Preventive Law: The Legal Health Audit

As a lawyer who has been trying business cases for a number of years, I am sharply aware of the criticisms heaped upon lawyers and law firms. From Newt Gingrich, who proclaims that "litigation is the enemy of free enterprise", to Howard Stern, who decries lawyers who as scum of the earth, it seems that everyone takes shots at lawyers. For years, when I heard or read these statements, I would tell myself what my law professors used to teach - that the adversary system was a necessary evil, the best system on earth, and that it was lawyers who were in large part responsible for the freedoms in our country. But, as I tried more cases for businesses, I saw what actually goes on, and I started to agree with the lawyer-attackers.

I learned that most lawsuits are either unnecessary or result from poor business/legal planning, or failure of communication. Then, when litigation starts, it is like a steamroller, rolling without brakes, picking up speed, and pounding the client with costs and inevitably---settling failure of communication. Then, when litigation starts, it is like a steam- on the courthouse steps. It is not unusual to see a client spend $30 - $50 Thousand Dollars for the defense of a $100 Thousand Dollar suit (which ends up settling for $50 Thousand Dollars. It does not make sense.

While there can be no guaranteed solution for a business to assure against litigation, there is a way to take action to shift the odds in your favor. The answer, unfortunately, involves those same people who can ruin your business with litigation - lawyers. I can honestly say, though, that in pursuit of this other endeavor, lawyers are on the right track. The answer? Preventive law and the legal health audit.

Preventive law is the provision of legal advice in a way similar to an accountant's review of a company's procedures. The aim of the preventive lawyer is to counsel clients with an eye toward averting costly litigation. The preventive lawyer's primary service is the legal "check up" in areas ranging from files and records, to employee relations, etc., in an effort to unearth legal pitfalls.

The client is initially provided with a detailed questionnaire and asked to provide key documents, including organizational documents, contracts, selected job files, real estate documents, labor/employment documents and other documents. The preventive lawyer then reviews the information and meets with and interviews the client and key personnel. The lawyer then produces a legal status report, which provides the status of the legal affairs of the business, assists the business owner in evaluation present legal risks, and makes recommendation for action.

The report can be comprehensive, and may include identification and analysis of: regulations and laws that apply to your business; corporate structure; employment and hiring practices; polices and procedures to identify and maintain confidential information; intellectual property rights (trademark, copyright, etc.); real property ownership; contracting; correspondence and documentation of jobs/projects; etc.

Review programs also can be tailored to company's specific needs and can include specific areas such as tax, securities, products liability, environmental, banking and financial services and regulations (e.g. OSHA and MOSHA) compliance.

The scope of the service may also include drafting of form contracts and assistance in setting up litigation risk management programs, and teaching the business how to handle its affairs---including correspondence, oral communications, maintenance of records and contracting---in such a way to minimize the risk of litigation and to assure that if litigation occurs, the business will have properly acted and documented issues.

Why do a legal audit? If you can avoid just one lawsuit, you have done wonders for your financial health. As ever increasing litigation leads to mounting costs for businesses, it makes good business sense to be pro-active in hour business affairs. Early detection of legal problems will surely save you time, effort and money, and might even save your business.

* Brian S. Jablon is a member of the law firm of Pre, Saltzman & Jablon, LLC., (410) 313-8342. In addition to offering legal health audits to its clients, Prem, Saltzman & Jablon, LLC provides legal services in the areas including business law and litigation, tax, estates and trusts and real estate.