US Business Litigation Risks
A Comprehensive Handbook for Business Owners and the Attorneys Who Advise Them, Second Edition
2nd Edition
Published on 20. March 2025
Book
Paperback/Softback
495 pages
978-1-83723-046-4 (ISBN)
Description
Why are companies so frequently sued in the United States, and how might these business litigation risks be avoided through preventative measures and more effectively managed?
This book, now in its second edition, answers those two weighty questions. The central premise of the work is that costly and protracted lawsuits in the US are often traceable to unforced errors companies make time and again. By better understanding the sources of commercial litigation, including the various legal theories of plaintiff's lawyers and current litigation trends, preventive steps can be implemented, reducing these risks and saving the company millions in legal fees and liabilities.
Kent Schmidt draws on over twenty-five years of experience defending companies throughout the US in almost every conceivable type of commercial litigation. He applies a "lessons-learned" approach from these experiences, to examine how companies can create a unique litigation risk profile to identify and address their primary litigation vulnerabilities. The second part of the book outlines how companies embroiled in US litigation can manage the process, from the filing of the lawsuit, expensive discovery, trial or arbitration and various dispute resolving opportunities along the way.
The book is written for a diverse audience. Attorneys, whether in-house or outside counsel, will find it a useful desk-reference for quickly accessing relevant information and issue-spotting for their clients. The book is equally accessible to non-lawyers - anyone whose responsibilities include managing US litigation risks. These persons include those in venture capital, CFOs and other members of management, risk management and compliance professionals, and entrepreneurs seeking to implement best practices as they launch a start-up or expand to US markets.
The second edition includes a number of key updates: tracking litigation trends, new US regulations emerging public policies, particularly in the area of ESG-driven lawsuits, privacy litigation, enhanced mandatory disclosures protecting consumers, new employee liabilities, and a host of other cutting edge litigation risks.
This book, now in its second edition, answers those two weighty questions. The central premise of the work is that costly and protracted lawsuits in the US are often traceable to unforced errors companies make time and again. By better understanding the sources of commercial litigation, including the various legal theories of plaintiff's lawyers and current litigation trends, preventive steps can be implemented, reducing these risks and saving the company millions in legal fees and liabilities.
Kent Schmidt draws on over twenty-five years of experience defending companies throughout the US in almost every conceivable type of commercial litigation. He applies a "lessons-learned" approach from these experiences, to examine how companies can create a unique litigation risk profile to identify and address their primary litigation vulnerabilities. The second part of the book outlines how companies embroiled in US litigation can manage the process, from the filing of the lawsuit, expensive discovery, trial or arbitration and various dispute resolving opportunities along the way.
The book is written for a diverse audience. Attorneys, whether in-house or outside counsel, will find it a useful desk-reference for quickly accessing relevant information and issue-spotting for their clients. The book is equally accessible to non-lawyers - anyone whose responsibilities include managing US litigation risks. These persons include those in venture capital, CFOs and other members of management, risk management and compliance professionals, and entrepreneurs seeking to implement best practices as they launch a start-up or expand to US markets.
The second edition includes a number of key updates: tracking litigation trends, new US regulations emerging public policies, particularly in the area of ESG-driven lawsuits, privacy litigation, enhanced mandatory disclosures protecting consumers, new employee liabilities, and a host of other cutting edge litigation risks.
More details
Edition
2nd New edition
Language
English
Place of publication
London
United Kingdom
Target group
Professional and scholarly
Edition type
New edition
Product notice
Paperback (trade)
Unsewn / adhesive bound
Dimensions
Height: 234 mm
Width: 156 mm
Thickness: 27 mm
Weight
739 gr
ISBN-13
978-1-83723-046-4 (9781837230464)
Copyright in bibliographic data and cover images is held by Nielsen Book Services Limited or by the publishers or by their respective licensors: all rights reserved.
Schweitzer Classification
Other editions
Additional editions
Kent Schmidt
US Business Litigation Risks
A Comprehensive Handbook for Business Owners and the Attorneys Who Advise Them, Second Edition
E-Book
03/2025
2nd Edition
Globe Law and Business
€236.99
Available for download
Previous edition
Kent Schmidt
Avoiding and Managing Us Business Litigation Risks
A Comprehensive Guide for Business Owners and the Attorneys Who Advise Them
Book
03/2021
1st Edition
Globe Law and Business Ltd
€94.28
Article exhausted; check for reprint
Person
By Kent Schmidt
Content
Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi
About the author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xv
Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xvii
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxi
Commercial litigation avoidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxii
Effective management of business litigation . . . . . . . . . . . . . . . . . . . . . . . . xxiv
Foreign companies facing US litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxvi
A California emphasis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxvii
A litigator's unique perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xxviii
Assumptions and audiences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxix
Part one: Understanding why companies are ensnared in costly litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Chapter 1: The five Cs of business litigation risks . . . . . . . . . . . . . . . . . . . . . 3
Creating a business litigation risk profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
The closely related regulatory risk profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Assessing commercial litigation risks - a five-part framework . . . . . . . . 11
Part two: Corporate governance litigation risks- claims from shareholders and other constituents of the business . . . . . . . . . . . . . . . . . . . . . 17
Chapter 2: Basics of corporate governance litigation . . . . . . . . . . . . . . . . . . 19
Understanding shareholder litigation - a useful metaphor . . . . . . . . . . 20
Four recurring themes of corporate governance litigation . . . . . . . . . . . 25
Seven legal concepts useful to understanding corporate governance litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Chapter 3: Ten sources of corporate governance lawsuits . . . . . . . . . . . . . 39
1. Irreconcilable differences between ill-suited business partners . . . 39
2. Failing to maintain the formalities and other best practices . . . . . . 42
3. Giving employees equity interests resulting in dual sets of obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4. Disputes over informational rights of shareholders, members and partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5. Misleading constituents through fraudulent statements or omissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6. Breach of fiduciary duty claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7. Failing to make reasonable inquiries concerning risks to the company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
8. Failure to implement a code of ethics and an effective corporate compliance program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
9. Commingling and other separateness issues . . . . . . . . . . . . . . . . . . . . . 59
10. Dealing with creditors and facing insolvency . . . . . . . . . . . . . . . . . . . . . 60
Part three: Litigation risks from commercial contract disputes . . . 65
Chapter 4: Core issues in breach of contract litigation . . . . . . . . . . . . . . . . 67
Navigating troubled waters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Is there an enforceable contract? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
How and where is this dispute going to be resolved? . . . . . . . . . . . . . . . . . 79
What are the substantive contract terms? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Are there statutory overrides for the contract or specific terms? . . . . . 84
Were the contractual duties performed or excused (breach)? . . . . . . . . . 88
What are the remedies for a breach of contractual duties? . . . . . . . . . . . 91
Chapter 5: Strategies for managing litigation risks arising from commercial contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
1. Manage the contracting and approval process . . . . . . . . . . . . . . . . . . . . 97
2. Formalize informal agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
3. Be aware of the risk of preliminary agreements and agreements to agree . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
4. Scrutinize the scope of express indemnity provisions . . . . . . . . . . . . 101
5. Address termination scenarios and the risk of precipitous terminations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
6. Specify which contract terms survive termination . . . . . . . . . . . . . . . . 104
7. Craft time limits and cure provisions that are appropriate . . . . . . . 105
8. Consider how joint venture duties arise . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
9. Include an effective integration clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
10.Guard against claims that a contract was fraudulently induced . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
11. Prevent claims that a contract was modified by subsequent conduct and effectively modify written agreements . . . . . . . . . . . . . . 110
12. Preclude claims for extraordinary damages . . . . . . . . . . . . . . . . . . . . . . . 112
13. Control where the battle will be fought and jurisdictional waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
14. Ensure favorable law will be applied . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
15. Consider the pros and cons of arbitration . . . . . . . . . . . . . . . . . . . . . . . . . 117
16. Decide whether an attorney fee provision is beneficial . . . . . . . . . . . 126
17. Determine whether there are strategic benefits to waiving a jury trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
Chapter 6: Lawsuits arising from negotiations and implied obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
Liability for bad faith during contract negotiations . . . . . . . . . . . . . . . . . . 141
Misuse of confidential information obtained in negotiations . . . . . . . . 145
Coercive negotiations constituting economic duress . . . . . . . . . . . . . . . . . 147
Six practical ways to reduce the risks of claims arising from contract negotiations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149
Avoiding claims for breach of the implied covenant of good faith and fair dealing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
Part four: Customer claims including consumer protection class actions, product liability, and breach of warranty claims . . . . . . . . . . . . 161
Chapter 7: Customers presenting consumer protection and class action risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
US class actions - a tough pill to swallow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165
Overview of US class actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
Basic requirements of a class action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168
The history and policies behind federal and state consumer protection statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168
The role and duties of class action lawyers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170
How class action lawyers make their millions . . . . . . . . . . . . . . . . . . . . . . . . 171
Why class counsel fee awards are exorbitant . . . . . . . . . . . . . . . . . . . . . . . . . 172
How class actions are settled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174
The rise in pre-filing settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175
The California class action framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176
The interrelationship between state consumer protection claims and federal regulations . . . . . . . . . . . . . . . . . . . . . . . . 183
Chapter 8: A framework for identifying consumer class action risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189
What is said about the product or service? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190
What is not said about the product or service? . . . . . . . . . . . . . . . . . . . . . . . 198
Facts pertinent to health and safety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200
What is said about the price, including fees and charges? . . . . . . . . . . . . 200
What is said about competitors or the market? . . . . . . . . . . . . . . . . . . . . . . . 204
What is said about the transaction? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206
FTC's "Click to Cancel" rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209
How are the advertising statements conveyed? . . . . . . . . . . . . . . . . . . . . . . . 210
Chapter 9: Additional litigation risks specific to product sales and distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223
Breach of warranty claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225
Express warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226
Implied warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227
Modifications and disclaimers of warranties . . . . . . . . . . . . . . . . . . . . . . . . . 228
Overview of the Magnuson-Moss Warranty Act . . . . . . . . . . . . . . . . . . . . . . 230
Song-Beverly Consumer Warranty Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234
The New Jersey pitfall . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235
Product liability claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236
Chemical exposures in products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243
How Prop 65 works . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243
Prop 65 litigation claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244
The problems presented by Prop 65 claims . . . . . . . . . . . . . . . . . . . . . . . . . . . 245
Avoiding a Prop 65 claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246
Chapter 10: Strategies for mitigating specific customer litigation risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255
1. Identify and prioritize the greatest customer litigation risks . . . . . 256
2. Re-examine regulations that may buttress customer claims . . . . . 256
3. Monitor regulatory activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257
4. Become familiar with relevant litigation trends . . . . . . . . . . . . . . . . . . . 257
5. Review insurance policies and exclusions . . . . . . . . . . . . . . . . . . . . . . . . . 258
6. Explore indemnity rights and obligations . . . . . . . . . . . . . . . . . . . . . . . . 259
7. Consider SRO guidance, industry, and voluntary standards . . . . . . . 260
8. Assess documentation relating to products or services advertised, distributed, or sold to customers . . . . . . . . . . . . . . . . . . . . . . 261
9. Consider and utilize customer service data . . . . . . . . . . . . . . . . . . . . . . . 261
10. Confirm effective assent to contract terms . . . . . . . . . . . . . . . . . . . . . . . 262
The rise in consumer class action waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266
The other risk - mass arbitrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268
The period in which to reject non-conforming goods . . . . . . . . . . . . . . . . 269
The period in which to bring a lawsuit (contractual statute of limitations) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270
11. Limit liabilities and remedies to the extent permitted . . . . . . . . . . . . 271
12. Consider product recall issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272
13. Consider disproportionate liabilities that arise from incorporating component parts or ingredients in a product . . . . . . 274
14. Negotiate acceptable quality limits and failure rate provisions for large volume sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274
Chapter 11: Claims relating to data privacy and cybersecurity . . . . . . . . 279
History and origins of privacy protections . . . . . . . . . . . . . . . . . . . . . . . . . . . 282
A "cradle-to-grave" approach to privacy liabilities . . . . . . . . . . . . . . . . . . . . 283
1. The collection of consumer data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283
2. Uses and sharing of consumer data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288
3. Disclosures to the consumer regarding their data . . . . . . . . . . . . . . . . 294
4. Responses to consumers' requests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299
5. The protection of consumer data from a breach . . . . . . . . . . . . . . . . . . 300
6. The required notices relating to a data breach . . . . . . . . . . . . . . . . . . . . 303
7. The disposal of consumer data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 304
Privacy regulations applicable to particular industries and contexts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305
The ten questions to ask in evaluating risks of data privacy claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307
Part five: Competitor lawsuits including misappropriation, interference, intellectual property, and antitrust claims . . . . . . . . . . 317
Chapter 12: Litigation risks relating to competitors . . . . . . . . . . . . . . . . . . . 319
The eight most common litigation theories asserted between competitors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320
1. Misappropriation of trade secrets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324
2. Other litigation claims relating to employee mobility . . . . . . . . . . . . 333
3. Registrable intellectual property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338
4. Other Lanham Act claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342
5. Trade disparagement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343
6. Antitrust violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346
7. California's Unfair Competition Law and Unfair Practices Act . . . . 351
8. Common law interference claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352
Things to consider before suing a competitor . . . . . . . . . . . . . . . . . . . . . . . . 354
Part six: Crewmember litigation - claims brought by, because of, or against employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365
Chapter 13: Crewmember claims and other liabilities relating to employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 367
The most common claims by employees against employers . . . . . . . . . 368
Preventing and reducing employment claims . . . . . . . . . . . . . . . . . . . . . . . . 392
Claims arising from employees' tortious actions . . . . . . . . . . . . . . . . . . . . . 398
Unethical or corrupt practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 399
Part seven: Litigation management after a lawsuit is filed . . . . . . . . 413
Chapter 14: Essentials of managing the six stages of commercial litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 415
Stage 1: Pre-litigation communications and demands . . . . . . . . . . . . . . . . 417
Stage 2: Pleading and initial forum fights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 423
Stage 3: Discovery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 429
Stage 4: Pre-trial merits determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432
Stage 5: Trials and arbitration hearings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 433
Stage 6: Post-trial motions, appeals, and enforcement of judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 437
Chapter 15: Foundational litigation management decisions . . . . . . . . . . 445
Selecting the right flight crew . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 445
The economics of litigation management . . . . . . . . . . . . . . . . . . . . . . . . . . . . 449
Working through the preflight checklist . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 453
Triangulated litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 456
Revisiting the flight plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 459
Controlling litigation costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 460
Chapter 16: Further tips for navigating the litigation process to a successful conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 469
Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 469
Depositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 475
1. Know the ground rules - the "blocking and tackling" of depositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 477
2. Know the issues in the case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 478
3. Know the unpleasant surprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 478
4. Know what you don't know . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 478
5. Know what you should know . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 479
The three problem deponents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 480
Expert witnesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 481
The landing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 483
Private mediations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 484
Court officers and settlement conferences . . . . . . . . . . . . . . . . . . . . . . . . . . . 484
Timing of settlement (the 80/20 rule) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 485
A company's evolving position on settlement . . . . . . . . . . . . . . . . . . . . . . . . 486
Business solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 487
Alternatives to settlement or trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 488
Stipulated judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 489
Closing thoughts on commercial litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . 489
About Globe Law and Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 495
About the author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xv
Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xvii
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxi
Commercial litigation avoidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxii
Effective management of business litigation . . . . . . . . . . . . . . . . . . . . . . . . xxiv
Foreign companies facing US litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxvi
A California emphasis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxvii
A litigator's unique perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xxviii
Assumptions and audiences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxix
Part one: Understanding why companies are ensnared in costly litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Chapter 1: The five Cs of business litigation risks . . . . . . . . . . . . . . . . . . . . . 3
Creating a business litigation risk profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
The closely related regulatory risk profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Assessing commercial litigation risks - a five-part framework . . . . . . . . 11
Part two: Corporate governance litigation risks- claims from shareholders and other constituents of the business . . . . . . . . . . . . . . . . . . . . . 17
Chapter 2: Basics of corporate governance litigation . . . . . . . . . . . . . . . . . . 19
Understanding shareholder litigation - a useful metaphor . . . . . . . . . . 20
Four recurring themes of corporate governance litigation . . . . . . . . . . . 25
Seven legal concepts useful to understanding corporate governance litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Chapter 3: Ten sources of corporate governance lawsuits . . . . . . . . . . . . . 39
1. Irreconcilable differences between ill-suited business partners . . . 39
2. Failing to maintain the formalities and other best practices . . . . . . 42
3. Giving employees equity interests resulting in dual sets of obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4. Disputes over informational rights of shareholders, members and partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5. Misleading constituents through fraudulent statements or omissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6. Breach of fiduciary duty claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7. Failing to make reasonable inquiries concerning risks to the company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
8. Failure to implement a code of ethics and an effective corporate compliance program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
9. Commingling and other separateness issues . . . . . . . . . . . . . . . . . . . . . 59
10. Dealing with creditors and facing insolvency . . . . . . . . . . . . . . . . . . . . . 60
Part three: Litigation risks from commercial contract disputes . . . 65
Chapter 4: Core issues in breach of contract litigation . . . . . . . . . . . . . . . . 67
Navigating troubled waters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Is there an enforceable contract? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
How and where is this dispute going to be resolved? . . . . . . . . . . . . . . . . . 79
What are the substantive contract terms? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Are there statutory overrides for the contract or specific terms? . . . . . 84
Were the contractual duties performed or excused (breach)? . . . . . . . . . 88
What are the remedies for a breach of contractual duties? . . . . . . . . . . . 91
Chapter 5: Strategies for managing litigation risks arising from commercial contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
1. Manage the contracting and approval process . . . . . . . . . . . . . . . . . . . . 97
2. Formalize informal agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
3. Be aware of the risk of preliminary agreements and agreements to agree . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
4. Scrutinize the scope of express indemnity provisions . . . . . . . . . . . . 101
5. Address termination scenarios and the risk of precipitous terminations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
6. Specify which contract terms survive termination . . . . . . . . . . . . . . . . 104
7. Craft time limits and cure provisions that are appropriate . . . . . . . 105
8. Consider how joint venture duties arise . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
9. Include an effective integration clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
10.Guard against claims that a contract was fraudulently induced . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
11. Prevent claims that a contract was modified by subsequent conduct and effectively modify written agreements . . . . . . . . . . . . . . 110
12. Preclude claims for extraordinary damages . . . . . . . . . . . . . . . . . . . . . . . 112
13. Control where the battle will be fought and jurisdictional waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
14. Ensure favorable law will be applied . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
15. Consider the pros and cons of arbitration . . . . . . . . . . . . . . . . . . . . . . . . . 117
16. Decide whether an attorney fee provision is beneficial . . . . . . . . . . . 126
17. Determine whether there are strategic benefits to waiving a jury trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
Chapter 6: Lawsuits arising from negotiations and implied obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
Liability for bad faith during contract negotiations . . . . . . . . . . . . . . . . . . 141
Misuse of confidential information obtained in negotiations . . . . . . . . 145
Coercive negotiations constituting economic duress . . . . . . . . . . . . . . . . . 147
Six practical ways to reduce the risks of claims arising from contract negotiations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149
Avoiding claims for breach of the implied covenant of good faith and fair dealing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
Part four: Customer claims including consumer protection class actions, product liability, and breach of warranty claims . . . . . . . . . . . . 161
Chapter 7: Customers presenting consumer protection and class action risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
US class actions - a tough pill to swallow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165
Overview of US class actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
Basic requirements of a class action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168
The history and policies behind federal and state consumer protection statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168
The role and duties of class action lawyers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170
How class action lawyers make their millions . . . . . . . . . . . . . . . . . . . . . . . . 171
Why class counsel fee awards are exorbitant . . . . . . . . . . . . . . . . . . . . . . . . . 172
How class actions are settled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174
The rise in pre-filing settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175
The California class action framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176
The interrelationship between state consumer protection claims and federal regulations . . . . . . . . . . . . . . . . . . . . . . . . 183
Chapter 8: A framework for identifying consumer class action risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189
What is said about the product or service? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190
What is not said about the product or service? . . . . . . . . . . . . . . . . . . . . . . . 198
Facts pertinent to health and safety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200
What is said about the price, including fees and charges? . . . . . . . . . . . . 200
What is said about competitors or the market? . . . . . . . . . . . . . . . . . . . . . . . 204
What is said about the transaction? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206
FTC's "Click to Cancel" rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209
How are the advertising statements conveyed? . . . . . . . . . . . . . . . . . . . . . . . 210
Chapter 9: Additional litigation risks specific to product sales and distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223
Breach of warranty claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225
Express warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226
Implied warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227
Modifications and disclaimers of warranties . . . . . . . . . . . . . . . . . . . . . . . . . 228
Overview of the Magnuson-Moss Warranty Act . . . . . . . . . . . . . . . . . . . . . . 230
Song-Beverly Consumer Warranty Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234
The New Jersey pitfall . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235
Product liability claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236
Chemical exposures in products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243
How Prop 65 works . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243
Prop 65 litigation claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244
The problems presented by Prop 65 claims . . . . . . . . . . . . . . . . . . . . . . . . . . . 245
Avoiding a Prop 65 claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246
Chapter 10: Strategies for mitigating specific customer litigation risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255
1. Identify and prioritize the greatest customer litigation risks . . . . . 256
2. Re-examine regulations that may buttress customer claims . . . . . 256
3. Monitor regulatory activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257
4. Become familiar with relevant litigation trends . . . . . . . . . . . . . . . . . . . 257
5. Review insurance policies and exclusions . . . . . . . . . . . . . . . . . . . . . . . . . 258
6. Explore indemnity rights and obligations . . . . . . . . . . . . . . . . . . . . . . . . 259
7. Consider SRO guidance, industry, and voluntary standards . . . . . . . 260
8. Assess documentation relating to products or services advertised, distributed, or sold to customers . . . . . . . . . . . . . . . . . . . . . . 261
9. Consider and utilize customer service data . . . . . . . . . . . . . . . . . . . . . . . 261
10. Confirm effective assent to contract terms . . . . . . . . . . . . . . . . . . . . . . . 262
The rise in consumer class action waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266
The other risk - mass arbitrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268
The period in which to reject non-conforming goods . . . . . . . . . . . . . . . . 269
The period in which to bring a lawsuit (contractual statute of limitations) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270
11. Limit liabilities and remedies to the extent permitted . . . . . . . . . . . . 271
12. Consider product recall issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272
13. Consider disproportionate liabilities that arise from incorporating component parts or ingredients in a product . . . . . . 274
14. Negotiate acceptable quality limits and failure rate provisions for large volume sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274
Chapter 11: Claims relating to data privacy and cybersecurity . . . . . . . . 279
History and origins of privacy protections . . . . . . . . . . . . . . . . . . . . . . . . . . . 282
A "cradle-to-grave" approach to privacy liabilities . . . . . . . . . . . . . . . . . . . . 283
1. The collection of consumer data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283
2. Uses and sharing of consumer data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288
3. Disclosures to the consumer regarding their data . . . . . . . . . . . . . . . . 294
4. Responses to consumers' requests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299
5. The protection of consumer data from a breach . . . . . . . . . . . . . . . . . . 300
6. The required notices relating to a data breach . . . . . . . . . . . . . . . . . . . . 303
7. The disposal of consumer data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 304
Privacy regulations applicable to particular industries and contexts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305
The ten questions to ask in evaluating risks of data privacy claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307
Part five: Competitor lawsuits including misappropriation, interference, intellectual property, and antitrust claims . . . . . . . . . . 317
Chapter 12: Litigation risks relating to competitors . . . . . . . . . . . . . . . . . . . 319
The eight most common litigation theories asserted between competitors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320
1. Misappropriation of trade secrets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324
2. Other litigation claims relating to employee mobility . . . . . . . . . . . . 333
3. Registrable intellectual property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338
4. Other Lanham Act claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342
5. Trade disparagement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343
6. Antitrust violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346
7. California's Unfair Competition Law and Unfair Practices Act . . . . 351
8. Common law interference claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352
Things to consider before suing a competitor . . . . . . . . . . . . . . . . . . . . . . . . 354
Part six: Crewmember litigation - claims brought by, because of, or against employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365
Chapter 13: Crewmember claims and other liabilities relating to employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 367
The most common claims by employees against employers . . . . . . . . . 368
Preventing and reducing employment claims . . . . . . . . . . . . . . . . . . . . . . . . 392
Claims arising from employees' tortious actions . . . . . . . . . . . . . . . . . . . . . 398
Unethical or corrupt practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 399
Part seven: Litigation management after a lawsuit is filed . . . . . . . . 413
Chapter 14: Essentials of managing the six stages of commercial litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 415
Stage 1: Pre-litigation communications and demands . . . . . . . . . . . . . . . . 417
Stage 2: Pleading and initial forum fights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 423
Stage 3: Discovery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 429
Stage 4: Pre-trial merits determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432
Stage 5: Trials and arbitration hearings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 433
Stage 6: Post-trial motions, appeals, and enforcement of judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 437
Chapter 15: Foundational litigation management decisions . . . . . . . . . . 445
Selecting the right flight crew . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 445
The economics of litigation management . . . . . . . . . . . . . . . . . . . . . . . . . . . . 449
Working through the preflight checklist . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 453
Triangulated litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 456
Revisiting the flight plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 459
Controlling litigation costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 460
Chapter 16: Further tips for navigating the litigation process to a successful conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 469
Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 469
Depositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 475
1. Know the ground rules - the "blocking and tackling" of depositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 477
2. Know the issues in the case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 478
3. Know the unpleasant surprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 478
4. Know what you don't know . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 478
5. Know what you should know . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 479
The three problem deponents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 480
Expert witnesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 481
The landing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 483
Private mediations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 484
Court officers and settlement conferences . . . . . . . . . . . . . . . . . . . . . . . . . . . 484
Timing of settlement (the 80/20 rule) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 485
A company's evolving position on settlement . . . . . . . . . . . . . . . . . . . . . . . . 486
Business solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 487
Alternatives to settlement or trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 488
Stipulated judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 489
Closing thoughts on commercial litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . 489
About Globe Law and Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 495