Taming the 10-Headed Litigation Monster

The subject of company litigation tends to engender eye rolling, shoulder shrugging, and hand wringing.

"It is what it is," is the common refrain. A necessary evil. Perhaps. But what if portfolio managers could use two words as guidance to wrestle the litigation beast to the ground?

The good news is they can.

"Avoid Surprises."

Corporate litigation is managed best not by throwing heaps of litigation dollars and employing a gaggle of litigation counsel around the country (if not a gaggle, what? A pod? A murder? Maybe a coven?), but rather in staking claim to the highest ground of the battle field: Information.

Perhaps you are just taking over management of a portfolio company. Or, maybe you're an executive who needs to get a handle on spiraling litigation costs. Want to put a stake in the ground and see immediate improvement in your company's legal expenditures? Follow the 3 steps we have outlined below to see where precious cash flow dollars are being spent.

1.  Gather All (and we mean all) Pending and Threatened Claims. To be satisfied that one is truly at the bottom of the barrel (remember our watchwords: Avoid Surprises), conduct a simple survey using some tools readily available: (a) Look at the SPA/APA and associated schedules to identify what claimswere retained by the seller, and what claims went with the company. (You may be surprised to learn that your AP department is continuing to pay invoices of firms defending claims the seller kept!); (b) Meet with the accounts payable department and review the purchase and sale agreement schedules against all law firm payables made in the past 6 to 9 months, noting any firms that received payments that do not correspond to your contract list; (c) Request all available litigation schedules from prior management, which may list claims that did not clear a purchase agreement threshold, or that may include other types of claims not disclosed in the transaction; (d) Ping relevant department heads (e.g., HR, Sales, Operations) and inquire whether there are any EEO claims, customer claims, or regulatory claims; (e) Combine these lists into one master spreadsheet which tracks relevant claim information. You can use whatever categories you like (e.g., date filed, jurisdiction, description of claim), but be sure to include a column at the end entitled "Score." 

Your master list should now have all pending and threatened claims and litigation.

2.  "Handicap" or Score Each Claim.  Once satisfied that you've discovered the universe of pending and threatened claims, begin the process of assigning a "score" to each claim by analyzing the unique aspects of the claim and discussing them with litigation counsel. We use a system of scoring claims that is tailored to each company (for example: a national services company with 1,500 trucks on the road will have a different litigation profile than a specialty chemical company). At the end of the scoring process, your master list should be able to be broken down into easily digestible "chunks" based on the numerical values assigned to each claim. This is the first, and arguably most arduous step in achieving the goal, but the rewards will more than justify the time invested.

3. Analyze the Results of your Scoring and Develop a Strategy.  By now you (in particular, but likely also the company's executive management and/or board) should be well positioned to understand what the universe of claims looks like. Based on the time you have already put in scoring the claims, developing your litigation strategy becomes a more straightforward exercise in maximizing the most favorable outcome for the least amount of litigation dollars.  We now can see that the more time invested on the front end in gathering information will be "saved" later on because no further decision-making need be made on the disposition of many of these claim - this process has already been thought through! Moreover, now that you've gotten your hands dirty digging in the rocky soil of corporate litigation, you will have actionable information at your fingertips and will be able to avoid surprises down the road.

Happy hunting!