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Becoming a corporate sleuth Featured

9:37am EDT July 22, 2002

Successful businesses examine possibilities, gather information, then make decisions, except, that is, when they become the plaintiffs or defendants in lawsuits. Then, it seems, everyday business acumen is lost in a maze of complaints, answers and cross-claims.

After businesses file legal pleadings, they typically seek the facts which are needed to determine a proper business strategy in a discovery process. But discovery is a misnomer if ever there was one.

There is an alternative to time-consuming and ineffective depositions, interrogatories and other often-unsuccessful methods of discovery: Conduct an independent investigation -- like federal prosecutors do -- before suits are filed, before answers are completed and while the lawsuit is pending. When deciding when to sue, when to settle and when to charge ahead, approach with good information.

Why did my colleagues in the Justice Department win nearly every case they tried? In fact, recent statistics show that assistant U.S. attorneys win almost 95 percent of their cases.

Many would argue it's because they have so many resources: subpoenas, grand juries, search warrants and hundreds of federal agents doing their bidding. Others say it's because the feds get to pick and choose what cases they bring. All are correct to an extent.

But the main reason is that many lawyers in the Justice Department seek the facts before making critical decisions. They conduct surveillance, review records and interview dozens of knowledgeable people before making decisions.

Business owners don't have a dozen FBI agents on the payroll, but they do have other investigative resources. Consider the following:

  • Database firms sell valuable information about ownership of assets of potential defendants, as well as litigation histories, bankruptcies, SEC violations and corporation affiliations.

  • Employees within your own business can possess valuable information about business dealings. But keep in mind that management teams often aren't as informed as those in the trenches.

  • Former employees of other firms can supply a wealth of information.

  • Public records are available from county courts, federal courts and myriad state and federal agencies. These can inform about property ownership, fraudulent activity, bad business dealings, environmental violations, etc.

  • Media reports can provide substantive and impeaching evidence. Much like political candidates defeated by their prior positions, opponents in lawsuits can be held accountable for prior statements.

Whatever you do, don't rely on the discovery system to produce the information needed to decide whether to settle or propel ahead to trial. In many cases, discovery simply doesn't work.

One flaw is that traditional discovery relies to a great extent on the voluntary conduct of your opponents and others. (Unless challenged, deponents can and do lie, withhold documents and otherwise act to circumvent the rules.)

Conducting an investigation, independent of legal discovery, is an effective way of following a business model for conducting litigation. Consider, for example, how firms rent office space. They first get the facts -- a firm representative sees the space, considers its price, layout and lease terms, then determines whether it's the right opportunity.

It would be foolhardy in all but the most extreme cases for a business to rent 100,000 square feet of office space for $30 a square foot without first seeing the space, reviewing the proposed terms of the lease, then beginning a negotiation process. It should be equally unreasonable to file lawsuits, or respond to suits, without first educating yourself about the facts.

With a better understanding of the facts, you'll create a better -- and more productive -- working relationship with your law firm. You'll also make better decisions. And strategies will change.

In the end, if the facts and the law are with you, charge ahead. Otherwise, think twice. Jeff Klink is CEO of KlinkFarley, a Pittsburgh-based business investigation and intelligence firm serving corporations, technology companies and their counsel. Reach him at (412) 201-9123 or via e-mail at Pittsburgh@klinkfarley.com.