Outside Inhouse Lawyer Blog : New York & Seattle Corporate Dispute Lawyer & Attorney : Grace M. Healy : Outside counsel : King County, Tacoma, Bellevue

For anyone who deals with Washington consumers, the Washington State Supreme Court came down with a decision this week that is not to be missed.  I suspect that the decision’s reach will be debated for some time, but, right now, any business that has a consumer contract with an arbitration dispute resolution clause and/or out of state choice of law provision should look carefully at yesterday’s 35 page opinion in McKee v. AT&T, which stated that a cell phone dispute resolution clause was unconscionable in four different aspects and refused to enforce an arbitration clause that contained those provisions. 

McKee, an AT&T customer, initiated a class action suit in Washington state court relating to a cell phone contract.  AT&T objected for a number of reasons including a dispute resolution paragraph in the agreement that mandated arbitration and that waived any right to start class actions.  Citing Washington’s strong interest in consumer protection and limited contacts with New York, the court refused to apply New York law (which allows contractual waiver of class actions), and found the arbitration provision was substantively unconscionable because it mandated that the arbitration be confidential, prohibited class actions, shortened the statute of limitations, and limited attorney’s fees – only the customer paid them.  The bottom line is that the court refused to sever the unconscionable provisions, and the dispute resolution paragraph was stricken from the agreement because of the taint of the unconscionable portions.

I have no involvement in this case, but, given the tenor of the opinion, the best news for AT&T yesterday was that the court didn’t think it was necessary to reach the issue of whether the agreement was procedurally unconscionable.  The court did not seem particularly impressed with those procedures. 

Anyway, given this decision, sellers or service providers dealing with Washington consumers should take a hard look at their agreements, as well as their procedures for binding their customers or amending their agreements as soon as possible.
 

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Today’s New York Times reveals that plaintiffs who reject settlement offers and go to trial often recover less than the offer at trial.  This is based upon a study of cases that will be published in the September issue of the Journal of Empirical Legal Studies.  The Times article says that the findings “raise provocative questions about how lawyers and clients make decisions, the quality of legal advice and lawyers’ motives.”  “The study found that factors like the years of experience, rank of a lawyer’s law school and the size of a law firm were less helpful in predicting the decision to go to trial. More significant was the type of case.”

What the Times article doesn’t suggest -- and statistics probably can't show --  is that parties often have legitimate differences of opinion about the merits of a case, and those differences play out at a trial.  Or, that  possibly, plaintiffs’ lawyers – who are willing to be paid by contingency fee – are intrinsically less adverse to risks than defendants’ lawyers – who choose to live by the hourly rate.  Or, that plaintiffs may be seeking to vindicate what they see as personal wrongs as opposed to defendants who generally view litigation as a cost of doing business.  Or, that defendants are paying more in settlement than they would lose if the cases were taken to trial.

Decisions to go to trial are often incorrect in hindsight, but saying that a decision to go to trial is a mistake that can be remedied in advance of trial ignores the enormous number of variables that occur during trial – such as, who turns up for jury duty that day, or whether that jury thinks your witness is not truthful because he or she begins to perspire while testifying.  Where you go to law school isn’t a big help at that time.

Certainly, each party wants the best result – if they agreed on what that was, there would never be a need for a lawsuit or a trial.  It doesn’t mean that the decision to reject a settlement offer to go to trial is a “mistake”.

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A few weeks ago I listened to a continuing legal education presentation focused on taking depositions.  One of the presenters said that one reason for taking a deposition was to cause pain in order to possibly leverage a settlement.  Frankly, I was amazed.  Who would ever admit that there was any purpose for a deposition outside of trying to discover information that could lead to the discovery of admissible evidence? 

In any event, it raised the issue of the problems facing counsel when the deposition of a senior manager must go forward – and you strongly suspect that the primary purpose of the deposition is to make that manager look unprepared, unaware, unkind, unfeeling, unsophisticated and/or unintelligent; in other words, the purpose of the deposition is to leverage a settlement, or to make a jury intensely dislike your client. 

This type of deposition is a different experience for the witness and defense counsel.  Generally, the witness is used to being in charge and has very little time, or inclination, to prepare for the deposition experience.  The witness may have had limited involvement with the underlying facts.  Both inside and outside counsel may have perspectives that differ from the normal discovery deposition.  Outside counsel may want to build a relationship with senior management to keep the client and broaden the relationship.  Inside counsel may want to build a relationship with management and keep her job.

A good beginning for the witness’s preparation is a column by George Anders that was published in the Wall Street Journal on July 26, 2005. information and suggestions provided by non-lawyers and uninvolved lawyers who point out that a deposition is not a standard business situation and requires a different mind-set. Ideally, a copy of the column would be given to the witness before the preparation session.  For testifying, Mr. Andros suggests that a senior manager be advised to keep four key guidelines in mind.  1.) Keep answers brief and tightly focused and avoid the temptation to expand beyond what is asked. 2.) Prepare diligently beforehand. 3.) Stay calm and truthful. 4.) Understand your strategy well enough so that you don’t undermine your value as a witness if the case goes to trial. 

Obviously, given the concerns of in-house and outside counsel, teamwork is critical; however, both counsel should be prepared for surprises in how the other deals with the preparation and defense.

Because of the potential for a far ranging examination -- no matter how limited the time for preparation, or a court order limiting the scope of the exam -- a difficult, far ranging preparatory exam should be given so that the manager has some idea of what he may be up against in advance.  At best, if the deposition goes well, the litigation team will be seen as well prepared and extremely capable.  If it goes poorly, well, there are no guarantees in litigation.  In any event, make sure someone discreetly suggests that the witness dress appropriately for the deposition.

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A few years ago, a general counsel told me that the worst possible litigation outcome for a defendant company is a settlement that is less than the defense fees incurred.  I opted for diplomacy and agreed, but thought, no, the worst possible outcome is settling a case and having the same opposing counsel sue your company on a similar matter a few weeks after the first check is received. A really big problem is developing – you are becoming a target, and, in all likelihood, you overpaid on the first case.

Recently, this came to mind when I read an article by Steven Hantler discussing core competencies for litigation managers.   The article observed that litigation managers generally focus too closely on managing a case after a complaint has been filed, but, preferably, in addition to managing the litigation, managers had to formulate communications strategies, understand the company’s regulatory and legal environment, and understand how the case could affect various constituencies. 

That got me thinking that my earlier opinion was too narrowly focused on the litigation, itself.  In fact, litigation may have more far reaching effects on your business -- your reputation and relationships with your core constituencies could be in danger.  To formulate a litigation strategy that works in the context of a business, an in-house litigation counsel must see and analyze the matter from a variety of perspectives.  The effects, if any, on how you do business, your customers, your employees, your shareholders, your contractors – including your accountants, your community, the community where the claim either arose or is pending, the potential for future litigation, the effect on other pending litigation, the law, the judge, his or her clerk, the risk of loss, the continued expense, precedent, and your outside counsel -- just to name a few – should be considered.  

Not considering all of this can result in a really surprising worst possible litigation outcome – such as loss of business, increased costs and an unhappy work force. A judgment might be the least of your problems.

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