Project: Corporate Counsel Part II (Unintended Consequences) - Law Firms Fleeing The System: A Product Liability Attorney's Perspective

Monday, August 1, 2005 - 01:00

Editor: Corporate counsel are concerned about the preemption of the judicial function by attorneys general. What is your reaction to that concern?

Koon: In the pharmaceutical litigation we handle we are increasingly seeing policy made not through prospective rules laid down through advance guidance by the regulatory agencies, but rather by law enforcement in "after the fact" prosecutions by state attorneys general or federal officials. There are certainly many critics of the regulatory agencies who feel that they can be too intrusive and tend towards over-regulation. While it is not a happy situation if your business plan is disrupted by advance rule making, that is certainly preferable to having someone come in with a subpoena after the fact, making your company the target of a criminal investigation or the defendant in a treble damage lawsuit based on conduct you had no reason to believe was illegal or improper at the time.

Editor: Are you troubled by the use by attorneys general of private attorneys?

Koon: I worry that it brings the worst of both worlds to bear on corporate America. In my experience, the political element implicit in policy-driven prosecutions is more apparent when one is dealing with a state attorney general than is the case, say, in working with most line federal prosecutors. We have found that state attorneys general tend to be more directly and immediately affected by the electoral constituencies they serve when pursuing litigation. While political scientists might regard that responsiveness as a positive, it can present real problems if your client happens to be at the wrong end of what the attorney general believes to be a popular enforcement initiative. When contingent fee counsel are retained by the attorneys general, a potentially politically-driven litigation effort is further complicated by the inclusion of private counsel who bring fee considerations into the mix. Such combinations are a recipe for making cases both harder to litigate efficiently and harder to settle.

Editor: Prosecutors want companies to refrain from indemnifying their directors, officers and employees who might be involved in the litigation. What are the reasons for this practice?

Koon: There is a suspicion on the part of some prosecutors that providing counsel to advise company witnesses may signal an intent by the company to limit or impair the government's investigation. Companies may, however, be required by their bylaws or by contract to advance fees on behalf of officers or directors implicated in government investigations, particularly in the absence of evidence that their conduct was clearly contrary to law or to company policy. These same documents may implicate an indemnification obligation as well. I think experienced prosecutors evaluate each situation as it presents itself. Should they conclude that the company's advancement of fees or other interactions with individual subjects is part of an effort to control the flow of evidence, or in some other way is making the investigation more difficult, they will be quick to note that such conduct is contrary to what is considered "cooperative."

Editor: Prosecutors also insist on waiver of the attorney client privilege and work product protection. Is there some way of preventing that information from being used by others?

Koon: Defense counsel are really the "thin gray line" between clients who often do not understand the strengths and weaknesses of the privilege and those who see the privilege primarily as an unnecessary impediment to their work.

Some in law enforcement have been overreaching with regard to what they expect from companies seeking to cooperate fully with investigations. Then, too, the courts have not been receptive to protecting privileged material provided voluntarily to the government from later use in other contexts, including civil litigation. There are a number of cases holding that, regardless of the context of the disclosure, once materials are turned over they are freely available to others. From a policy standpoint that is the wrong result; to the extent that we wish to promote cooperation with the government in trying to investigate a claim of wrongdoing, we should be providing companies with incentives to continue that cooperation.

While more attention is now being paid to the question of whether the privilege is "under assault" it will take time for any change to be made. In the meantime, defense lawyers need to implement practices to minimize the possibility of unintended waiver through education of their clients and improvement in how they do their work.

Editor: Are cases fleeing the courts?

Koon: We have reached a perverse juncture in the U.S.; today there is an inverse relationship between the importance of an issue to a publicly held company and its willingness to have that issue decided in the nation's legal system.

In the criminal context, if your company does substantial business with the government, even marginal investigations and prosecutions can carry the risk of debarment from participating in federal programs, which can be a death penalty for the company. If, as the CEO, you can eliminate that risk - however slight - by settling early, your board and stockholders may think you a fool, or worse, if you don't do so. Resolving investigations or prosecutions built on shaky theories to avoid the risk of an adverse decision, however, excuses the government from proving their case, and builds precedent that can be used later to compel other companies to do the same.

Things are nearly as bad on the civil side. The emphasis increasingly seems to be to promptly put a price tag on the problem, settle it and get it off your books. Little attention is paid to the merit of the claims and the question of whether - if effectively defended - the problem has any substantive value at all. It is not hard to understand why this approach has found acceptance, though. The juries companies face in the post-Enron era have little tolerance for those accused of wrongdoing.

Editor: How can abuse of electronic discovery be controlled?

Koon: A major problem is the incredible disproportion of discovery obligations in the typical complex litigation proceeding. Class action lawyers are very good at finding named plaintiffs that have little exposure to discovery demands. Class action defendants, on the other hand, can face ruinous discovery demands that both cost a fortune to complete and disrupt the companies operations. Indeed, one goal of many class action lawyers is to insist on overreaching discovery demands in the hope of creating fictitious discovery disputes and burdensome obligations that force defendants to evaluate settlement not on the merits, but on the need to avoid crippling discovery costs.

I would favor broader attention to cost-shifting analyses like those employed by Judge Scheindlin in the Zubulake case, particularly in class and complex litigation scenarios. It may be that, if there are particular electronic discovery requests that class action plaintiffs particularly want, they should bear at least the front-end cost of some of those expenses. Otherwise, the defendant bears all the costs and is forced to decide whether it is worth pursuing the class action when measured against the great expense and disruption.

The other issue that makes electronic discovery dangerous is the unwillingness of courts to entertain meaningful confidentiality protections for the data. The traditional default approach has been to place the burden to protect sensitive electronic and other data on the defendant and, in many cases, to insist on a document-by-document justification for protecting the documents.

Editor: Do you feel that corporations are exposed to unreasonable penalties for failures to find electronic documents?

Koon: One problem in this area is that the starting premise - that e-documents and data should be treated in the same way that other data is treated - is a fallacy. The way we create, use, share and store e-data is qualitatively different from the way we dealt with hard-copy materials. Frankly, I am not convinced that even the most meticulous company following the most comprehensive document retention policy and using the most advanced software and techniques can say with assurance that they have collected and properly stored 100 percent of the e-documents and data that parties involved in disputes years later will determine are relevant.

The Doomsday scenario is that you spend several million dollars collecting documents only to have someone come forward with a copy of a document from another source that was not collected during the electronic document capture phase. In such a situation you can find yourself on the wrong end of a sanctions motion. It is a tremendously difficult issue and the proposed amendments to the federal rules may not be of much help. The real quandary for CEOs and general counsel will remain if the rules are amended; how can you both continue to do business while fully complying with document retention policies and exceptions to those policies such that one can make a meaningful representation to the court that they have done the best they can to collect documents that later become relevant.

Editor: Do judges try to move class actions along so rapidly that they sacrifice fairness?

Koon: Judges have been urged to move their class action dockets expeditiously. One consequence of speeding up these dockets is that defendants can be subjected to improvidently granted class certifications. These decisions not only hurt the affected defendant but contribute to the decisional law that supports demands by plaintiffs that other courts give only cursory attention to defendants' objections to class certification pending appeals. The only encouraging development I have seen in this areas is in the medical monitoring claims, where courts are recognizing that individual healthcare decisions are the basis of medical monitoring claims and that, by definition, such claims are unsuited for class action treatment.

Editor: Your firm was recently named Product Liability Law Firm of year. Undoubtedly, your firm was recognized primarily for its expertise. Are there other activities of the firm that may also have contributed to receiving that honor?

Koon: We try to go the extra mile to foster improvements in the way product liability matters are adjudicated in America. My partner, Victor Schwartz, and our public policy group have made a great contribution to enacting federal and state legislation that addresses many of the concerns of corporate counsel that you have asked about in this interview. Members of our product liability group track the work of judicial rulemaking bodies at both the federal and state levels, serving as members or witnesses. They have supported improvements in the rules that also relate to the concerns addressed in this interview.

I might also mention our efforts to educate the judiciary about legal issues of concern to those involved in the product liability area. For example, we recently had a national e-discovery forum in Kansas City. Judge Scheindlin came as well as a number of other federal district court judges interested in the subject. We support the Product Liability Advisory Council, particularly its effort to provide judges with the information they need. Our view is that our clients are helped by smart juries and well informed judges who are receptive to listening to cases and deciding them on the facts as opposed to emotions.

Please email the interviewee at mkoon@shb.com with questions about this interview.