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Minimizing the Impacts of Litigation on You Business

As a trial attorney, I realize that I am one of the last people on earth with whom any sane business person wants to become involved with on a professional basis. If your business is in need of my services, it is because a dispute has turned into a full blown lawsuit. Whether your case involves an accident in the workplace, a contract dispute with a supplier or customer, or an employment dispute with a past or present employee, your involvement in litigation will require a significant investment of your time and energy, and will distract you and your staff from attending to the regular course of your business. More importantly, the outcome of the litigation may have a significant impact on your bottom line. If you are the plaintiff (the party seeking recovery), the amount you recover will be an important concern. Conversely, if you are the defendant (the unfortunate party to be sued), an award of damages may seriously jeopardize the financial health of your enterprise.

While a business cannot always control when it will need to sue or when it will be sued, there are certain precautions that a business should undertake to minimize the likelihood that suit will be brought or, in the event that a lawsuit materializes, to ensure that you will have the necessary evidence to prove your version of the facts at trial.

Each business should develop a litigation control plan which consists of the following:

(1) Obtain appropriate types of insurance coverage with sufficient limits to cover anticipated losses;(1) (2) Develop a solid working relationship with legal counsel before litigation arises; and (3) "Create" and preserve potential evidence for use at trial.

It may be useful to think of a trial in non-legal terms to develop a sense of the need for legal counsel and evidence preservation before a lawsuit is brought. Two analogies serve this purpose.

The Poker Game

Trying a case is a lot like a poker game. The likelihood that you will receive a favorable or unfavorable outcome depends largely on the quality of the cards you are dealt and the manner in which these cards are presented at trial. Like a card game, while the odds of success or failure can be predicted with a certain amount of accuracy in advance, even the most omniscient attorney cannot control the outcome; the actual result can never be known until that dramatic moment when the foreperson announces the verdict.

Unlike a poker game, a business owner has the ability to stack the deck to create and preserve evidence that will enhance the likelihood of success later on.

The Storybook

It is also useful to conceptualize a trial as a story. At trial, there will be at least two stories presented, your story and your opponent's story. Each side utilizes the evidence at trial, including documents, things and witness testimony, and the opportunities to address the jury during opening statement and closing argument, to create its own version of reality. A trial is a battle to convince a jury about what really happened. The party who succeeds in portraying its version of reality to the jury will ultimately prevail.

Like a good book, the text should be carefully written in advance of trial. By preserving and memorializing your version of reality as it happens, you will be in a much stronger position to tell your story several years down the road than a party who lets the important events pass by without documentation.

Several examples of how a business may lose control over the outcome will emphasize the need for a proactive approach when a potential legal problem arises.

A common business risk is the customer who slips and falls on the floor inside the store. Without tangible proof, trials are often decided on the testimony of the injured customer who describes a virtual swimming pool on the floor and the store personnel who submit that the floor was dry and that the pool was actually a mirage. Consider what effect a photograph of the floor would have had in the decision-making process at trial if the manager had taken a picture of the area in question when the accident was first reported. Sweep and mop logs, if kept, will also objectively demonstrate the care that the store takes in keeping its premises safe for its patrons. Ordinarily, the logs can be introduced at trial if they were prepared and maintained in the ordinary course of business. Thus, by taking photographs and preparing logs, the proprietor has create evidence which will have a considerable impact on the jury at trial.

Similar problems arise when a customer is unsatisfied with a product. Without documentation, the trial will be a swearing match between the customer who insists that the repair efforts were not performed to their satisfaction against the store owner who claims that the product was as good as new when it left the shop. Ask yourself, would a favorable outcome be more likely if there were photographs of the product after the repair or perhaps a notice from the manager that the store would be pleased to perform additional work at the customer's written request (assuming there is no written request).

Finally, consider the potential range of outcomes in an employment-related dispute. The employee claims that the manager threatened to fire her after reporting a sexual harassment claim. In reality, the employee was never threatened. Would the outcome be different if there was a tape recording of the meeting or the employee signed a written summary of the meeting.

The answer is obvious. A business with a well-documented response to an accident, complaint or other occurrence has a much better chance to succeed at trial than a business with no "objective" proof. Keep in mind the admonition that "pictures speak louder than words." Photographs, videotapes, and audio tape recordings of actual events or conditions are much more persuasive than a witness's hazy recollection. If these methods are not feasible, consider having the complaining party specify in writing what their concerns are and have them sign a summary (prepared by you) of the action that has been taken. Keeping and maintaining business records of all transactions is yet another way to "create" potential evidence since business records are generally admissible at trial. Memoranda of each telephone call that you engage in should be kept to memorialize important conversations. At a minimum, send a letter to the other party outlining events from your perspective and invite them to respond to your version.

I am not suggesting that a business should adopt these efforts with every transaction that it engages in with every potential customer, supplier or provider. Good business documentation should suffice to reflect the run-of-the-mill transactions. What I do recommend is that the business proprietor should be on the look out for "red flags", those widely-recognized signals that litigation may be on the horizon. The moment someone claims to have been injured, a defective product complaint is asserted or an employee contests certain employment action should alert the owner or manager that a higher degree of vigilance is necessary. If it appears at all possible that a serious dispute may arise, legal counsel should be contacted to review the available legal options, to discuss how to properly document the response and to begin the creation and preservation of potential trial evidence. By adopting these techniques, you may be able to avoid the need for the services of trial counsel entirely or, at a minimum, enhance your chances for success at trial.(2)

*Mr. Baber is a partner with the law firm of Rudman & Winchell who practices extensively in the field of commercial litigation.

  1. You should consult your insurance agent to review the adequacy of coverage on an annual basis.

  2. If a complaint is brought, you should also notify your insurer of the claim, if appropriate, and make sure that a timely answer is filed on behalf of the company since the court will ultimately hold the company responsible, not the company's insurer.

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