Going to court should never be taken
lightly. Even if a company wins its
case, litigation may still take a significant financial and equitable toll on a
company.
“Litigation has become an unfortunate
reality for modern businesses,” says John
Mark Jennings, a partner with Shulman
Hodges & Bastian LLP. “If a company is
contemplating litigation, it needs to have
the right attorney, the right culture, the
right people and the right financial
resources to pull it off. Preparing for litigation beforehand can make a big difference
in the case and goes a long way toward
keeping the company focused during the
fight.”
Litigation is particularly difficult for companies that find themselves embroiled in
legal proceedings for the first time.
“In every case, you have to protect and
brace your company for what is to come,”
he says.
Smart Business talked to Jennings about
how a company can prepare for litigation.
How can an executive manage expectations
before entering into litigation?
Executives must consider and plan for
the worst-case scenario before deciding if
litigation is prudent. Many executives feel a
moral imperative to seek justice against
someone or something that has damaged
their company. But just because your company is right, does not mean that litigation
is right for your company.
Litigation takes commitment by key personnel to actively participate in the
process. The toll litigation has on corporate officers and administrators is often
significant. It is often very surprising to
executives that their companies are scrutinized thoroughly as the parties in the case
strive to find documents and analyze financial data. An executive may wish to consider if the company can withstand the
bright light that litigation often sheds on
the company’s inner workings.
If a company is about to embark on litigation, it has to be prepared to revisit the
past. Looking backward is something at
which many executives are admittedly not very good. The company officers will need
to prepare themselves for this intellectual
paradigm shift [i.e., thinking about things
that they are not accustomed to thinking
about] and be intellectually, emotionally
and financially prepared for the impact
that litigation will have on the company.
Another point is that CEOs — who are
generally not accustomed to being told
what to do — have to let the lawyers do
their job. Executives should ask their attorneys all the questions they need to ensure
the corporation is in good hands, but
should also feel comfortable letting them
handle the case. This will help lessen the
burden on the company’s executives.
Why is a litigation budget good for business?
It is important for executives to have a
general understanding of what litigation
will cost — which means you have to know
the whole process and what financial
impact it will have on the company.
There are essentially two types of litigation budgets — those that are specific to a
particular piece of litigation and those that
are used to plan for future litigation needs.
If a company is proposing or anticipating
litigation, one of its principals needs to sit
down with the company’s attorneys to discuss the potential litigation costs and to
develop a budget based upon how the
attorney expects the case to proceed. That
way, the executive will be better able to
justify litigation expenses to the board of
directors.
Also, internal litigation budgets may be
necessary for companies that compete in
particularly litigious industries. Companies
that engage in aggressive intellectual property pursuits or other core products are
also good candidates to establish a litigation budget.
Some companies have the added benefit
of an in-house attorney to assist with the
coordinating and overseeing the efforts of
outside counsel. Companies that do not
have that luxury are forced to rely on their
counsel to provide monthly financial and
progress reports on the case. That reporting should also include the anticipated fees
and costs in the next reporting period.
If a company has used the same attorney for
years, should it consider looking elsewhere
when litigation arises?
Chief executives are naturally loyal people. Because of that otherwise admirable
quality, they tend to turn to the same attorneys regardless of the nature of the particular issue facing the company. That practice can sometimes be harmful when litigation arises. This is particularly true for
small companies. Labor law, business litigation and intellectual property disputes
are wildly different fields and should be
handled by attorneys who routinely handle
those types of claims. It is critical for an
executive to ensure that his or her go-to
lawyer is up to the particular challenge at
hand.
It is prudent for executives to use their
go-to attorney as a filter for selecting litigation counsel for a particular case. If the
future of your company is riding on the outcome of litigation, the selection of which
attorney to use may be the single most
important decision made in the case.
JOHN MARK JENNINGS is a partner with Shulman Hodges &
Bastian LLP. Reach him at [email protected] or (949) 340-3400.
