Business litigation is an expensive process. Indeed, it is now common for parties to spend years producing documents, attending depositions and arguing motions, all of which happens before reaching a trial. As a result, experienced executives and in-house counsel often want to know how they can promptly settle a dispute on favorable terms.
Smart Business spoke with Richard L. Miller II, a partner at Novack and Macey LLP, about settling a lawsuit on the best terms possible.
What is the secret to settling a case?
In a word, information. In order to settle a complicated case, it’s important for an executive to know four things. First, he or she needs to know the facts. What do the key documents say and what will the players actually testify to? Parties are commonly surprised by such things as: a third party’s recollection of what happened; a damaging email that they did not know existed; or the meaning of an overlooked contract provision.
Second, it’s critical to know the law. The law will tell you what claims, counterclaims and/or defenses you have. But there are two sides to the majority of business disputes that make it to a courthouse. In order to make sound settlement decisions, you will need straight advice from a seasoned litigator about the likelihood of prevailing on each claim or defense.
Third, it’s vital to understand the motivation of the other side. Many times, people think that business litigation is purely about dollars. This is usually not the case. For instance, is the opposing entity in dire financial straits such that it simply cannot pay the amount? Or, does the opposing party fear having its conduct or practices publicized in the course of litigation? All too often, parties incorrectly assume that they know what is driving the opposition’s decisions.
Fourth, have a clear and realistic sense of your tolerance for risk and uncertainty. It commonly takes two to four years from the time a case is filed until a jury renders a verdict. After that, the loser may appeal. The appeal could result in a second trial or yet another appeal to a higher court. This process can be a roller-coaster ride — particularly if a judge makes a bad ruling, new evidence is discovered or key witnesses become unavailable.
What are a few common mistakes you see when parties are trying to settle?
One common mistake is rushing the process. It’s natural for busy executives to desire a fast resolution. However, at the same time, most decision-makers are loath to take a ‘first offer.’ Consequently, several counteroffers are often necessary. This back-and-forth usually takes at least a few days and, more likely, a few weeks. If your opposition senses that you need a quick settlement, it will attempt to use that information to its advantage.
Another mistake is overreaching. At the outset of a dispute, less experienced negotiators sometimes make an outrageous demand. This can stiffen the resolve of the recipient. Then, the overreaching party finds it difficult to make a reasonable offer without losing all credibility. Consequently, the parties proceed with litigation. This problem can be avoided by making demands and offers within the realm of reason.
A third mistake that’s frequently made is not understanding damages. In order to obtain a monetary award, you must have a legal theory that entitles you to relief. For example, if a former employee steals a customer list, you probably will not be able to obtain a money judgment if you cannot prove that the employee used the list, or shared the list, in a way that caused you to actually lose a sale or customer.
Are settlement conferences with judges effective?
It depends. If the parties and their attorneys are reasonable and experienced, a judge rarely tells them something that they do not already know. However, this is frequently not the case. In such instances, the right judge can be of tremendous assistance.
If the plaintiff is behaving outrageously, the judge can tell that person that his or her case has serious weaknesses and that his or her settlement position should be adjusted accordingly. Likewise, if one of the attorneys is not giving his or her client good advice, a judge can offer a fresh perspective.
Because judges are impartial and imbued with authority, litigants will often accept advice or arguments from them in a way that they will not from either opposing counsel or even their own lawyer. Still, some judges excel at resolving cases, while others do not.
In order to truly add value, a judge must become familiar enough with the evidence to be able to express opinions on the parties’ legal theories and settlement positions. Merely giving a canned speech about the costs and uncertainties of litigation rarely adds value.
Are written settlement agreements worth the time and expense of preparing them?
Yes. If a case was worth litigating, it is surely worth sewing-up with a written settlement agreement. Remember, the attorney who handled your case is already familiar with your business, your adversary and your concerns. Now that he or she has that knowledge, spending a bit more to protect your rights is a sound investment. Moreover, the best person to protect you against future litigation is someone who litigates for a living — we know all of the tricks of the trade.
Richard L. Miller II is a partner with the business litigation firm Novack and Macey LLP. Reach him at (312) 419-6900.
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Litigation is not only costly but also extremely time consuming, especially when it comes to document review and evidence procurement. But in recent years, technological tools have enabled e-discovery to speed up the process and reduce expenses.
“When it comes to litigation, studies indicate that 60 to 90 percent of the cost is discovery,” says Lael Andara, a partner at Ropers Majeski Kohn and Bentley PC. “The person who understands the tools and adopts the technology can try the case for significantly less, and can get to the key information and be in a better position to resolve the dispute sooner.”
Smart Business spoke with Andara about using e-discovery tools and when they are an appropriate method to reduce the time and cost of a lawsuit.
What is e-discovery?
E-discovery is the same as discovery, with the recognition that business data is digital. Business data is 99.9 percent computer generated and therefore, so is all potential evidence.
In the past 10 years business data have evolved exponentially into the digital form as Electronically Stored Information (ESI), allowing for an exponential growth of data. A recent Wall Street Journal article explained that at this time in our history we are generating more data every 10 minutes than every written work and image created from the dawn of time until 2003.
To deal with this there are new technology tools in the form of predictive coding, or technology-assisted review (TAR), that ferret out the key information in pending disputes in less time and for less cost than the typical linear review previously used in the legal profession prior to ESI.
Predictive coding or TAR is already being embraced by different industries, especially those that are web based, because of how it maximizes sales. For instance, when you purchase a song from iTunes, the site shows other music that you might like based on your previous choices; it predicts your next purchase. When you buy groceries, coupons on the back of your receipt are based on the purchases that you made to increase the chance of generating business based on the preferences revealed in your current purchase.
The litigation profession is essentially doing the same thing to minimize costs. For example, if you are the plaintiff in a contract dispute, you probably only have a few key documents: invoices, the contract(s) and emails. You can take that information set, called a seed set, and plug it into the computer because you know those are the most relevant documents. The computer, based on an algorithm, will find all other documents that are similar in nature, which gets to the heart of the relevant evidence much quicker than a full review of all company records by an attorney. Predictive coding is an artificial learning that leverages computing capability to decrease the cost and time that often stands in the way of early case assessment or resolution.
Also, if you put in a seed set of five documents and the program brings back 100, you can tell it that 80 were not relevant and 20 were relevant, thereby allowing it to learn based on the expanded seed set. Predictive coding becomes more intelligent the more you teach it which data is on target and which is not, much like Netflix recommendations become more accurate the more content you watch.
How does this technology lower cost during litigation?
Cases today can require gigabytes or terabytes of information to be reviewed for responsive documents to be produced in litigation and ultimately narrowed further to several hundred or thousand pages that you will actually use as exhibits at trial. First and foremost, you have to narrow the universe of information that your attorney reviews because attorney rates of $200 to $600 per hour drive the cost of litigation. Predictive coding can narrow attorney review time from months to weeks or even days; time is money, and volume is time.
A business owner needs to understand the big-picture cost of TAR. For example, predictive coding may cost $750 per gigabyte, which initially may appear expensive, if you are dealing with a terabyte of data. However, instead of the attorney spending months reviewing documents, the information using TAR can be narrowed down to a manageable subset with the attorney spending only days or weeks reviewing the documents — a huge cost savings. Even greater than the cost savings, predictive coding gets you to the facts of your case more quickly so that you can make more informed decisions in terms of offering a reasonable settlement, if necessary.
When is predictive coding the appropriate method to use in document discovery?
Court rules require that the cost of discovery be proportionate to what’s at issue. For example, if you have a contract dispute with $1,000 at stake, predictive coding is probably not the best use of your time or money. But if you have a case such as the recent Oracle-Google case over the Android phone’s use of JAVA, in which there was a $1 billion demand and the volume of data was immense, then predictive coding is necessary. If you have a case that’s in the tens of thousands of dollars, you should at least consider predictive coding or some other version of technology-assisted review if the volume is significant.
Lael Andara is a partner in the Intellectual Property and Technology Group and chair of Electronics Services Protocol/Discovery ESP at Ropers Majeski Kohn and Bentley PC. Reach him at (650) 780-1714 or email@example.com.
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A dissatisfied client takes his complaints to the public forum by publishing statements calling your product junk and your operation a joke. A competitor slams your business on an online forum, accusing your firm of producing dangerous products.
How do you defend yourself, and do you have a case for a lawsuit?
“The Internet opens up a worldwide web of opportunity for people to publish their opinions about anything and everything, says Ian Simpson, a shareholder specializing in liability and defamation at Garan Lucow. And once alleged defamatory statements are published, the damage is already done.
“Deciding whether to move ahead with a lawsuit requires analyzing whether you have a legal basis for an action because you have to prove all of the elements of a claim and understand that it often takes a lot of resources to pursue the case.”
Smart Business spoke with Simpson about defamation, how free speech is protected and when to take action against a party that is making defamatory statements about your business or product.
What is defamation?
Generally, defamation is a false accusation of wrongful conduct, or a malicious misrepresentation of someone or some entity’s words or actions that is published to third parties, causing damage. Libel is the written form of defamation, and slander is the verbal form. Classic examples of defamation where damages are presumed include lack of chastity or criminal conduct. Defamation includes untrue statements with defamatory meaning that could harm a reputation, generally without charging criminality or lack of chastity. In most cases, damages have to be proven rather than presumed. The statements must be published and available to the public — not merely be stated in a confidential document — resulting in damage.
What defenses are used to protect those charged with defamation?
Truth is generally a defense under the First Amendment of the United States Constitution. Most matters of opinion are protected against claims of defamation, as such statements cannot be proven as true or false. For example, ‘In my opinion, Company X’s products are not high quality’ is a protected statement. Further, in the United States, public figures, celebrities, politicians and others who put themselves in the public spotlight are generally unable to sue for defamation unless they can prove the statements were made with actual malice.
Is a business owner considered a public figure?
Another area where statements are generally protected, unless actual malice is found, are matters of public interest. A private company may be involved in a public dispute of interest to consumers. This essentially places it in an arena similar to that of a ‘public figure’ because policy favors granting increased protections to statements made in controversies of interest to the public. Say a company is involved in coal mining and environmental safety. Because this issue is of public interest, alleged defamatory statements become a matter of public concern and are protected under the law unless malice is proven.
How has the Internet impacted companies’ vulnerability to defamatory statements?
The Internet essentially gives the public a speakerphone to air opinions online, and those statements are protected as long as they are expressly stated as opinion and not made with malicious intent. Further, federal law generally protects businesses that merely serve as online conduits for the statements of others (online review sites, for example) are generally protected against claims of defamation, although the maker of the comment may still be liable. Similarly, most blog sites, if not the posts themselves, are protected by law.
Although companies that operate as mere forums are generally protected, there is no similar protection for a company that is not considered a forum of opinion that adopts, republishes or retains defamatory statements.
The crux of many defamation cases is how opinions are stated. They must be couched as opinions to be protected. Where a person or company has stated opinions as ‘fact,’ the risk of liability is greatly increased.
What are the first steps to stop a party from making defamatory statements?
First, consult with an attorney. Typically, an attorney will create a cease-and-desist letter expressly demanding the person or company making the alleged defamatory statements stop immediately. If the person or company does not stop voluntarily, a written demand for a retraction of the statements will be made.
A written demand for a retraction will set the stage for future litigation. If no retraction, published in a similar manner to the original statement, is made, additional damages may be obtained if a lawsuit is pursued. Note that the statute of limitations for a claim of defamation is one year from the date of the publication of the alleged defamatory statements, so aggrieved parties must act promptly to protect their rights to bring an action under the law.
How can a business protect itself from being the victim of a defamation suit?
Always discuss with an attorney strong matters of opinion or statements about competitors or matters of public interest before those statements are published. Also, consider bringing in a legal adviser to train employees on Internet commentary and what is permissible and acceptable. It is generally ill-advised to be interviewed for any publication without consideration of the potential for defamation that may exist in the making of casual comments in such interviews, and the right to review the interview to reconsider any such comments before publication is essential.
Defending a defamation suit can be expensive and can effectively destroy a business. We highly recommend companies in the publishing and Internet business carry insurance covering claims of alleged defamation.
Ian Simpson is an attorney at Garan Lucow specializing in liability and defamation law. Reach him at firstname.lastname@example.org or (248) 952-6456.
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Although depositions may seem like they are less formal than a trial, they are a critical part of a lawsuit. The answers given at a deposition are legal testimony and, in essence, it is no different from testifying in court.
“A lawyer is entitled to depose an opposing party and all witnesses with knowledge relevant to the lawsuit,” says Andrew Fleming, a partner at Novack and Macey LLP. “Typically, depositions are conducted at the office of the attorney taking the deposition, and the witness is placed under oath to answer questions.”
Smart Business spoke with Fleming about how to properly prepare for a deposition for the best possible outcome.
What is the purpose of a deposition?
Depositions have two primary purposes. First, the examining lawyer often will use the deposition to learn the facts relevant to the case. For example, in a typical breach-of-contract case, the plaintiff’s lawyer asks a series of questions designed to determine if, in fact, the contract was breached. In that regard, the examining lawyer will depose the parties and other witnesses involved in the transaction to discover what each person involved in performing the contract did or did not do. The process provides a very important and useful procedure for obtaining evidence.
Second, a deposition gives the examining lawyer an opportunity to obtain admissions that support his or her case. To obtain this information, examining lawyers frequently use cross-examination techniques when questioning a witness. In many instances, cases can be won or lost at the deposition stage, and as a result, thorough preparation is key.
How can a witness prepare for a deposition?
One of the most important things that a witness must do is to understand the deposition process and make sure that he or she is comfortable with testifying. A witness must first become familiar with the pertinent facts of the case. Oftentimes, this requires a review of the documents relevant to the dispute, such as emails, correspondence, contracts and the like.
Next, the witness needs to review with his or her attorney the ground rules for the deposition — rules that are very important no matter what the case involves. Often, it helps to go through a mock deposition with the attorney to not only become more comfortable with the deposition process but also to give the witness and the attorney a chance to identify and correct bad habits before the deposition takes place.
What are some key deposition ground rules?
The first rule to make sure the witness understands that every question must be answered truthfully. If it is not, the witness may be subject to sanctions and criminal penalties. The witness must also listen carefully to the question and answer only the question that is being asked. Also, as a general rule, witnesses should not guess at an answer.
While these may sound like straightforward rules, they are easier said than done. It takes tremendous concentration and focus to sit for hours and answer only the questions that are being asked. And while it is natural during a normal day-to-day conversation for people to assume that certain events have occurred and to speak about them as if they have, in the deposition setting, it is important that a witness focus only on what he or she actually knows has occurred.
What are some common mistakes made during depositions and how can they be avoided?
In addition to losing concentration and guessing, mistakes frequently occur when a witness is shown a document and asked questions about it. All too often, witnesses will not read the document at the deposition even though they are asked to do so by the examining lawyer. Instead, they will skim through the document thinking they know what it says.
But, often in this situation, a witness will give inaccurate testimony when questioned about the meaning of a particular document. And worse, the examining attorney might exploit this mistake by getting the witness to agree to a particular spin that he or she places on the meaning of the document — a spin that is always in favor of the examining lawyer’s client.
It is easy to avoid this mistake. When asked to read a document at a deposition, a witness should slow down and do just that: Read the document.
In addition, a witness should never let the examining lawyer put words in his mouth. Be especially alert when asked typical cross-examination questions because those are invariably designed to get the witness to agree with the examining lawyer’s view of the case. These questions are not hard to spot, as they usually begin with phrases such as, ‘Isn’t it fair to say?’ Or, ‘Wouldn’t you agree that?’ When you hear such questions, think long and hard before answering, and resist the urge to casually agree with the examining lawyer.
What other traps should a witness look out for?
An examining lawyer will be so cordial that the witness may think the deposition is just a friendly conversation. This is not so. Even though such depositions are more pleasant, a witness must still not let his or her guard down and must always follow the rules discussed.
On the flip side, examining lawyers take a more aggressive approach at depositions, to the point of making the deposition an unpleasant experience. It is important in these situations that the witness maintain a calm demeanor. Becoming upset or even angry at an examining lawyer because of the manner in which he or she is asking questions can never benefit the witness. In fact, if you allow yourself to get upset, you often can lose your concentration and break some of the rules discussed. That is why it is always important that the witness maintain a calm and professional demeanor at the deposition, no matter how the examining lawyer behaves.
Andrew Fleming is a partner at Novack and Macey LLP. Reach him at (312) 419-6900 or email@example.com.
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Whether your company is involved in a lawsuit as a plaintiff or a defendant, bringing the case to a federal trial court could be to your advantage.
Federal trial courts only accept limited types of cases, but if yours qualifies, your attorney can help you determine if moving to that venue is the right decision, says Andrea Figler Ventura, an associate at Dykema Gossett LLP, who previously served as a law clerk for the United States District Court for the Central District of California.
“Although overworked, federal judges generally have more time to read the pleadings and take the time to analyze the motions that are coming in front of them,” she says.
Smart Business spoke with Ventura about how to determine if moving an eligible case to federal civil trial court could be a smart move.
What kinds of cases are eligible to be heard in federal court?
Federal courts are limited in their jurisdiction, and you can only get cases in for two basic reasons. One, you have to have a federal question, a case arising from the Constitution, or from a federal statute or treaty.
The other way into federal court is to have a controversy between diverse parties, which means that the defendant has to be from a state different from the plaintiff, and the amount in controversy has to be more than $75,000. Aside from other statutes that specifically allow a case to be filed in federal court, those are the two basic ways into federal court. Otherwise, your case will not be accepted. Federal trial courts are fairly strict on analyzing these particular jurisdictional issues.
As a CEO, if you are involved in a lawsuit, you need to talk to general counsel as soon as possible. For example, if a plaintiff has filed a lawsuit against your company in state court, you only have a small window — 30 days — to remove cases to federal court.
You need to provide your lawyer with all the information possible to help decide whether you can and should remove the case to federal court. Removal can be tricky, especially when other defendants are involved.
What are the benefits of bringing a case to federal court?
As always, it depends on what the case is. But, generally speaking, federal trial courts may have more time to analyze the pleadings in order to reach a decision based on the papers alone. If your lawyer finds your case can be dismissed under these circumstances, federal court may be the best choice. Federal trial judges are typically more willing to take things ‘off-calendar’ and decide on the papers that lawyers have filed. Under these circumstances, you as a business leader don’t have to pay for a lawyer to appear in court to argue the case.
And, generally speaking, federal judges perhaps have more pedigree to analyze the cases in front of them. Federal judges have been through a lot just to be nominated for the appointment by the U.S. president and, once they’ve been affirmed by the U.S. Senate, they’ve passed the test, so to speak. They are not elected as some state judges are.
And, while it is a generalization, federal court judges are more likely to dismiss a pleading on an initial motion, or motion for summary judgment, if there is a solid reason to do so based on the letter of the law, and a court of appeal would likely affirm the decision. Obviously, this generalization favors defendants.
What are some other benefits?
When it comes to discovery, there’s a more structured format in federal court, versus state court. This typically presents less surprise than state court. So federal discovery allows you to get a better feel of what you’ll go through in this process.
Also, the discovery rules have mandatory disclosure, which can be very helpful to plaintiffs. Sometimes plaintiffs will file a lawsuit, but they don’t have any evidence or information supporting their allegations. But because there is mandatory initial disclosure under federal law, they get some key information early in the case.
In the same sense, because there is a mandatory disclosure rule, both parties have crucial information up front, which, in some cases, allows them to reach a settlement sooner and narrow the costs for both parties.
How does the judgment process differ?
In federal trial court, there is one single judge that oversees the entire case, so he or she knows everything from A to Z about the issues. While magistrate judges assist the federal judge with discovery issues, the federal trial judge has the ultimate say on everything. Therefore, discovery, trial and settlement are all under one judge. Because of that, the judge has control of the timeline. With this control, many federal judges run a tight ship, making the federal trial process move more quickly than in state court where, generally speaking, the process isn’t as structured and you can have different judges on different parts of the case.
Also, because federal judges are appointed by the president, some presidents nominated federal judges seeking the general mandate to follow the letter of the law, which can benefit defendants, generally speaking. This judicial doctrine narrows the power of the court to really follow what Congress meant to do by analyzing the text of the law rather than interpreting the reasoning of why it passed the law. In other words, it focuses on the letter of the law more so than the spirit of the law. Interpretation of the spirit of the law can lead to broader and more diverse judicial decisions.
Andrea Figler Ventura is an associate at Dykema Gossett LLP. Reach her at (213) 457-1745 or Aventura@dykema.com.
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Employers and employees alike commonly assume that if an employee is paid an agreed-upon annual salary rather than an hourly wage, that employee is exempt from the strict wage hour laws here in California. For example, employers believe salaried employees are not entitled to overtime pay and meal and break periods. However, that’s not necessarily the case.
“Specific to the white-collar universe, there are exemptions — there’s an executive exemption, an administrative exemption, a computer analyst exemption, a professional exemption — and that means if you meet a salary requirement and you meet duties requirements governed by the statute, then you are classified as exempt and therefore are not entitled to overtime,” says Elise R. Vasquez, partner at Ropers Majeski Kohn & Bentley PC. “What we’ve started to see is an up-rise in white-collar exempt misclassification claims.”
Under the Obama administration, funds have been funneled to labor board investigators meant to probe wage-hour claims to determine whether or not employers are in violation of the wage hour requirement and employees are misclassified as exempt. In the past, many such claims came primarily from blue-collar jobs, such as the restaurant industry. We are seeing more claims from employees for unpaid overtime that they were entitled to, because they were misclassified as exempt based on the job description and duties performed.
Smart Business spoke with Vasquez to find out more about misclassification lawsuits, and what an employer can do in the event a claim is made.
What establishes an employee as exempt or non-exempt?
The list of qualifiers is comprehensive and very specific for each exemption. Basically, there is a salary requirement and a duties requirement that need to be met for an employee to be exempt. Unfortunately, employers have been relying on the assumption that if they hire a computer analyst, for example, and they pay them the requisite salary, they must be exempt. In reality, that may not be the case. Specific day-to-day duties that they perform may not fall under an exemption. As such, while an employer may meet the salary requirement for a computer analyst, because he or she performs non-exempt duties more than 50 percent of the time, the person is entitled to overtime pay and meal and break periods.
How can employers ensure they are classifying their employees correctly?
The job title and salary requirement are not enough, and each exemption has different requirements. Employers should enlist the counsel of their labor and employment lawyer to perform an audit to make sure each employee falls under the correct exemption.
Their labor and employment lawyer can perform the audit by taking a look at the job description the employer claims is an exempt position, interview the employees in that position, and determine if in fact they perform exempt duties more than 50 percent of the time.
Prior to hiring an employee, employers should be clear about the job duties and what the employee will be doing. When interviewing a candidate, focus specifically on those duties. After hiring, it becomes an upper management issue, where each employee will have a reporting manager who will be responsible for checking with HR and ensuring employees are performing the correct duties for that position more than 50 percent of the time. Educating upper management and HR as to exempt duties will allow for these checks to be in place.
What should an employer do in the event that a claim is filed?
If a company does not have a labor and employment lawyer in place, it should look to hire one with a level of expertise in misclassification lawsuits, both with class actions and individual cases. The lawyer will get the job descriptions of all employees and/or former employees involved in the claim, talk to the reporting managers to see whether or not they did the exempt duties more than 50 percent of the time, look at payroll records and do a risk benefit analysis. This analysis will determine the company’s potential exposure. If in fact there is potential exposure, the exposure can be calculated with reasonable certainty.
If there is liability, most companies will want to avoid trial and resolve any matter early. Hence the importance of hiring a lawyer who understands each and every one of the exemptions as well as which exemptions the employee(s) fall into.
What if the employer loses the case?
In addition to the employer owing an employee or a class of employees any unpaid wages, the employer is exposed to penalties. For every employee who is no longer working for the company, there will be penalties for not paying them what they are owed. There are also other penalties under various statutes an employer could be subject to for various payroll violations. In addition, all employees who prevail on wage-hour claims are entitled to attorneys’ fees and costs.
Because exposure can usually be calculated with reasonable certainty, a lot of these cases do not go to trial, unless the case for the employer is particularly strong. If the employer is correct and can prove the employee(s) filed a meritless claim, the employer can seek fees from the employee(s). The reality, however, is it is highly unlikely an employee will have the means to pay for the employer’s attorneys’ fees.
Elise R. Vasquez is a partner with Ropers Majeski Kohn & Bentley PC. Contact her at (650) 780-1631 or firstname.lastname@example.org.
In this country, unlike many others, litigants — win or lose — generally pay the attorneys’ fees they incurred in litigation. This rule, known as the “American Rule,” can be frustrating for the winner. After all, if you have won the case, why shouldn’t the loser pay? Nevertheless, the American Rule is the default rule in our legal system.
As with most rules, there are exceptions. Some contracts, statutes or codes of civil procedure trump the American Rule and provide that the loser is obligated to pay the winner’s reasonable legal fees. Given the American Rule’s sting, lawyers keep a keen eye out for such exceptions, hoping to recover fees for their clients.
Most lawyers know that, when the exceptions to the American Rule apply, courts will allow businesses to recover reasonable fees paid to outside counsel. But some do not know that many courts will allow recovery for a client’s in-house counsel as well, says Christopher Moore, a partner at Novack and Macey LLP.
Smart Business spoke with Moore about how to maximize chances for the recovery of in-house legal fees, the importance of detailed time records and how such fees are calculated.
Can a business recover for the legal services rendered by an in-house lawyer?
Most courts say yes. That might seem counterintuitive because an in-house lawyer typically is paid a salary, which would have been incurred whether he or she was involved in a particular litigation or not. Thus, the money paid to an in-house lawyer can be viewed as ‘overhead,’ rather than costs incurred as a result of litigation. And, while some courts have denied fee recovery for in-house counsel on that basis, that is, because a business incurs no added attorneys’ fees when in-house counsel assists it in litigation, many courts do not. As the Seventh Circuit has recognized, ‘every hour spent on a case by an in-house lawyer is an hour that he or she could have spent for the business on some other matter.’
What can a business do to maximize its chances of recovering for such services?
Just because a court may allow a business to recover for the services provided by its in-house lawyer does not mean that all — or even any — fees attributable to his or her work are recoverable. For example, litigants seeking legal fees have to show that those fees were reasonable, and this principle applies with equal force to businesses seeking to recover fees for their in-house attorney.
Reasonableness aside, businesses face an additional hurdle when they try to recover fees for work done by their in-house lawyer: They have to show that the in-house lawyer ‘actively participated’ in, or ‘substantially contributed’ legal services to, the litigation. Fees are not generally recoverable if the in-house lawyer was acting merely as a ‘liaison’ between the business and outside counsel.
What this means in practice is not always clear. However, a business’s chance to recover is maximized when that lawyer performs the type of work that is often associated with litigating a case. Examples include preparing discovery documents, outlining deposition questions, examining witnesses, or participating in tactical trial decisions. Obviously, it helps if in-house counsel files an appearance, presents argument, or appears in court at trial.
Conversely, fees will not be allowed when in-house counsel acts more like a client by, for example, merely keeping the business up-to-date on the litigation, transmitting progress reports to the business, or communicating the business’s views on litigation strategy to outside counsel.
What kind of time records should be kept?
Because fee recovery depends on demonstrating that the fees were reasonable and that in-house counsel was actively participating in a case rather than acting as a liaison, it is vital that in-house counsel keep detailed records of their work. At a minimum, those records should not only show the time devoted to each litigation task but also describe specifically how the work performed was work for which courts allow a business to recover. Courts have denied recovery when time records lacked such detail and thus failed to demonstrate that in-house counsel was substantially contributing to the litigation, rather than acting as a client liaison.
How are in-house fees calculated?
There are various ways that courts could measure recoverable fees for in-house counsel, but two principal approaches seem to have emerged.
In one approach, courts accept the view that the work performed by a salaried, in-house attorney is recoverable, but they are mindful that such work can be viewed as part of a business’s overhead. As such, a business seeking to recover fees needs to show these courts how much of its overhead can be allocated to the litigation at hand. The calculations needed to make such a showing can be complex. Still, courts favoring this approach, or something similar, are concerned that a different approach could permit litigants to recover more than the costs actually attributable with in-house counsel’s work, and thereby result in a windfall to the victorious litigant.
In another approach, courts have awarded fees for in-house litigation work based on a ‘market rate.’ Essentially, this is what non-in-house lawyers in the same market would have charged the business for the same services. Courts favoring this approach see at least one advantage: It avoids the need to make the complex inquiries and calculations that the first approach and similar methods require. Moreover, courts favoring this approach believe that the market-rate approach likely produces a fee calculation roughly equivalent to that given by the first-described approach. This is because, among other things, time devoted by in-house counsel to a particular litigation is time he or she could have spent on some other task.
In the end, courts favoring the market-rate approach reason that such time is no less valuable than what a business would have to pay outside counsel to do the neglected work.
Christopher Moore is a partner at Novack and Macey LLP. Reach him at (312) 419-6900 or CMoore@novackmacey.com.
Smart Business spoke to Harvey Friedman, a partner at Greenberg Glusker Fields Claman & Machtinger LLP, about making sure your company has the right litigation strategy when it’s all on the line.
A number of years ago, I represented an insurance company which sued a law firm for breach of fiduciary duty. The case was tried by a jury. The defendant was represented by a well-known, highly regarded law firm. I thought that the defendant’s lawyers did a professional, competent job at trial. After a short deliberation, the jury came in with a multi-million dollar verdict in favor of my client — despite the fact that it was an insurance company.
I had the opportunity to interview the jurors after the trial. I learned that the jurors had a difficult time relating to the defendant’s lawyers. Some of the jurors’ statements have greatly influenced the way I have tried bet-the-company cases since then. Those statements include: make the facts easy to understand, tell a story, talk to (not down to) jurors, avoid sarcasm or being overly aggressive, use non-legal terms (greedy instead of egregious, rip-off rather than unconscionable, stole instead of converted, doesn’t make common sense instead of illogical, fair instead of equitable), and establish the theme that what your client seeks is fair, right and makes common sense.
In addition to how to communicate to a jury, the following is a list of tools a defendant should employ to enhance its chances of winning a bet-the-company case.
Choose the best forum
- First, avoid arbitration if possible. For many reasons, arbitrators often split the baby. Additionally, there are no meaningful rules of evidence, which allows either side to submit evidence whether it’s relevant or not, and there is no meaningful right to appeal if you are unsatisfied with the arbitrator’s decision.
- Second, if you are a defendant, you should attempt to have the case litigated in federal court, not state court. A unanimous verdict is required in federal court, whereas many state courts, including those in California, require only 9 of 12 juror votes for a verdict. Jurors are generally more conservative in awarding damages in federal court and it is easier to obtain summary judgment, a determination made by the court without a full trial. Lastly, the interest payable on a judgment is much higher in state court (10 percent per year) than in federal court (approximately .13 percent per year).
Be the plaintiff. Even if you are the party against whom a claim has been asserted, make a peremptory strike; become the plaintiff by being the first party to file the lawsuit. Many jurors believe a plaintiff would not have filed suit unless the plaintiff had suffered damages. Filing suit first may enable you to choose federal court, instead of state court as the forum. Moreover, if the case needs to be filed in state court, you may be able to select the state if you file suit first. In addition, a plaintiff speaks first and last, both in presenting evidence and in the summation. This can be a significant advantage.
How to handle the lawsuit
- If you contact most of the known experts on a particular issue, and thereafter choose one, the experts not chosen may disqualify themselves if asked by the other side to provide expert services. As a result, contact witnesses immediately, particularly expert witnesses.
- Attack punitive damages at every stage in the litigation. You don’t want a jury to decide the issue. Many judges don’t like punitive damages and will grant a motion to strike them from the case.
- The defendant usually has the right to take the plaintiff’s deposition first. It is important for a defendant to take the plaintiff’s deposition and pin him down before he knows the particulars of the defendant’s defenses.
- It is important to make a summary judgment motion because, even if it is denied, it is an excellent discovery tool. A defendant can learn about the evidence and witnesses the plaintiff intends to use at trial from the opposing papers the plaintiff files.
Hire a good jury consultant. Experienced jury trial lawyers believe that 75 percent of the outcome of a jury trial case depends on jury selection and opening statement. Although an experienced trial lawyer can do a good job in picking a jury without the aid of a jury consultant, the use of one can improve the possibilities of a “good” outcome to an “exceptional” outcome.
In addition, two important aspects of a persuasive opening statement are themes a lawyer is going to develop during the trial and “buzzwords” — words that a jury may relate to. A good jury consultant can help develop themes and formulate buzzwords.
Hire the best lawyer. There is a tremendous difference between a bench trial and a jury trial. There are many lawyers who do an excellent job trying cases to a judge but do not do well trying cases to a jury. Lawyers who do well trying cases to a jury have exceptional people skills.
The usual procedure is to make a decision on the basis of references and an interview with the lawyer. The references often come from friends or clients of the lawyer and can be unreliable. At the interview, the lawyer typically will toot his horn and tell you about the successes he has had — which are often exaggerated.
The best way to choose between lawyers you are considering is to have your general counsel make contact with judges — sitting and retired — to discuss the trial attorneys you have identified and with lawyers who have opposed the trial attorney you are considering. Judges and opposing counsel have no axe to grind and will provide opinions which are unbiased and more reliable than a lawyer who has tooted his own horn.
It is almost certain that a bet-the-company lawsuit will be tried by a jury. For the best possible outcome, you need to choose a lawyer who knows how to relate to the jurors and can persuade them that your cause is fair, right and makes common sense.
Harvey Friedman is a trial lawyer at Greenberg Glusker Fields Claman & Machtinger LLP. He has tried more than 100 cases to conclusion, and for many years has been recognized by Best Lawyers in America in the Bet the Company and Commercial Litigation categories. Reach him at HFriedman@greenbergglusker.com.
If your company has been hit with a lawsuit, you may want your attorney to tell you up front if he or she is going to settle the case or fight to the death through a trial.
But that’s not always something that can be determined in advance, says Alex Craigie, a trial lawyer with Dykema Gossett, PLLC. Instead, there are several key points during the process at which the attorney and the client should assess the value of going forward with the case versus settling.
“Settling is not always the best option,” says Craigie. “But if it is a case in which the defendant wants or needs to settle, there are certain key times during a case that it can leverage that option.”
Smart Business spoke with Craigie about critical times during a lawsuit to evaluate whether settling, or moving forward with the case, is the best option.
What is the first key point at which to consider settlement options?
The parties can discuss settlement at any time, but I’ve found there are a few pressure points during the life of a case where it can be strategically intelligent to consider engaging in settlement negotiations.
The first is at the very onset, before the company has been served with the suit or filed its response. At this point, the parties’ costs are still at a minimum, and this fact alone sometimes creates an incentive for a reasonable settlement.
But not always. At this point, the attorneys have only heard one side of the story— their client’s version. The plaintiff’s lawyers may be overly optimistic about the quality or value of the case. A company defendant and its lawyers might be too bullish or unrealistically undervalue the case. Either of these circumstances can complicate negotiations. While the concept of an early settlement sounds appealing, finding a common ground this early in the litigation can be challenging.
When is the next juncture that provides a settlement opportunity?
I find a second key time to negotiate may be as soon as the deposition of the plaintiff or the plaintiff’s key witness has been completed. Sometimes the sheer intrusiveness of the deposition makes the plaintiff uncomfortable enough that they no longer want to pursue the case the way they did at the outset. I find this particularly true in sexual harassment, discrimination and certain personal injury cases.
The deposition might also have revealed facts that weaken the case for one party. If the plaintiff’s case was weakened by the testimony, they may begin to value the case more realistically, closer to the defendant’s estimate.
By the same token, a company defendant’s desire to resolve a case might increase if harmful information was learned for the first time during the deposition.
How can filing a motion to dismiss lead to settlement?
A dispositive motion, whether for summary judgment or dismissal, should always lead an opponent’s lawyer to re-think their settlement stance. Regardless whether it is a ‘slam dunk’ winner, a dispositive motion creates a risk that the plaintiff will walk away with nothing. This is a key pressure point and an opportunity to discuss settlement.
I can’t blame a company defendant, who has filed a strong motion, from becoming further entrenched in its bullish position. After all, it could be just a hearing away from complete victory. On the other hand, this is perhaps the best opportunity to find out if settlement is possible. The risk created by the motion can reduce a plaintiff’s expectations to the point where ‘peace’ can be purchased relatively cheaply. This is all the more true if, by settling, the company avoids the extraordinary defense costs and risks associated with a full-blown trial.
Is there still room to settle before a trial begins?
Absolutely. Trial is war. Preparing for any trial is a risky and expensive endeavor. It is also disruptive to the company, especially if it is a smaller company. It can take every hour of every day for several key employees to prepare. The company must devote an enormous amount of resources, both money and time, to preparing. If the case is going to be settled and should be settled — and let me emphasize that not every case should settle — an optimal time to do it is before you get to the final trial preparation phase.
In the final four to six months before the trial, the parties and their lawyers should be asking, ‘When are we going to start incurring trial preparation costs? When are we going to start pulling people away from their normal jobs to prepare for trial testimony? When are we going to start hiring experts, which becomes very expensive? When are we going to start filing pretrial motions and jury instructions?’
So, for example, if the trial is set for October, your attorney should be able to tell you that you’ll need to kick it up starting in late June. If you want to attempt to settle before trial preparation costs really start to mount, you need to be thinking June or earlier.
Do you suggest the parties use a mediator to help them negotiate?
Yes. But I don’t advocate working with a neutral prematurely. I’ve found that, in most cases, a neutral does not bring a lot of value to the parties’ settlement discussions until there has been at least some basic fact discovery completed. Otherwise, the neutral just regurgitates both parties’ unsubstantiated claims. In my view, the parties should complete one or more key witness depositions and exchange documents before engaging in a mediation. At that point, the neutral has something to work with.
Alex Craigie is a Member in Dykema’s Los Angeles office. His practice currently focuses on employment litigation. Reach him at (213) 457-1750 or email@example.com.
If your business has been injured by another party, your first reaction may be to sue for damages. But by first taking reasonable actions to limit your losses, you can increase your odds of recovering those damages. In most situations in which a business has been injured — whether by theft of trade secrets, a contract breach, etc. — it can take steps to prevent damages from worsening.
For example, say that a supplier is unable to deliver a crucial part to produce your products.
“Rather than halt production and lose all profits that your business likely would receive from selling its products, you could try to find another supplier,” says Courtney D. Tedrowe, a partner with Novack and Macey LLP. “You might pay a higher price, thus reducing your overall profit margin, but you would not be out all of your profits.”
That mitigation of damages, sometimes referred to as the doctrine of avoidable consequences, can be crucial in the event of a lawsuit.
Smart Business spoke with Tedrowe about a plaintiff’s obligations and what courts deem reasonable mitigation efforts.
What obligations does a business have in the event it has been injured?
Frequently, courts and attorneys say that a plaintiff has a duty to mitigate damages, but that characterization is inaccurate. Strictly speaking, a plaintiff does not have an obligation to take steps to limit losses after it has been injured, and will generally not incur liability for failing to do so.
However, if some or all of a plaintiff’s damages could have been avoided had it taken reasonable steps to mitigate them, it might not be able to recover that portion of damages from the defendant. Thus, it is in the plaintiff’s best interest to determine what steps it can reasonably take to avoid unnecessarily increasing damages after injury, and then take those steps. In many cases, the plaintiff can recover from the defendant the cost of making reasonable attempts to mitigate damages.
How does a court decide which actions are reasonable?
First, the defendant must prove that the plaintiff could have taken certain reasonable steps to avoid unnecessarily increasing its damages. What constitutes a reasonable step is determined on a case-by-case basis. However, a plaintiff is not required to take extraordinary measures, and a defense of failure to mitigate is not a basis for a hypercritical examination of the plaintiff’s conduct.
The plaintiff need not assume any undue risks or burdens in an attempt to mitigate its damages. Further, the law does not require the mitigation efforts to be successful; all that matters is that the plaintiff made the attempt.
Second, the defendant generally must prove the amount by which the damages increased because of the plaintiff’s failure to take reasonable steps. The defendant should have evidence not only showing that the plaintiff failed to take reasonable steps to avoid increasing damages but also evidence showing by how much that failure inflated damages.
Under what circumstances is this legal concept most commonly seen?
Mitigation is a defense in almost every case in which the award of monetary damages is claimed. It is usually raised as an affirmative defense in litigation, in which the defendant claims the plaintiff’s damages should be reduced because either the plaintiff actually did mitigate its damages, or, had the plaintiff taken certain actions, its damages would have been less.
In most states, there is an exception to mitigation, sometimes referred to as the lost volume doctrine. In cases in which the plaintiff does a volume business — handles or could handle multiple contracts of the same kind simultaneously — and has lost sales as a result of another’s wrongdoing, the plaintiff might not be able to mitigate its damages by finding a replacement contract. Because the seller is capable of handling multiple contracts simultaneously for little additional marginal cost, it could have had the benefit of both the repudiated contract and the subsequent contract at the same time. Therefore, even if the plaintiff could have obtained another contract after the first was breached, it would not replace the lost contract.
For example, say a fencing company contracts to build a fence for $10,000. The buyer breaches that contract. Shortly thereafter, the company contracts with someone else to build a fence for $10,000. If the company can prove it could have taken both jobs, its damages are based on the net profit it would have made on the breached contract, without regard to its ability to get a subsequent contract. However, although this has been adopted in most states, it hasn’t been in all, and the burden is on the plaintiff, not the defendant, to prove the doctrine applies.
How can a business be affected by the responsibility to mitigate damages?
If a business has been injured and is contemplating litigation, it should be aware of the possibility that the defendant might assert a mitigation defense which, if proven, would reduce the awarded. Thus, as soon as the business learns of an injury, it should take all reasonable steps to prevent damages from unnecessarily increasing. Employees should be asked to analyze all of the possible harms to the business including losses due to business interruption, lost business opportunities and harm to reputation. Once specific potential damages are identified, consider whether there are reasonable means of minimizing or stopping these harms from occurring.
It does not usually matter whether your efforts are successful, only that you took reasonable steps to try to mitigate. Moreover, the law generally does not require you to take undue risks or burdens to try to mitigate damages. If you follow these basic principles, you likely will stand an excellent chance of defeating a mitigation defense.
Of course, you should consult an attorney as to whether mitigation applies, as it will depend on the particular facts in your case and the law of your particular jurisdiction.
Courtney D. Tedrowe is a partner with Novack and Macey LLP. Reach him at (312) 419-6900 or firstname.lastname@example.org.