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DTCI: Defensive litigation and essential steps to corporate protection

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By Jason M. Massaro

massaro-august-mug Massaro

When asked about the areas of law in which I practice, I say, among others, business law and litigation. Inevitably I am greeted with a curious look and a cocked head similar to a dog that has just heard a strange noise. The person then almost cautiously asks, “What exactly does that mean?” I then follow suit with the same bewildered “dog glance” since I still have not developed a good canned answer to that question. And that makes sense to some degree.

For example, a business could range from a seller of genetically engineered popcorn to a granite fabricator and installer and anywhere in between. Moreover, any given company’s particular situation may involve areas of practice normally considered boutique, such as insurance coverage, products liability, construction, real estate, and so on. In fact, ask a defense attorney specializing in insurance coverage or products liability or construction law, and I would wager that the vast majority of his clients are businesses. The term “business law and litigation” is so broad that its use creates more confusion than it solves. But what else can be used to describe this area of practice? I think a better approach is to stop trying to describe the types of businesses represented or the areas of law and instead to describe the services provided.

Given that business litigation is usually situational and can be summed up by a statement that it means representing a company who has sued or who has been sued, business law is really where we need to focus. And by business law, I do not mean the mere drafting and/or negotiation of corporate documents or agreements. I mean the process and manner by which a company is represented to avoid, to the greatest extent possible, the draconian nature of the litigation machine. In other words: “defensive litigation.”

I do not intend to suggest an approach to litigation where the client is represented in anything but a methodical, aggressive, and persistent manner. Instead, it is the goal of this article to remind, refresh, and educate offensive, situational litigators how to more fully develop their skill in the practice of business law. Stated differently, this article is a checklist of ways to protect business clients with a defensive litigation approach to keep them out of litigation.

Changing the corporate mindset toward attorneys

Noted therapist Edwin H. Friedman aptly stated that “[t]he colossal misunderstanding of our time is the assumption that insight will work with people who are unmotivated to change. Communication does not depend on syntax or eloquence or rhetoric or articulation, but on the emotional context in which the message is being heard. People can only hear you when they are moving toward you, and they are not likely to when your words are pursuing them. Even the choicest words lose their power when they are used to overpower … .” While we do not counsel our business clients in the same manner Friedman counseled his clients, the message is the same: change our clients’ mindset through education and experience to achieve the desired goal of better, more complete representation.

The question is: How do we go about achieving this goal? It is no secret that lawyer jokes are one of the most prevalent digs at a profession that exist. Whatever your take on them, perception is reality and these jokes emanate from somewhere. It is merely a fact that some people simply do not like attorneys. Whatever the reason, the implications are undeniable.

In my experience, business clients fall into several distinct and dangerous categories regarding their mindset on the need (or, really, non-need) for attorneys in the operation of a business. Here are a few: (1) an “it’s not broke so don’t fix it” mentality; (2) a belief that their business does not need counsel (even though the business that started out with one man and a truck is now generating revenue of millions of dollars per year); (3) an impression that legal agreements are uncomplicated and that the owner can draft them himself; (4) procrastination toward a review of important corporate issues such as insurance and corporate compliance documents; (5) the false belief that no news is good news; (6) an erroneous assumption that the other party will do the right thing; and (7) the dreaded reality that a lot of people, for one reason or another, just do not want to deal with (or pay) an attorney.

It is these mindsets that we must overcome; they not only place businesses in jeopardy for lack of proper legal guidance but perpetuate the negative stereotype of attorneys. The negative stereotype is perpetuated when we deal with business clients only when litigating; a negative association is developed and the problem is exponentially compounded. You may be asking, “So what is the solution?” In my mind, it is our job to convince our business clients to follow Benjamin Franklin’s advice that “[a]n ounce of prevention is worth a pound of cure.”

Any growing business will have to deal with the realities of changing legal exposure. With expansion comes the need to have an attorney (or more than one) on retainer. Moreover, the company needs to understand that it does not merely need to retain an attorney but it must actually use him. Litigation happens, but it does not have to be part of the cost of doing business. To the contrary, defensive litigation is a cost of doing business. The sooner our clients become accustomed to this fact, the more successful they will be in seeing smooth growth as opposed to one riddled with legal strife.

With retention comes the requirement of use. Encourage your clients to test the waters. Get them accustomed to you and vice versa. Learning your client’s business over time will increase your ability to be proactive and to prosecute or defend a suit should the occasion arise. It is never advisable to let your business client experience the legal process for the first time when things have gone wrong.

This approach will also avoid the problem of having clients draft their own legal documents regardless of how simple they may appear. A simple promissory note with someone out of state that lacks a choice of law provision could mean the difference between smooth sailing and multijurisdictional federal court litigation. As business attorneys, we must make our clients see that, just as they would never operate on themselves, they should never operate legally on their livelihood. They need to allow counsel to be proactive on day-to-day operations as a part of a much larger, and cheaper, defensive litigation strategy. Ask to be kept informed of major changes in your client’s growth, expansions, new product lines, claims or threatened claims, liability issues, and so forth. The better informed you are, the better you can protect the business interests of your client and the more likely you will be to avoid conflict before it manifests.

Organization and business methodology

It has been my experience that many of the companies with which I am involved in litigation, operate in utter chaos. But I believe that I may have a very simple answer to the reason for this. While maybe not causally related, I am a firm believer that businesses that fail to pay attention to the details are much more likely to be lax in their other business operations. Eventually, that cavalier approach to organization leads to errors that ultimately lead to litigation.

The second punch of this vicious combination is that such disorganization makes a business much more costly to defend. In my experience, I have seen companies waste literally thousands of dollars by merely grabbing the potentially relevant documents pertaining to a suit and dropping them off at my office for me or my staff to attempt to comb through, assemble, and collate. As alluded to above, this expense grows if a business does not have a good, prior working relationship with counsel. Counsel who is unfamiliar with the operations of the corporation must not only assemble the case for litigation but also endure a sometimes very steep learning curve. Thus, it is our further responsibility as business litigators practicing defensive business litigation to educate our clients about the potentially severe negative consequences of failing to be organized and efficient.

Spoliation and maintaining electronically stored data

Discussions surrounding spoliation and e-discovery have become prevalent in the last few years. While a thorough analysis of the duties to preserve and produce electronically stored information is beyond the scope of this article, all practitioners should be well versed in what they are. This is especially true for attorneys whose clients are businesses. With as much communication being sent electronically, both state and federal courts have implemented very strict rules (both discovery and evidentiary) about the retention and production of ESI. Moreover, even if the rules are silent, good counsel will either seek an e-discovery stipulation as to the production of the data or a preservation order from the court ensuring its protection and ultimate production.

Even a sophisticated business client may know nothing about what to do with the information once on or still on its application software, smart phones, backups, archive files, input devices, networks, operating systems, storage media, and so forth. It can get hugely complicated very quickly. An astute practitioner must guide his clients through this labyrinth and proactively seek to ensure the protection and production of ESI. There can be grave consequences for failing to maintain and produce such data, and otherwise winnable cases can be lost on the failure to implement a retention system.

Synergy of relationships

The concept of a shift in corporate mindset concerning the use of attorneys in the operation of a business was discussed above. Another helpful shift in mindset is that of the attorney himself. I don’t think there can be much debate that a well-protected business will need more than advice of counsel to protect itself. Other specialties are needed such as accountants, bankers, financial advisors, insurance agents, and so forth. In fact, attorneys with other specialties (such as intellectual property and transactional attorneys) may also be required.

This team does not need to be so large that the company is overwhelmed in costly minutia. However, there must be a synergy and a constant flow of communication between the client and the various specialists as well as between the various specialists themselves. There is much less chance of exposure if, for example, a corporation knows from its attorney that it must preserve its documents, knows from its accountant that it must pay the requisite payroll taxes, knows from its insurance agent that workers’ compensation coverage is needed, and knows from its intellectual property attorney that its new product name needs to be trademarked. It is crucial that chosen counsel maintains a good rapport and working relationship with these other specialties and that there is always an open line of communication. The best business attorneys are those who stay connected with the service providers that help protect the corporation.

Maintain corporate formalities

The primary reason a person incorporates a business is to take advantage of the limited personal liability the corporate umbrella provides. That is, all things being equal, the owner-shareholder’s liability is limited to the extent of his corporate investment. I.C. 23-1-26-3(b); see also Aronson v. Price, 644 N.E.2d 864 (Ind. 1994). His personal assets are not at risk. Id.

However, this protection can be lost through certain conduct of the owners. The plaintiff in a suit may seek to “pierce the corporate veil” and impose personal liability on the owner. In deciding whether a plaintiff has met his burden of proof on a piercing count, Indiana courts consider whether the plaintiff has presented evidence showing: (1) undercapitalization; (2) absence of corporate records; (3) fraudulent representation by corporation shareholders or directors; (4) use of the corporation to promote fraud, injustice, or illegal activities; (5) payment by the corporation of individual obligations; (6) commingling of assets and affairs; (7) failure to observe required corporate formalities; or (8) other shareholder acts or conduct ignoring, controlling, or manipulating the corporate form. Aronson, 644 N.E.2d at 867. Also of importance is the maintenance of current and accurate corporate records on file with the secretary of state. Failure to do so may result in administrative dissolution and the loss of the right to carry on business. I.C. 23-1-46-2.

Conclusion

As can be seen, there is quite a bit that goes into business law or “defensive litigation.” It is not only important to become adept at client communication relaying the importance of these issues, but also implementing defensive litigation into the daily functions of your practice. In doing so, we can all offer our business clients more complete and protective representation. It also becomes easier to explain what I mean when I say I practice business law and litigation by merely responding: “I work just as hard to keep my business clients out of litigation as I do to protect them in litigation.”•

Jason M. Massaro is a partner at Massaro & Ciobanu, LLP in Indianapolis and a member of DTCI. His areas of expertise include complex business, UCC, contract, construction, real estate, and premises liability law and litigation. The opinions expressed in this article are those of the author.

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  1. Am I the only one who sees that the City is essentially giving away the MSA site AND giving millions to build new buildings on the site when this site would be the perfect place for the Justice Complex? Across from City-County, check; keeping it centrally located, check, etc. It's my understanding that the GM site must be purchased by the City from Motors Liquidation Company. STOP WASTING WHAT WE ALREADY HAVE AND OUR TAX DOLLARS! The Ballard Administration has not been known for it's common sense...never voted for him and never will!

  2. This guy sounds like the classic molester/manipulator.

  3. Louis D. Brandeis was born in 1856. At 9 years of age it would have been 1865. The Brandeis family did not own slaves. My source Louis D. Brandeis: A Life, by Melvin L. Urofsky.

  4. My name is Matthew Lucas Major, I recently went through a jury trial in Bloomington , In. It was the week of Feb 19-21. Although I have been incarcerated since August 5, 2014. The reason I 'am writing to you sir is on the 21 of February the jury came in with a very excessive and wrongful verdict of guilty on 6 child molesting charges against my daughter who was 9 at the time I was accused. I also had 2 other Felonies one of Intimidation and 1 of Sexual Vicarious Gratification. Judge Marc Kellam on the second day of trial gave me a not guilty on those 2 felonies. The jury was sent out during that time and when brought back Judge Kellam told them to not concern themselves with the 2 Felonies that he ruled on them. They were told to not let evidence they had already heard influence there verdicts. I never in my life touched any child sexually and definitely not with my own daughter. When I was arrested Detective Shawn Karr told me I would be convicted guilty just on my daughters word even without evidence. That's just what happened. my public defender did me so wrong he never once proved to the court and jury all the lies the child told, and Jeremy Noel my public defender could of proven the lies easily. The stories in Serenity's depositions and Forensic interview changed and were not consistent as Prosecutor Darcie Fawcett claimed they were. Yet my attorney never mentioned that. The facts that the child accused me of full penetration in her vagina and rectum was proven lies. Doctor Roberta Hibbard of Riley hospital in Indianapolis confirmed Serenity's hymen intact, no scars, no tearing, no signs of rape to her. Yet my attorney didn't use that knowledge . the DNA was all in my favor. I tell you I will spend my entire life in prison going through rape and beatings etc. even Judge Kellam abused his authority by telling the jurors to listen and believe what the prosecutors side in evidence like my daughters testimony. In one interview with the detectives my daughter got flustered with her mom and said on camera " I'm saying what you told me to mom"!! Yet Mr. Noel said nor did anything to even resemble a defense attorney. Judge Kellam allowed edited version of a taped conversation between the child and her mother. Also Judge Kellam allowed the Prosecutor too bring in to my case a knife found under my seat, the knife wasn't part of my case. She was allowed by my attorney and the judge to put a huge picture of it on the screen and huge picture of my naked privates in a full courtroom and open court. Ms. Fawcett says to jury see how easy Mr. Major could reach the knife and cut his Childs throat. Even though I had no weapons charge against these cases. This gave the jurors prejudice thought against me thinking I threatened her with that knife and how scared she would of been knowing i could get it and kill her. On my sentencing court March 19, 2014 my public defender told Judge Kellam he wish to resign from being my attorney and wished for the court to give me outside council to file a error to trial or appeal. We were denied. Now after openly knowing my public defender don't want to represent me he has to. Well when as parents we make our kids clean a room when they really don't wish to, well the child will but don't mean she will do a good job, that's where I'm at with Mr. Noel. please dont ignore mine and my families pleas for your help . we have all the legal proof you could need to prove Im innocent. Please dont make my spend years in prison innocent when you can fix this wrong. Im not saying Im a perfect man or that I was a perfect dad to my 2 children none of us are. Ive made some bad choices in life and I paid for them. But I didnt ever touch or rape my daughter . I love my children with all my heart. And now through needing attention and a ex-wife who told my granny several times she wish she could put me in prison to get me out of their lives. Well my ex finally accomplished her goal. Sad part is she is destroying our daughter with all this horrific lies and things she taught my daughter to say. My daughter will need therapist to ever hope for a chance of a normal life after what she had done to her by her mom and their side of the family. My daughter told everyone even on stand she had a dream months before i supposedly molested her in this dream I was molesting her and when I finally did it matched her dream perfectly. She admitted to watching movies about little girls being molested and watching U-Tube videos about child molesting all before it happened supposedly to her. Doesn't that sound very unusual that a non molested 9 yr old would need to know so much about being molested? The only reason I could think a 9 year old would need so much information is to be prepared to know what to say and be able to say how it felt what took place etc.. So when questioned by authorities she would be prepared. And there again sir if a parent is pre grooming a 9 year old child she would need intimate details . Like telling her daughter about a couple moles on my private area. The child admitted to sneaking my cell and looking many many times at nudes of me and my girlfriend even one where my penis was entering my girlfriends vagina. In that picture my moles are obvious. Yet when prosecutor showed everyone in court my privates and pictures of the moles she said the only way the child would know about them is if she saw them for herself. My attorney once again said nothing about the pictures my child saw. Or could a ex-wife be able to describe my moles to help her case against getting rid of me? I beg you help me. This is my very existence. Ive lost everything , a good job, a wonderful girlfriend, my freedom, but worse thing Ive lost is my children. They were my reason to get up every morning and strive to be better. The wonderful bond I had with my Serenity is gone. After this I would be afraid to even hug her for fear of what next can they do to me. I'm not afraid to tell you I sit here in this cell and try to hold back my tears. Everyone knows you cant show weakness in prison. My life has already been threatened here at Wabash Valley Prison. After only 3 days of arrival. I was tricked into signing a waiver now Im in G Block General Population with 6 child molesting felony charges. Mrs. Hart as a 18 year old I almost died hooked to machines in hospital almost 1 month and now I know that fear was childish compared to this . I cant help but put emotions in this, after all Mrs. Hart Im human and God help Me I never been more afraid in my life. I didnt hurt my little girl I didnt touch her sexually. As much as it shreds me and fills my mind what Im facing I worry more about my mom and granny because of their great love for me mam they are suffering so deeply. I aint done this things but my loved ones suffering right along beside me and If you take my case you will be in essence freeing them also. I sent momma this letter and asked her to email it to you. I'm scared I have been done so unjustly by our legal system and I need you to fix this and give me freedom. I ask you please don't just ignore my pleas. Here in America its nice to be able to trust our legal justice system, well they destroyed my and my loved ones trust in our justice system . And I'm trusting in You !!! My entire family is suffering this nightmare with me. My 77 year old granny had a stroke and isn't doing so well. My single mother that raised 3 kids alone is dying from Lupus and since my arrest has stayed so sick and weary. Our lives torn to peices by a government I was taught I could trust in. my momma has tried so many innocent project and wrongfully accused and cant get anywhere. please please help me. A quote from the late Nelson Mandela: To be free is not merely to cast off ones chains, But to live in a way that respects and enhances The Freedom Of Others. I have Faith in you and your clinic to cast my chains off and give me freedom I do deserve as a wrongfully accused Man, son, brother, father, friend. Matthew Major DOC# 246179 Cause # : 53c02-1308-FA-000779 God Bless you. Please contact me with your decision so I know you made a life changing decision for me , just please at least write me so I know you care enough about your citizens to respond to cries for your help. You can speak openly with my mother Charlotte Spain (828) 476-0406: 71 Lakeview Dr. Canton, NC 28716 Thank You Matthew Major I know yall get thousands of request and inmates claiming innocence, and each person who are innocent deserve to have organizations like yours willing to fight for them and I give yall so much Thanks and I thank God everyday yall are out there caring enough to help free the innocents. Since discovering firsthand how easily lives and families can be destroyed by Poor Defense attorneys not doing their job . And Prosecutors allowed to do as they please in court

  5. Frankly, it is tragic that you are even considering going to an expensive, unaccredited "law school." It is extremely difficult to get a job with a degree from a real school. If you are going to make the investment of time, money, and tears into law school, it should not be to a place that won't actually enable you to practice law when you graduate.

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