What Every New In-house Attorney Needs to Know
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1 What Every New In-house Attorney Needs to Know By Margaret Richardson and Dylan Black The prospect of managing litigation can be daunting for new in-house counsel, particularly if you did not handle litigation in your former career. This article offers ideas to think about so you and your new client will be in the best possible position if your company gets sued.
2 ACC Docket 67 May 2011
3 An ounce of prevention is worth a pound of cure One of your primary tasks as in-house counsel is to assess and manage risk. The first step in discharging this duty is to evaluate the possible sources of liability your company faces. The goal is to create a litigation risk road map so you can provide advice as to how that risk can be mitigated to reduce the chance of future litigation. This assessment will require a deep understanding of your new company s business, and where that business exposes your company to potential liability. You will need to understand the relevant opportunities and risks in the marketplace. You will need to understand your company s product, how it is made and delivered, and what contractual relationships are involved. Take the time to meet individually with key officers, managers and other decision makers to determine what your company does, and what the potential risks are. Litigation risk comes in many forms. As you conduct the risk assessment, you will need to understand the legal and regulatory framework in which your company operates: Consider the federal laws applicable to your new company s business, and the relevant state laws in any state where your company has facilities, and become conversant with them. For example, if your Margaret Richardson is director and senior counsel for SurModics Pharmaceuticals, Inc., and has over 14 years of experience in the pharmaceutical industry. She may be contacted at mrichardson@ surmodics.com. Dylan Black is a partner in the General Litigation Practice Group in Bradley Arant Boult Cummings LLP s Birmingham, Ala. office, where he leads the firm s Professional Liability Practice Team. He may be contacted at dblack@babc.com. company interacts with the public and accepts credit cards, you need to be aware of the Fair and Accurate Credit Transactions Act, 15 U.S.C. 1681c(g) (1). If your company transacts business overseas, you will need to consider the potential exposure under the Foreign Corrupt Practices Act, 15 U.S.C. 78dd-1 et seq. These two examples are by no means exhaustive think broadly about the legal framework within which your company operates and know what those laws require. Consider the agencies and other regulatory bodies that impact your company, and read their rules and regulations. Is your company s business in compliance with applicable regulations? What are your company s reporting obligations? What contacts does your company have with the regulator? Think about the important contracts your company has with its suppliers or with its customers. What representations and warranties are embedded in those agreements? What are the notice/cure provisions? What remedies do the contracts expressly contemplate? Are there any alternative dispute resolution provisions or pre-suit conditions, and if so, what are they? What is your company s procedure for handling customer complaints? What are the touchpoints where your company interacts with a disgruntled customer, and who is the face of your company at those touchpoints? What internal reports or documentation does your company generate, particularly with regard to accidents or injuries? What are those documents called? (For example, you do not want to find out, after your company has been sued, that your company regularly fills out Negligence Reports after any accident.) If your company uses equipment that could injure your employees, or others, consider writing periodically to the manufacturer of the equipment to see if there are any updated safety measures, maintenance, or other protections or precautions that the manufacturer has begun to recommend since the equipment was first installed. Once you have completed the initial risk assessment, create a system of monitoring that risk and your company s compliance with the relevant law and its own policies and procedures. Systems that track recurring issues or customer complaints, for example, can help you focus on the areas of your company s operations that are most likely to lead to litigation. Ideally, by spotting the issues early, you and the company can address them and reduce the company s exposure to consumer class actions and contractual litigation. You may want to establish a regular system of inspections, reports or meetings with certain managers or officers whatever is most appropriate for your company and the risks you have identified. See that your monitoring system includes a process for identifying, reducing and eliminating noncompliance with applicable laws and regulations, and imposing discipline if appropriate. Cover your assets An important early consideration in any litigation is whether your company has insurance, and if so, how much coverage may be available. Get a head start on this question before the company gets sued: Complete an inventory of the company s insurance policies. Your company may have a risk manager who can assist with this process, or failing that, an insurance broker who can walk you through the basics, but do not rely exclusively on them. Do your own homework. What kinds of policies does the company have? Where are the policies ACC Docket 68 May 2011
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5 located? What are the exclusions and limitations on coverage? What are the notice requirements for triggering coverage? How many layers of coverage are there, and when are excess layers triggered? What is the size of your company s self-insured retention for various kinds of matters? Getting the answers to these questions early, especially before the company gets sued, can help you quickly marshal resources to assist the company with defending a claim, preserve the coverage the company paid for and make it easier to establish reserves for litigation when it comes. Consider whether your company has any special insurance needs. For example, most common umbrella policies will not cover intellectual property (IP). If IP is a key value driver within your organization, you may want to consider a special rider that covers it. If your company is at risk of liability for environmental contamination, investigate separate policies for that possibility. Think about whether your company is so dependent on a particular supplier that you need to secure business interruption coverage. If your organization is not large and does not have a designated internal expert for insurance, some of the best advice and suggestions can come from the organization s insurance broker. Make sure, however, that you are working with a broker who understands the specific needs and risks associated with your industry. Once you understand the type of insurance purchased by your organization, it is also critical to understand in practical terms what is being agreed to in contracts with customers, vendors and business partners. Unfortunately, contract language often overstates the type of coverage your organization carries, or commits your company to indemnification provisions that your insurance will not back. You need to set guidelines about what can be agreed to in contracts with regard to insurance, indemnification and limitation of liability language, because these key clauses will impact how you manage any future litigation. Timing is everything If your company is served with a complaint or a subpoena, you need to ensure that the documents make their way to your office, pronto, so you can coordinate the appropriate response. Find out who within your organization has the authority to accept service of a legal document, and where those people are located. Think about the various points within your organization where a complaint or other legal process might arrive, and make sure everyone understands what to do when they receive such a document: Send it to you as soon as possible. A registered agent for service of process may provide that service for your company, but do not ignore the other ways in which your organization could be served. The service of a complaint starts several important time periods the obvious ones are the due date for the response to the complaint, the 30- day time period for removal to federal court (if that is an option), the time to object to a subpoena, and any notice provisions to insurers or potential sources of indemnification. Sometimes these time periods can be very short. Days matter. Make sure everyone in your organization knows not to let a complaint, summon or subpoena lie around for any period of time before it is sent to you. Preserve, collect and protect or else. Generally, when the company knows that a lawsuit is pending or likely to be filed, or if it has been subpoenaed to produce documents, it has an obligation to preserve documents that may be relevant to the case or responsive to the subpoena. You will be ahead of the game in helping your company comply with its obligations if you have a detailed understanding, before any complaint or subpoena is served, of the company s record retention policies and how those are followed (or enforced) in practice. You will need to understand the language company personnel in other locations may use to refer to certain types of documents. You will also need to understand the company s IT systems, how those systems store files, where potentially relevant documents are located, how the company backs up electronic information and s, how long that information is maintained, and to what degree (and at what cost) that stored data is searchable. Talk to your company s IT staff about steps that can be taken to preserve electronic documents, files and s such that no information is lost, should a lawsuit ever be filed. You want to have the plan to preserve information in place so that you can execute quickly when the time comes. If your company has received a complaint, the first thing on your short list of things to do is send out a litigation hold memo. The purpose of the litigation hold memo is to alert your company s personnel about the company s obligation to preserve potentially relevant documents. This includes hard copy documents, electronic documents and s, at a minimum, but it also can include text messages, voic messages, servers, back-up tapes and even hard drives, computers and printers, or failed products. Although there is no one size fits all language, a litigation hold memo will include, among other instructions: (1) a statement that the company has been sued or is the subject of potential litigation; (2) a general description of the subject matter and types of claims in the lawsuit, along with a description of the potentially relevant time frame; (3) a reminder of the company s obligation to preserve and not to destroy documents that have anything to do with the subject matter and claims in the lawsuit; (4) an instruction that, ACC Docket 70 May 2011
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7 if in doubt, the recipient should preserve everything and destroy nothing until she has a chance to speak to you; and (5) instructions on what to do if the recipient has potentially relevant documents. You also want to create a record of when you sent the litigation hold instructions, how you sent it, to whom you sent it, and how they responded. One possible method of doing this is to send the litigation hold memo via , using the reply feature to prompt recipients to acknowledge receipt of your , and indicate that they have followed your instructions on preserving documents and whether they have located potentially relevant documents. That way you will have a record of who received your instructions and what they did about it, and you can target your follow-up efforts more effectively. Using a tracking method like this can help you respond to efforts seeking discovery sanctions or spoliation of evidence instructions against your company for not preserving documents when it should have. Who you gonna call? Almost always, the filing of a lawsuit will require you to engage the assistance of outside counsel. Here again, it pays to plan in advance. Before your company gets sued, establish a relationship with a firm, and with particular lawyers who you trust at that firm. The worst time to look for new outside counsel is when you have just received a complaint against the company. Take time to meet and learn about firms in your area and in locations where your company has operations. There are several resources that you can use to begin to compile your short list. You could consult with other in-house attorneys in your industry, or with in-house attorneys whose companies have similar types of litigation. You can also use ACC s resources through its egroups and solicit recommendations from the ACC Value Index. Finally, you can learn what the firms clients say about them in publications such as Chambers USA, or which lawyers enjoy a good reputation among their peers through resources such as Best Lawyers or Benchmark Litigation, or by checking to see which lawyers are members of the American College in their specialty. Recently, US News and World Reports published an issue ranking law firms in various practice areas, as it has done with schools and other professions. In addition to trust, competence and responsiveness, some other considerations when choosing a firm to handle a specific piece of litigation are: Which of the lawyers on your short list has demonstrated expertise in the particular area of the law, or is particularly wellversed in your industry? Has the lawyer handled similar claims? How many claims of this kind is your company likely to get? If there are multiple lawsuits, are they likely to be localized or scattered to many jurisdictions (and if You need to set guidelines about what can be agreed to in contracts with regard to insurance, indemnification and limitation of liability language, because these key clauses will impact how you manage any future litigation. scattered, can one firm handle them all)? Does the firm have the ability to staff the matter appropriately, i.e., does it have the bench strength to handle all aspects of the litigation in a cost-effective and efficient manner? Ideally, you will find a lawyer to whom you can turn repeatedly, whose firm becomes a resource to you and your company, over the long term and not just for one case. Such long-term alliances with outside counsel result in efficiencies of knowledge concerning your company and its business practices, and can open both parties up to alternative fee arrangements. Early strategic decisions Most litigation involves unique facts and circumstances that will affect strategic decisions you and your outside counsel will make, and will certainly affect how you manage the litigation going forward. Your outside counsel can help you evaluate the strength of claims, identify and evaluate factual and legal defenses, and map out the strategy for the litigation. Your job will be to distill the legal information provided by outside counsel into practical advice to senior management about the litigation, taking into account the projected costs associated with litigation, the relative merits of early settlement versus fighting the lawsuit, the potential precedential value of the case and how it may affect your business or your industry, and what message your litigation decisions send to other potential plaintiffs. It may be helpful, relatively early on, to ask your outside counsel to prepare an early case assessment setting forth the law for and against the parties anticipated litigation positions evaluating the venue and the judge and an early evaluation of the primary documents and the witnesses from your company. Other early strategic decisions and items to consider: ACC Docket 72 May 2011
8 Legally Canadian since Protect your assets. Gain a lasting advantage. WeirFoulds LLP
9 ACC Extras on What Every New In-house Attorney Needs to Know ACC Docket Hanging by a Thread: Save Your Litigation Budget and Privilege (Oct. 2009). Read this article to ensure that your ediscovery process is as cost-effective and efficient as possible. Effective Management of Litigation Holds and Ediscovery (May 2009). Two years after amendments to the Federal Rules of Civil Procedure became part of the discovery process, in-house counsel have adjusted. There are, however, some lingering questions relevant to your company s legal hold process that should be addressed. Read the answers and applicable best practices to these questions. InfoPAKs SM Advanced Technology Solutions for Litigation (Sept. 2010). This InfoPAK provides corporate counsel with an objective overview of technology and its defensible use. It will cover practical, technical and legal considerations for selecting, deploying and leveraging litigation technology. So, Your Corporation Has Been Sued? What to Do in the First 30 Days (March 2009). This InfoPAK guides in-house counsel on the steps that should be taken in the first 30 days after your company has been sued. It includes a general overview of what issues to consider when the corporation has been sued, along with general strategies to efficiently manage the lawsuit. Forms and Policies Sample Outside Counsel Guidelines and Procedures (Oct. 2010). This is a sample guideline that a company would share with its outside counsel after contracting to do business. Outside Counsel Billing Guidelines & Instructions (May 2010). This is a sample document for outside counsel billing guidelines and instructions. Education Looking for more basics on working in-house? There s still time to join us at ACC s 2011 Corporate Counsel University (CCU), May in New Orleans. Designed specifically for new to in-house attorneys, CCU can give you the jump-start you need to succeed in your in-house career. If you re looking for more information on litigation, plan to attend session 200 at CCU, Introduction to Corporate Litigation. For more information, visit ACC has more material on this subject on our website. Visit where you can browse our resources by practice area or search by keyword. Does the claim trigger any applicable alternative dispute resolution clauses with the plaintiff? Does your jurisdiction permit or require early mediation? Enforcing such alternative dispute resolution clauses, and attempting early mediation, can sometimes lead to mutually satisfactory resolutions of disputes at much lower cost than litigation. Does your company have a contract with plaintiff containing any arbitration clauses, and is the claim covered by them? If so, are you better off forcing arbitration, which usually has streamlined discovery and eliminates juries but leads to decisions that are only very rarely appealable, or fighting the case in litigation before a trial judge who may be more experienced and whose decisions could be appealed if necessary? This can be a close call, affected by questions of the law of the jurisdiction where the case is pending, the characteristics of the venue, whether you view your defenses as primarily factual or primarily legal, and a host of other factors. Is the case removable to federal court? If it is removable, do you want to remove it? This inquiry also depends on the characteristics of the venue in which your company has been sued, and the procedural law applicable in that venue versus federal procedural law. To take just one example, some states offer an immediate appeal, as of right, from any decision granting or denying class certification a remedy not available in federal court. Keep in mind the possible avenues of appeal from any result in the trial court, and compare the state versus federal system on that criterion as well. Does your company have counterclaims that can or must be asserted in response to the complaint? Does your company want to assert claims against a third-party defendant, or cross-claims against a co-defendant? You should check to see whether, in your jurisdiction, there are mandatory third-party claims or cross-claims. If those claims are permissive rather than mandatory, consider whether it is better ACC Docket 74 May 2011
10 for your company to be fighting only one adversary (the plaintiff) rather than setting up a situation where your company will be fighting a two-front war. Should you file an answer to the complaint or engage in pre-answer motion practice? This question is not always directly answered by whether you have colorable grounds to file a motion. In some jurisdictions and for some types of claims, a motion to dismiss is an appropriate response. In other jurisdictions, however, a motion to dismiss may eventually lead to a better thought-out and pleaded complaint. Generally, if you decide to remove the case to federal court, you should also file an answer instead of a motion to dismiss, lest your adversary take a dismissal without prejudice and re-plead his complaint in such a way as to make it non-removable. Does the claim trigger insurance, and do you want to tender the defense to the insurer? Are there any potential indemnitors whom you would like to bring into the case, or to whom you would want to tender the defense? Is the root cause of the dispute unique or systemic? If you determine that this is the kind of claim that may recur, you may want to take steps to eliminate ongoing exposure to the plaintiff or other similarly situated parties. If the matter is highly public, do you want to employ a media relations consultant to advise you and your outside counsel on press strategy? Prepare, prepare, prepare Even if litigation is outside your comfort zone, you can take steps to position yourself, and your company, to handle the process with as little disruption as possible to your company s primary business. Every company s litigation risk profile is different, and the ideas in this article are not meant to provide a one size fits all checklist for your new in-house practice. However, by assessing your company s risk profile, remediating risks or insuring against inevitable risks, setting up systems to prepare for litigation intake and document preservation, and knowing in advance which outside counsel are on your short list, you can put yourself and your new company in the best posture to handle litigation if and when it comes. Have a comment on this article? Visit ACC s blog at
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