Counseling  A Client When a Dispute Threatens

(originally published in the Colorado Journal, 2000)

When a dispute is threatens, it may have a great effect on the ability to resolve the dispute without litigation.  Additionally, we need to counsel our clients not to aggravate or worsen the situation when it is possible that the matter will end up in court or before an arbitration panel for resolution.  We can and perhaps should discuss how to deal with threatening litigation generally and in advance of the dispute.  Often, after a dispute has arisen, such counseling may be too late.

Consider two broad categories of general advice that may permit our clients to resolve the dispute on their own or, as a minimum, to better position themselves for the later resolution of the dispute either in ADR or in litigation.  The first category are the thoughtful actions that our client should consider when litigation threatens.  Second, our client may safely, yet effectively, make early initiatives to resolve the dispute.

Thoughtful Approaches to Handling Business When Litigation Threatens. 

It is important that our clients be able to effectively continue their business without undue prejudice from the threat of later litigation.  Nevertheless, several suggestions from legal counsel may simplify settlement for, alternatively, minimize litigation risk.

How to Handle Your Company’s Files.

We should counsel our clients against the creation of “trial exhibits” once a dispute appears on the horizon.  Such “trial exhibits” may include internal file memos or electronic mail messages which poorly or ineffectively characterize factually events or the legal dispute with the opposing party.  Our clients are best advised not to create new documents concerning the disputed matter unless requested by and addressed to their legal counsel.  Often, the well intended memorandum summarizing the events by a key person in retrospect is  found to be less than fully accurate and perhaps damaging to the company’s position.  A second precaution may be the creation of a separate file concerning the dispute (e.g. a file identified as “Jones Dispute”) that contains documents from the company’s counsel in which counsel asks the company’s representatives to prepare.  The creation of such a file can simplify the later production of documents when there may be a dispute as to which documents are business record exceptions to the hearsay rule or which documents were prepared after the dispute has arisen.  Lastly, the company should be advised that it certainly should not destroy any documents or evidence.  Once the litigation is threatened, an ad hoc attempt to purge files, even if thought to be harmless, will likely be viewed as unethical and create adverse trial presumptions.  This is important information to convey to our client during calmer business moments rather than as part of an explanation of damage done after documents or evidence relating to a dispute have been discarded or destroyed. 

How to Handle Internal Company Discussions.

Similarly, in the calm before any litigation is threatened, we may be well advised to remind our clients to minimize internal conferences concerning potential litigation.  Internal discussions concerning the nature of the dispute where legal counsel is not threatened may well be likely subjects for depositions.  Similarly, we may be advising the company to minimize the number of persons who are responsible for working on a disputed matter.  As the number of persons working on a disputed matter increases, the company may merely provide opposing counsel, in subsequent litigation, to try to find “inconsistencies” in their viewpoints or positions or statements regarding the disputed matter.  Similarly, our clients should be careful with the discussion of litigation in the notes of informal meetings or in the minutes of shareholder meetings.  Often the informal characterization of the dispute, however innocently undertaken, can later be difficult to explain to the finder of fact. 

Who is Responsible for Dealing with the Dispute?

Part of our advice to a client, when litigation threatens, may be to select a “point” person or a settlement team to deal with the dispute and with legal counsel.  Having a “point” person (selected early) may well simplify the company’s ability to use ADR or, alternatively, to prepare for trial.  Where possible, if the company has a “point” person communicating with the potential opponent, communications concerning the possible settlement of the dispute are simplified.  Moreover, if settlement fails, the concentration of decision making and communication with one person simplifies the presentation of evidence at trial. 

Handling Communications with a Potential Adversary.

Of course, we need to remind our clients that any statements made to the potential adversary may likely be considered “admissions.”  Accordingly, care should be taken in selecting the words in telephone communications and in letters.  Our clients should know that any letters, facsimiles or e-mails relating to the dispute will likely be admitted into evidence.  Additionally, we should caution our clients that cute or “colorful” language may seem light-hearted at the moment but may later be quite harmful in litigation.

Advising Our Client about Settlement Initiatives.

There are two points that are important to discuss with our clients concerning settlement initiatives.  The client should be informed of the level of protection afforded to settlement discussions in the event that a trial ultimately is required.  To simplify and preserve the protection (particularly where business representatives are proceeding with settlement negotiations without the direct assistance of legal counsel), our clients should be cautioned to inform the potential adversary that the discussion for settlement is intended by the company to be protected and is intended to be a discussion of “compromise and settlement.”  In order to avoid confusion about the protection of the rule, you may wish to advise the company that it should not combine settlement discussions with other business communications with the potential adversary.

Making Early Settlement Initiatives.

Notwithstanding the caution expressed above, we should also advise our client as to the benefits of making early and candid settlement initiatives.  The extension of the olive branch from one side of a dispute can have a dramatic effect on the potential adversary.  Consequently, although seeking to inform our client in ways to protect them in the possibility of an eventual trial, we also need to inform our client of the benefits of candid and early settlement initiatives.  Such discussions, particularly when thoughtfully undertaken and planned, may diffuse the threatened litigation and permit full resolution of the matter between business representatives.  Additionally, with the widespread knowledge and acceptance of ADR procedures, it may well be appropriate that our clients not only find ways to directly and thoughtfully approach settlement discussions, but may also suggest, from business person to person, the use of conciliation, mediation or other ADR options.  Even if not promptly undertaken, the company’s suggestion of ADR alternatives may later increase the likelihood that your potential adversary will later accept the use of ADR as a means of resolving the business dispute.

Both the trial lawyer and the ADR counselor may wish that our clients had better handled early communications when litigation was threatening.  The trial lawyer may regret a hurriedly-written memo later shown to be incomplete and in fact, inaccurate.  Explaining that memo at trial may prove difficult.  Similarly, the ADR counselor may wish that initial settlement overtures had been undertaken with more care and thought so as to open the prospect for negotiation or resolution by ADR much earlier in the dispute.  In either event, our clients may benefit from a discussion of the actions to consider when litigation threatens - and such advice is best provided in the absence of a dispute and in a way intended to be later called upon in the early stages of a threatened litigation.