AVOIDING AND MANAGING U.S.
LITIGATION RISKS
How might the riskS of a costly lawsuits in the united states be reduced?
One of the most formidable barriers to launching and leading a successful company is the ever-present risk of business litigation. Many savvy entrepreneurs watch in dismay each year as their otherwise successful enterprise is damaged or even destroyed due to unforeseen litigation. Lawsuits plague not just nascent start-ups and “mom-and-pop” businesses. Fortune 500 companies and midsize businesses allocate increasing chunks of their operating budgets to managing and settling a variety of claims brought by plaintiffs. The sources of these claims range from disgruntled employees to disappointed consumers, vigilant shareholders and litigious competitors.
Sometimes the lawsuit comes out of the blue, like an unexpected
tornado, leveling the company in a short period of time and sending it
into bankruptcy or dissolution. Other companies face a series of smaller recurring claims such as employment lawsuits that, while less sensational and dramatic, hit the bottom line each month, pilfering away profits from stakeholders.
Litigation costs can be astronomical. Besides the litigation expense
that most people immediately think of – battalions of trial lawyers
performing never-ending tasks at handsome hourly rates – there are
hidden costs. The ongoing distraction of litigation diverts the time
and focus of executives and members of the management team whose attention should be on more profitable endeavors. Instead of concentrating on a strategic plan for the next quarter of growth and expansion, key employees are forced to spend time preparing for a deposition or reviewing emails and other voluminous documents for production to an adversary, perhaps the company’s chief competitor.
For twenty-five years, Kent Schmidt's commercial litigation practice has provided him opportunity to defend hundreds of corporations against a diverse array of lawsuits. This front row seat has afforded him keen insight into not only the calamities and travails that come with defending against lawsuits but more critically how those clients may have avoided litigation in the first place, or at least had an easier path through the ordeal.
It is not uncommon for facts to emerge during litigation revealing an
unforced error that led to the claim. Sometimes this mistake is readily apparent. But in some instances, answering the “Why did we get sued?”
question requires a great deal of thought and analysis. It takes even more insight and understanding to fully consider practical steps or safeguards that might be implemented to avoid similar claims in the future or make defense of such claims infinitely easier.
In counseling clients and speaking on this topic to in-house lawyers,
Kent has found that many fail to seriously undertake this practice
of litigation avoidance and prevention. They fail to ask the question: "Where will be sued next?" Relatedly, companies often spend insufficient resources to ponder what simple steps can be undertaken to avoid these lawsuits down the road.
The resources on this website--the twice monthly podcast and the book on litigation risks--are for those who want to do more than whistle past the graveyard of litigation risks.
The Challenge:
From where will the next lawsuit come?
The Costs of Litigation: Tangible and Intangible
What if the principles of preventive medicine were applied to litigation avoidance?
There are further intangible costs of business litigation. The first
conflict sometimes breeds secondary crises. As the instinct of self-preservation takes over, employees and jilted ex-employees point fingers at one another. The ranks are divided and company morale is damaged as the blame game ensues, with charges being leveled about who dropped the ball that triggered the claim. The ripple effects of either quiet or noisy departures can continue for months or even years. And then there is the bad press, which may be even more devastating than the lawsuit itself. Customers, competitors, and the general public may read, tweet and re-tweet stories detailing sensational charges and claims about the product, service, or executive. When the truth is revealed months later after the company is vindicated by the lawsuit’s dismissal, no one knows or cares how the story ended.
Kent Schmidt
Based in Dorsey & Whitney's California offices, Kent Schmidt has an international practice focused on defending and advising companies around the globe on navigating the perils U.S. litigation. Kent's legal practice includes virtually all types of general business litigation in the U.S., with emphases in unfair business practices, trade secret litigation, consumer class actions, product liability, securities and shareholder litigation and disputes, commercial contract disputes, Prop 65 (environmental) claims and labor/employment matters. He is a zealous and creative courtroom advocate, equally accustomed to representing plaintiffs and defendants. In addition to his general business litigation practice, Kent is an experienced First Amendment lawyer, representing clients on both sides of defamation cases and other matters involving free speech, including California’s unique anti-SLAPP statute. Kent speaks and writes on litigation risks, authored Avoiding and Managing U.S. Litigation Risks (Globe Law and Business 2021) and hosts a twice monthly, podcast , SharkCast where he interviews guests on these topics.