[Editor's note: Today's guest blogger article is a follow-up on last night's Ask the No Nonsense Lawyer interview with Kathy Lang.  Special thanks goes to Ms Lang and the firm of Dickinson Wright.]

The Anticipation of Litigation:  Five Critical Steps to Manage Risks and Costs

By Kathleen A. Lang and Erin J. Stovel

Dickinson Wright PLLC

In today’s economic climate, no company can afford to waste its resources – human or financial.  However, when litigation is threatened, an initial investment of resources to preserve evidence and prepare the defense is critical.  In fact, by taking the proper steps when first notified of a potential claim or litigation, the risks of litigation can be better managed, and the overall exposure and costs spent in litigation can be limited.

 1. Investigate. Often there is notice of a potential claim or litigation long before a lawsuit is filed. Such notices can include demand letters, law enforcement/regulatory inquiries, or an event itself may suggest future claims (such as the occurrence of a personal injury while on a business property or the termination of a problematic employee). However the initial notice of a potential claim is received, it is important to first ascertain and memorialize all of the critical information that may be relevant; such as who the key players are and whether there are documents that relate to the claim. Since there can be significant time lapses between the first notice of a lawsuit and when a lawsuit is actually commenced, it is usually a good idea to interview the important people as soon as possible in order to preserve their best recollections before memories fade.

2. Preserve Evidence. Today many lawsuits do not focus on the merits of a claim, but rather discovery battles over the preservation of evidence before and during litigation. During the initial investigation, steps should be taken to locate, preserve and prepare to produce all information (if it later becomes necessary), including electronically stored information, such as e-mail and data stored on computer hard drives, networks, servers and certain backup media that is, or may be, relevant to the subject matter of the potential litigation. Although not an exhaustive list, the following steps should be considered:

 a. Suspend all protocols that relate to the routine destruction of electronic and hard copy data that may be relevant to the litigation. This includes the overwriting and recycling of archive or backup tapes routinely used for storing and retrieving information. This is typically accomplished with the circulation of a “litigation freeze order” or “litigation hold.” As a general rule, a litigation hold does not apply to inaccessible backup tapes such as those maintained solely for disaster recovery purposes. Counsel can assist you in preparing and implementing a litigation hold.

b. Notify the key players who likely possesses relevant hard copy and electronic information, and instruct them (a) not to destroy any such information, (b) to preserve indefinitely all such information, whether stored in active or archived files, including on PDAs (e.g. Palm Pilots or BlackBerrys), laptops, computer systems or networks, and (c) to place any later-created relevant information into a separate electronic file appropriately labeled.

 c. Appoint a person who will be responsible for implementing, supervising and enforcing these safeguards. Counsel should meet with the person so designated to more fully explain the scope of that person’s responsibility and the current state of the law.

 3. Assess the Risk. Assess the merits of the potential claims with counsel. A detailed assessment of claims may lead to opportunities for an early resolution of a claim before engaging in protracted litigation.

4. Ensure Litigation Prerequisites Are Exhausted. Prior to the commencement of litigation, there may exist certain prerequisites that must be exhausted (administrative remedies, contractual requirements, pre-suit notice). In highly regulated industries, for example, there may be administrative regulations barring litigation, or certain steps that a party must take prior to going to court.

 5. Comply With Orders. At the commencement of litigation or afterwards, the court may issue orders relating to the production of information. Full compliance with any such orders will be extremely important. It is also very important that you notify counsel immediately if you become aware of any potential compliance failures, regardless of their perceived severity. Fulfilling all of these obligations will reduce the likelihood that discovery and document preservation issues will unduly impact the litigation.

While no company desires to be involved with litigation, these precautionary steps can help to manage the risks and costs of litigation.  Often it is important to have counsel involved in this initial phase in order to manage the process and look for other specific measures that should be undertaken to protect the client in the event of litigation.  This initial investment of resources in these types of preparatory actions can result in savings, both in terms of the overall exposure if litigation arises and the costs of litigation.

The need for legal literacy doesn’t end with new fangled technology platforms such as Twitter.  Just because Twitter is fast and easy doesn’t mean that others won’t try to hold you accountable for what you say. 

Free speech doesn’t mean you can say whatever you want.  Just ask Mark Cuban, the Dallas Maverick’s owner, who was fined by the league for slamming an official refereeing the Maverick-Nuggets game.  That was a $25,000 boo-boo.

Unfortunately, more people are being dragged into court due to indiscrete tweets, giving rise to Twitter torts, or as I prefer to call them “tworts.”  These tweets are the latest examples of smoking gun rule #3 (choose and use your communication channel wisely).

The lesson from these emerging tworts is clear — it always pays to twink before you tweet.

We thought he knew and he definitely should have known.  He’s an investor.  It’s his job to know.  We thought the tape was damning.

Jury foreman David Murphy discussing the conviction of Frederic Bourke Jr. (the co-founder of handbag maker Dooney & Bourke Inc.) of conspiracy to violate the Foreign Corrupt Practice Act in connection with the alleged privatization of the state-owned oil company, Socar, in Azerbaijan as reported through Law.com.

The tape the jury foreman was referring to was a taped phone conversation between Bourke, another investor in the venture, and their lawyer.  The conversation centered on how to structure the deal and the subject of bribery came up.  Bourke’s defense contended that he was merely asking questions about it as part of the due diligence – to verifying the legitimacy of the deal. 

Some of the jurors interpreted it as Bourke knowing about the bribes from the beginning and participating in the creation of dummy companies in an effort to shield himself and the other investors from liability.

The case is expected to be appealed.  But regardless of the outcome, a few lessons are clear:

• Alleged violations of the Foreign Corrupt Practices Act are serious business, and under the new administration more serious than ever.
• Due diligence and legal literacy go hand in hand. Jurors expect investors and managers to be informed. It’s their job.
• What turns a business communication, such as a tape recording, into a smoking gun document is multiple interpretations. It therefore pays to follow smoking gun rule #7 and strive for clarity and accuracy.

Navigating cultural differences is one of the biggest challenges of doing business abroad, particularly since they mask latent legal issues.  If you’ve ever wondered about how to avoid such pitfalls with respect to doing business in greater China, please click here to learn more about my complimentary teleseminar next week with Nicholas V. Chen, a partner with the Pamir Law Group.

©Corporate M.O., LLC 2009

The case has been around for almost a decade.  Jasmine Networks claims that rival Marvell Semiconductor stole its trade secrets and engaged in an unfair trade practice by hiring away Jasmine’s engineering group.

Sounds like a classic lawsuit except that part of what has kept this case alive for so long involves a phone call made by Marvell’s then general counsel, Matthew Gloss, to Jasmine’s in house counsel, Virginia Wei.  Ms. Wei was not available to pick up the phone so it rolled over to her voice mail.  Gloss thought he ended the phone call to Wei, but Wei’s phone must have been pumped up with Duracell batteries because the recording device kept going and going and going.    

The conversation it captured on tape wasn’t pretty.  Sitting with Gloss at the time were Marvell’s patent counsel and their VP of engineering.   The three of them “openly discussed theft of Jasmine’s trade secrets and the unlawful hiring of [Jasmine's] engineering group, as well as the potential consequence of jail for [this] conduct.”  Can you imagine the look on Ms Wei’s face when she heard that?

It just goes to show you that you can never be too careful about checking your surroundings to make sure your confidential conversations stay “confidential.”  (See How to Avoid Smoking Guns Rule #4.)

In the years that followed Marvell has been unsuccessful in suppressing the incriminating voice mail from evidence and is now claiming the tape was edited.  How embarrassing is that?

Sounds like its too late for an apology now, but I can’t help wonder whether it would have made a difference before the fur started flying. 

If you’re interested in learning about what makes one apology better than another you won’t want to miss my interview next week with best selling business author John Kador when we discuss his new book Effective Apology: Mending Fences, Building Bridges, and Restoring Trust (Bk Business).  Click here for more information about this free teleseminar.