, only with documents in hand can counsel truly test the credibility of their witnesses and evaluate how effective they will be at deposition and trial. Conducting interviews without documents invariably leads to multiple rounds of interviews, resulting in wasted time, frustrated employees, and added costs.
3. Involve corporate management in discovery
Many in-house and outside counsel believe they need to insulate corporate management from the hassle of litigation. As a result, counsel are reluctant to insist that executives assist in some fashion in searching files for relevant documents. The task is delegated to secretaries, paralegals, or the legal department with no input from the executive. The consequence is predictable. Invariably, documents both good and bad turn up late or not at all, with attendant damage to the executive's credibility and the company's defense.
Even worse is when counsel try to “protect” management by limiting the time spent in preparing for a deposition. In order to spare the executive the burden of reviewing and discussing documents, the executive is allowed to testify based solely on his or her present memory, or lack thereof, of the events at issue. The result is a deposition transcript replete with variations on a theme: “I don't know,” “I don't recall,” and “I am not sure.” Some litigators profess that this is not a problem. In their view, the executive can “get up to speed” if the matter actually goes to trial, but there is no point in wasting the executive's time in the meantime.
That logic is faulty. Should the matter proceed to trial, the executive is worthless as a witness. In today's environment, juries are going to view most corporate executives with a high degree of skepticism. An executive who denies knowledge or recollection of the relevant events or documents at deposition but then miraculously recovers his or her memory by the time of trial will have little credibility with a jury.
Keeping the executive off the witness stand at trial does not necessarily solve the problem. Because the executive's deposition testimony constitutes a party admission, it is admissible at trial. The executive's denials of knowledge frequently will become sound bites at the trial, particularly in cases in which one of the plaintiff's themes is management's indifference to, or conscious disregard of, problems inside the company.
Even if the case does not go to trial, the executive's deposition testimony still will be a negative factor, most notably in settlement negotiations. Bargaining positions are based in part on each side's evaluation of the strength of their witnesses versus their opponent's. Seasoned plaintiffs' counsel will understand the value to their case of possessing the transcript of an executive who has selective memory or amnesia. Moreover, plaintiffs' counsel may well interpret the unwillingness of company executives to take the time to prepare for deposition as a sign that the company lacks the determination to take the case to trial.
4. Avoid taking unproductive or counterproductive depositions
In the majority of civil cases, the most expensive part of litigation is the effort and cost attendant to preparing for and taking depositions. In a large case, each side may take scores of depositions of fact witnesses, resulting in thousands of pages of transcripts, hundreds of exhibits, and hour after hour of videotape. Too often, however, corporate and outside counsel fail to ask themselves whether all of those depositions are necessary or whether they are being conducted efficiently.
Conventional wisdom calls for defense counsel to take the deposition of every third-party witness. The standard justification is the perceived need to learn good facts before trial and to avoid being surprised by bad facts at trial. Yet by taking a deposition, the company often is diluting the impact of the positive testimony and guaranteeing the perpetuation of the negative testimony it wants to avoid.
A defendant company can usually count on the favorable testimony of some third-party witnesses. Many defense counsel insist on deposing all favorable witnesses in order to “lock in” their testimony. This approach is too inflexible. Some favorable witnesses must be deposed because they reside outside the subpoena power of the court and are not willing to appear voluntarily for trial. On the other hand, other favorable witnesses are within the subpoena power of the court or have agreed to appear voluntarily. There is little benefit to deposing them. Indeed, by deposing those witnesses, the company gives the plaintiff an advance preview of the testimony and thus more of an opportunity to minimize or refute it. In addition, forcing an otherwise friendly witness both to undergo a deposition and to appear at trial needlessly antagonizes the witness.
It also makes little sense for the company to depose all hostile witnesses in the name of avoiding surprises at trial. If a witness hostile to the company is outside the court's subpoena power or is reluctant to appear at trial, the plaintiff typically will depose the witness. That the plaintiff chooses not to depose a seemingly friendly witness does not mean, however, that the defendant company should subpoena the witness for a deposition. In many cases, the plaintiff may not be aware the witness is hostile to the company or may view the witness as a mixed bag. By plowing ahead with a deposition, the company may memorialize bad testimony that otherwise would never be heard by a judge or jury. A company should depose only those hostile third-party witnesses it expects will appear at trial.
A related problem is that many depositions are not taken efficiently. Just as Hollywood follows time-tested formulas for its movies, many litigators follow a timehonored script: Ask the witness background questions (e.g., where they live, where they went to school, where they have worked) and then slowly explore what they know about the relevant events. Defense counsel then gets to the key issues in the case two or three hours into the deposition. In the meantime, all tangents are explored, resulting in a very unstructured transcript.
Having the meat of the deposition on page 170 of the transcript may work fine if the witness appears at trial, but it does not result in a usable transcript or videotape if the witness does not testify at trial. Some may disagree, claiming that if the witness does not appear at trial, the company can choose to designate those portions of the transcript and videotape helpful to its case and leave out the rest. This view ignores the right of the plaintiff to cross-designate. Smart plaintiffs' counsel will cross-designate most of the remainder of the transcript and videotape in order to dilute the effect of the testimony favorable to the company. This tactic usually works. Juries often remember little, if any, of the helpful testimony if they are asleep after hearing two hours of boring background information. Similarly, a devastating cross-examination by defense counsel may lose its impact if it is preceded by two hours of meandering.
The solution to this problem is simple. If there is a good chance that the witness may not appear at trial, defense counsel should keep his or her direct examination or cross-examination short and to the point. The more the company approaches the deposition as a substitute for live testimony at trial, the more effective the testimony will be.
5. Be open to settlement discussions
To help manage their dockets, judges are fond of encouraging parties to explore settlement early and often in the case. Many defense counsel, preferring to conclude the discovery process before engaging in settlement discussions, resist this encouragement. The stated rationale is that defense counsel cannot properly put a settlement value on a case until the end of discovery. Others believe they are conveying weakness to the other side by initiating settlement negotiations. Putting aside the dubious accuracy of those claims, other reasons justify asking a plaintiff upfront to state his settlement demand.
In the situation where toxic documents are contaminating the company's defense, the company has every incentive to settle before the other side gets custody of the documents. Asking the plaintiff for a demand would not tip the other side off to the existence of the documents; it is not an unusual request. The company might be surprised to find that the plaintiff's demand is one it can tolerate.
Even if settlement negotiations go nowhere, having explored settlement almost always has internal benefits. Lower-level employees usually grumble less about the burden imposed by the litigation if they know settlement has been explored. Indeed, they often are more motivated to cooperate after hearing of the plaintiff's settlement demands, particularly if those demands are extreme.
6. Use technology
In-house counsel typically pride themselves on their management of outside counsel. They have defined budgets, reporting requirements, e-mail protocols, and electronic billing. For some reason, however, many companies get cheap when it comes to litigation technology tools. The net result invariably is more cost to the company.
Perhaps to the astonishment of Westlaw and Lexis representatives, some companies resist paying for any electronic research. The ostensible logic is that electronic research is a mere convenience to outside counsel rather than a time-saving device. Any experienced law firm associate will tell you the opposite is true. While unfocused searches can rack up a significant Westlaw or Lexis bill, the ability to search multiple electronic databases helps ensure that the most applicable and useful precedent will be found in the shortest time. Since the hourly rates of most outside counsel far exceed the costs of searching the Westlaw and Lexis databases, companies save money in the long run when outside counsel use those tools.
An even more common example of companies taking too short of a view of technology involves having documents scanned and put through an optical character recognition (OCR) program. The end product of this process is a set of electronic files than can be searched by specific words or combinations of words. By using OCR, the company can immediately locate all documents relevant to certain individuals or topics as and when they become an issue in the litigation. In a case with heavy documentation, the time savings are enormous. While scanning all documents and putting them through an OCR program is not cheap, the cost of this service continues to decrease, and the quality is improving.
7. Select expert witnesses based on their experience and jury appeal, not their academic credentials
While companies typically select outside defense counsel with great care, weighing relevant experience and communications skills, they often select their expert witnesses more casually. Sometimes the companies play no role in selecting or screening potential experts, leaving that task to outside counsel. Outside counsel in turn often make no effort even to meet with the experts, relying instead on a review of resumes and telephone interviews.
Companies and their defense counsel further regularly choose experts based on academic credentials rather than experience and communications skills. Studies have shown, however, that jurors are more impressed by an expert's real-life experience and ability to explain complex issues in simple terms rather than by the expert's academic achievements.
It is also critical to review the expert's background and prior testimony. That means not only avoiding experts whose livelihood depends on offering expert opinions in court, but also determining whether the expert has offered opinions on the same issues the company is confronting in the lawsuit. If the expert has offered such opinions, they must be reviewed. Having it emerge at trial that the company's expert gave a diametrically different opinion in an earlier case not only destroys the credibility of the expert, it can undermine the defense of the company's case.
More favorable prospects
No one can prepare a comprehensive roadmap for defending complex litigation. There are, however, some guideposts to follow. Starting with this short list can help a company avoid potentially large mistakes, avoid extra costs, and maximize the prospects of a more favorable outcome.
Winston & Strawn