Is Your California Business in the Middle of Litigation?

Is Your California Business in the Middle of Litigation?

To the conclusion of our three part series on how to avoid litigation in California business practice, here are suggestions that business owners may want to implement.

According to an article at corporate.findlaw.com, “What Risk is Your Business at for a Lawsuit?”

“1. Rapidly respond to potentially threatening developments in their earliest stages (i.e., don’t sit on it):

Much too often, individuals in a business unit, in-house counsel and even outside counsel will receive notice of a potentially threatening situation, and then not act on it simply because it is not perceived as urgent. After all, if it is not on a scheduling order, it must not be urgent, right?

Unfortunately, opportunities to avoid litigation are often missed simply because inadequate resources and attention are dedicated to a dispute in its embryonic stage. One effective method to ensure proper identification and analysis of a potential or existing risk is to implement an expedited review procedure. Such a procedure can help ensure that resources are timely employed to enhance your prospects of avoiding litigation.

An expedited review procedure should be tailored not only to conform to the business structure, but also to the types of disputes or risks anticipated by the company. The example illustrated below could be employed in any one of a number of modified forms.

• Create a reporting procedure encouraging employees to report potential risks;
• Identify the stage of the risk and develop a plan for risk evaluation;
• Allocate the necessary resources and delegate authority as needed;
• Ensure follow-up;
• Continue with basic steps to evaluate risk (or prospects if suit is being contemplated)
• Identify, interview and evaluate potential witnesses;
• Identify and retrieve important and potentially relevant documents and electronic information;
• Identify anticipated disputed and undisputed fact issues and key legal questions;
• Prepare a draft jury charge (or other detailed legal review) to assist in your preliminary win/lose evaluation;

Take into account appellate considerations. Admittedly, considerations of appellate prospects are quite speculative. However, when deciding whether litigation is an appropriate option, one should also consider the risks of an appeal (i.e., cost, continued delay in resolution and potential of reversal);

Venue/jurisdictional analysis: In the event suit has not yet been filed, determine where a suit may be filed. Of course, a determination of the jurisdiction and/or venue coupled with known or anticipated opposing counsel can affect both liability and damages evaluations;

• Prepare a preliminary liability evaluation;
• Prepare preliminary damages evaluation;
• Prepare an analysis of available alternative dispute resolution options; and
• Prepare demonstrative budgets.

2. Incorporate risk shifting and litigation alternative provisions into your business practices:

Many business disputes will be either directly or indirectly related to contractual instruments. Hence, one powerful way to avoid litigation is to include litigation avoidance provisions within your contractual instruments. Examples of such provisions are provided below.

Litigation Avoidance Provisions

Include a cure provision that requires the opposing party to provide notice of a perceived breach and a reasonable opportunity for you to cure the claimed breach prior to the opposing party having an opportunity to file suit;

• Mandatory mediation provisions;
• Arbitration provisions, sometimes preceded by mandatory mediation;
• Agree in advance to be bound by expert opinions rendered by mutually agreeable experts;

Fact finding and/or neutral evaluation: This process is similar to the binding expert opinion discussed above, though it can be used to provide guidance in areas where an expert is not required. It can be designed to have a binding or non-binding effect;

Facilitation procedure within your contractual/business relationships to provide impartial feedback during the early stages of a dispute, thereby facilitating early resolution before escalation;

Mini-trials;

Require partnering, whereby parties agree to cooperate as a team to improve communications and avoid disputes.

Risk Shifting Avoidance Provisions

While a risk shifting/avoidance provision will not always prevent litigation, it can certainly be utilized to protect your company and enable it to absorb some of the risk and expense (financial and other) generally associated with litigation. It can also, when properly used, serve as a deterrent to litigation. Some examples of risk shifting/avoidance approaches are provided below.

Indemnity and hold harmless provisions, which shift certain identified risks to another party. Pass-through language can also be utilized in certain circumstances to ensure that the indemnity provision benefits a party which is not even a direct party to the contract;

Exculpatory agreements, whereby one party agrees to absolve a second party from any blame even when an alleged injury is caused by the negligence of the absolved party;

Additional insurance provisions, whereby a party is required to name a second party as an additional insured on its own coverage;”

To read the entire article click here:

Need more information on structuring your California business, visit sageintl.com for a consultation today.