Frequently Asked Questions

Q. what's the business case for avoiding / preventing lawsuits? 

A. When this question comes up, we think of the 1983 film WarGames. (Click the title for a third party's YouTube clip of the movie's last few minutes. Ad supported.)

But to summarize: At the end of the movie, a computer named Joshua is playing a game called Global Thermonuclear War, but doesn't realize it's a game. Towards the end of the film, while Joshua is trying to obtain the President's launch codes, the hero (played by Matthew Broderick) directs it to play tic-tac-toe, and to play against itself in order to learn "futility." Joshua plays tic-tac-toe game repeatedly, until it finally "understands" that every scenario produces no winner. Once it "understands" futility and transfers that learning to the War Game it's been playing, Joshua utters a memorable line:

"Greetings, Professor Falken. A strange game. The only winning move is not to play." 

The computer then shuts down Global Thermonuclear War, and ends with "How about a nice game of chess?" 

Litigation is like that. Even if the company wins in the end, it loses. If it's a net winner, it's unlikely to collect. If it prevails against its adversary, the company must still pay the defense attorney fees, expert witness fees, the costs of eDiscovery, and so on. If it settles or loses, it must also pay the amount of the settlement or the verdict.

Unlike Joshua, business leaders already know that the only winning move is to avoid or prevent litigation. But the losses vary from case to case, and companies typically don't share that data.   

In Chapter 4 ("What's it worth to prevent a lawsuit?") of Preventing Litigation: An Early Warning System to Get Big Value from Big Data (Business Expert Press 2015) (Preventing Litigation), Nick Brestoff presented his calculation of the average cost per case at $408,000, but prefers to use the $350,000 to $400,000 range.

With permission from Nick's publisher, Business Expert Press, we present excerpts from that chapter. It follows:

The “cost” of commercial tort litigation (2001-2010) (rounded) is: 

$1.6 Trillion

The number of Federal and State lawsuits (also for 2001-2010) (rounded) is: 

Four Million Lawsuits

These two numbers (reduced by 15 percent and rounded) indicate the Average Litigation “Cost” per lawsuit is: 

$350,000    

Now we need to explain how we came to report these astounding figures. 

In order to persuade the market that there was Big Value in having an early warning system, we wanted to see if we could persuade ourselves that such a system was worth having. .... (Ellipses indicate omissions.)

What was the business case?   

In 2014, we realized that lawsuit "cost" data had existed for many years, where “costs” meant losses consisting of settlements and verdicts, attorneys’ fees, and administrative costs, but also that this cost information stood in isolation.  However, we knew that federal and state caseload databases also existed, and that all of this cost and caseload data existed for the same 10-year period from 2001 through 2010.  With this data, we endeavored to estimate the average "per case" cost of a commercial tort lawsuit and the commensurate savings to businesses if just one (or three) lawsuits could be prevented. 

We began our analysis with the 2011 Update of U.S. Tort Cost Trends published by Towers Watson (TW), a large and well-respected consulting firm (NYSE TW).  TW has been publishing its compilation of these "costs" since 1985. The 2011 Update was the 15th such study and provided us with litigation “cost" data from 2001 to 2010.  Since then, TW has not published another study, so the 2010 data is TW's most recent compilation of the “cost” of litigation to the business community. 

By "costs," TW was describing (1) benefits paid or expected to be paid to third parties (losses);  (2) defense costs (attorneys' fees); and (3) administrative expenses.  We adopted TW’s definition.      

Notably, TW also reported personal and commercial tort costs separately. Since we are interested in tort cases alleged against businesses, we did not consider personal tort costs. We ignored personal tort costs because TW reported that they consisted primarily of automobile accidents.  We also ignored non-monetary cases such as Freedom of Information Act (FOIA) lawsuits. 

So we focused only on the cost of “commercial tort litigation,” which includes medical malpractice (professional negligence) cases.  TW provided “cost” data for 2001 through 2010 and we wanted to see that data over time.  So we plotted the TW commercial tort cost data for the period 2001-2010 and show it in Figure 1 (omitted). 

As Figure 1 indicates, the total costs of commercial tort costs ranged annually between a low of just over $120 Billion and almost as high as $180 Billion.  As we noted at the beginning of this chapter, the total "commercial tort costs" for the ten year period from 2001 through 2010 is almost 1.6 Trillion dollars, yes, with a “T” -- Trillion.  It qualifies for the knock-your-socks-off category. 

More specifically, but equivalently, the 10-year “cost” was $1,595 Billion.  Since TW reported that its cost information came from AM Best and SNL Financial, we assumed that insurance companies and at least one financial institution were giving TW data for both federal and state court losses, attorneys’ fees and administrative costs.  Since the average cost "per case" would be $1,595 Billion divided by the number of commercial tort cases in both the federal and state courts for the same 2001-2010 timeframe, we turned to the federal and state court tort caseload databases. ....

First, we accessed PACER to obtain caseload data for the federal system.

Using PACER, we aggregated all of the "civil" cases filed, but we excluded cases under the headings which are not likely to involve commercial torts:  Bankruptcy, Contract, Federal Tax Suits, Forfeiture/Penalty, Prisoner Petitions, Real Property, Social Security, State Reapportionment, Deportation, Other Statutory Actions, Freedom of Information Act, Arbitration, Administrative Procedure Act/Review or Appeal of Agency Determination, and Constitutionality of State Statutes. 

We did not include multi-district lawsuits. 

But we included all of the cases filed under the headings of Civil Rights, Labor, Property Rights (copyright, patent, and trademark), Torts, and the following specific statutes or categories:  the False Claims Act, Antitrust, Banks and Banking, Commerce, Racketeer Influenced and Corrupt Organizations, Consumer Credit, Cable/Satellite TV, Securities/Commodities/Exchange, Agriculture Acts, the Economic Stability Act, and Environmental Matters.  

Using only these categories of cases, we determined that the total number of cases filed in PACER from 2001 through 2010 added up to 1,248,327.   

In order to determine the number of state court cases filed, we turned again to the National Center for State Courts (NCSC), and located a spreadsheet called “Tort Trend in General Jurisdiction Courts,” which covered the same period of time as the TW cost data, namely from 2001 through 2010. 

We determined, however, that three adjustments to the state court data were appropriate. Our first adjustment was to accept the data "as is," despite the NCSC caveats that some of it was incomplete or preliminary.  Second, we found that the data pertained to only 40 states plus Puerto Rico.  In order to be consistent with the PACER data, which is national in scope, we had to account for the 10 states for which data was missing:  Georgia, Illinois, Louisiana, Montana, Rhode Island, South Carolina, South Dakota, Vermont, Virginia, and Wisconsin. 

We did so by making an adjustment according to population.  According to U.S. census figures, these 10 states represent about 16 percent of the total U.S. population on April 1, 2000 (15.9 percent) and on April 1, 2010 (15.8 percent).  Thus, the caseload data for the 40 states was only 84 percent of the total.  To estimate the total for all states, we divided the 40-state figure by 84 percent.

Next, after learning that some states reported automobile accidents separately, we asked the NCSC for that information.  Since TW had noted that automobile accidents "predominate" in personal tort cases, we wanted to subtract the automobile torts in order to match apples with apples as best we could.  The NCSC was accommodating, but had data for only four states: Arizona, Colorado, Connecticut, and Florida.  We compared the auto tort data with the total data for each of these four states, and we found that approximately 56 percent of the total caseload was due to automobile accidents.  The non-auto accident caseload was approximately 44 percent.  Accordingly, we made the assumption that 44 percent of the caseload consisted of commercial tort lawsuits.  Since we had no data allowing us to believe that the drivers in these states were different from the drivers in any other state, we multiplied the 50-state Tort Trend data by 44 percent.

Using these criteria, we estimated the total non-auto tort caseload from 2001 through 2010 for all states plus Puerto Rico to be 2,660,609 cases.            

Then we added the federal caseload figure of 1,248,327 to the state court caseload figure of 2,660,609. The total was 3,908,936 cases, which, given the uncertainties, we rounded to 3.909 million cases.  The idea of four million lawsuits over a 10-year time frame is enough to give anyone a bad headache.  It’s another knock-your-socks-off number. ....  

But now, at this point, we had both cost and caseload data, and could compute the average commercial tort litigation “cost per case.” To do so, we divided TW's "cost" for the ten-year period from 2001 to 2010 ($1,595.2 billion) by the number of federal and state non-auto tort cases (3.909 million cases) in the same period.  The result was easy to see, because 1,595.2 was almost 1,600, while 3.909 was almost four, so we expected the numbers would turn out to be around 400; and then we knew that a billion was a thousand times more than a million, and so we expected something like $400,000.  We found that the overall average cost per case was $408,084, or approximately $408,000.  Per case. ....

 

We note that our "per case" cost of $408,000 is an overall average over ten years’ time, and, given all of the adjustments, a rough “global” average at that ....

Nevertheless, given the adjustments we have described, and to be conservative, we reduced our estimated average “cost per case” result by 15 percent, to $346,871, which (rounded) is $350,000. ....

And, as the “By the Numbers” overview indicates, our result means that if an enterprise prevents only three average commercial tort lawsuits, a little over $1 million in net profit would stay on the bottom line.  Thus, a successful effort to avoid only three average cases would preserve approximately $1 million in net profits, or reduce losses by just as much. 

Our result is consistent with results reported by Lex Machina,[1] which specializes in providing its customers with data pertaining to patent litigation.  In July of 2014, Lex Machina published a similar result for damages in patent cases, but for an even longer time frame, from 2000 to 2013. 

For that time period, Lex Machina reported a “median” damages figure of $372,000 per case. We cheered. 

Of course, patent litigation is a narrower field than commercial tort lawsuits.  And the Lex Machina patent litigation damages figure is not a mean (the sum of all values divided by the number of all values); it’s a “median,” indicating that as many litigants won more than $372,000 as won less than that.[2] 

Still, the Lex Machina result is supportive of the result we found and report in this book. ....

This is fitting.  After all, our primary goal is to decrease the Legal Department’s “spend.” And now we can see why:  A preventive “early warning” system will help a company control the sinkhole of outgoing settlements and verdicts, not to mention the fees paid to outside counsel and eDiscovery vendors. ....

Footnotes

[1] Lex Machina Patent Litigation Damages Reference Sheet.  2014. https://lexmachina.com/wp-content/uploads/2014/12/Damages-Reference-Sheet.pdf, (last accessed April 8, 2014).

[2] The mean and median are the same only in the case of a perfect bell-curve shaped distribution.

Q. do you enable customers to invade employee privacy? 

A. This question is going to result in a very long response. Please see it through.

As a preliminary matter, Intraspexion does not see or keep any employee's emails; but we do enable Law Department personnel to see some of them, so the issue is pertinent and too important to ignore without giving you an indication of how much thought we've given to it. Our answer is taken from Chapter 19 of Preventing Litigation. We are able to present this material because our founder, Nick Brestoff, is one of the book's two co-authors. This book excerpt, with footnotes, is permitted by his contract with the publisher.  It follows:

We start with what a client should do, which is to have a “computer technology resource” (CTR) policy and to insist that each employee read and sign an Employee Manual which contains that CTR policy.

            We do not mean to even suggest that we are giving legal advice, but we think the CTR policy might want to promulgate a policy something like the following:

            1.  Company computer and e-mail accounts should be used only for company business;

            2.  Employees are prohibited from sending or receiving personal e-mails, except when using a company computer to access a personal, password-protected, web-based e-mail account (for example, a personal Yahoo, Google or other e-mail account); provided, however, that if the use is so frequent and so extensive that the employee is found to be insufficiently inattentive to his or her work, or disrupts the business operations of others, then the employee may be either disciplined or terminated.

            3.  Employees have no right to privacy with respect to any personal information or messages created on or accessed using a company computer or e-mail account;

            4.  E-mails sent or received on company computer resources are not private and should be regarded as postcards, and should not be understood as the equivalent of a sealed letter;

            5.  The company may inspect all files or messages on company computer resources at any time, for any reason, at its discretion;

            6.  The company or its agents may periodically monitor its computer resources and e-mail accounts to ensure compliance with its CTR policies; and

            7.  If any of the foregoing provisions are found to be against public policy or are unlawful, then any and all such provisions are severed from the Employee Manual, but the rest of the CTR policies and provisions shall remain in effect.

            Why these elements?  Because if a company follows this set of mandates, disclosures, and warnings, then, if there is no deviation from them, not even an employee’s communication with his or her personal attorney will be entitled to privacy or privileged from discovery by the company.

            Can this be? Surely the attorney-client privilege would apply to keep an employee’s communication with his or her attorney privileged from disclosure, wouldn’t it?  The answer, if the above-listed CTR policies are in place, at least in California, is “No.”

            In Holmes v. Petrovich Development Co., LLC,[1] the appellate court noted that when the employer has an express policy which reduces any expectation of privacy, e-mail communications between an employee and her attorney may be equivalent to "consulting her lawyer in her employer's conference room, in a loud voice, with the door open."

            The facts in Holmes were as follows:

            Gina M. Holmes (“Holmes”) worked as an executive assistant for the defendants Paul Petrovich and Petrovich Development Company, LLC.  After she was hired, she read and signed the company's express computer technology resource policy that governed her usage of the company computer and e-mail account.  It stated the elements we have described above.

            In July 2004, approximately one month after Holmes was hired, she told Petrovich she was pregnant and wanted to take a six-week maternity leave in December.  She later revised her request to a four-month maternity leave beginning in November.  This prompted Petrovich to send the following e-mail to Holmes:  “I need some honesty.  How pregnant were you when you interviewed with me and what happened to six weeks? . . . That is an extreme hardship on me, my business

and everyone else in the company.  You have rights for sure and I am not going to do anything to violate any laws, but I feel taken advantage of and deceived for sure.”

            Holmes was offended and e-mailed a response that explained she did not tell him about her pregnancy earlier, in part, because she had two miscarriages in the past and did not want to disclose the pregnancy until it appeared likely that she would carry the baby to term.

            Because Petrovich was concerned that Holmes may be quitting, he forwarded Holmes' e-mail to human resources and in-house counsel.  When Holmes learned that Petrovich forwarded her e-mails to others, she was upset and sought legal advice concerning a claim for pregnancy discrimination.

            For example, Holmes exchanged several e-mails with her attorney from her company e-mail account where she stated, “I know that there are laws that protect pregnant women from being treated differently due to their pregnancy, and now that I am officially working in a hostile environment, I feel I need to find out what rights, if any, and what options I have.  I don't want to quit my job; but how do I make the situation better?”

            This e-mail conflicted with Holmes’s contentions at trial.  At trial, her counsel objected when Petrovich’s counsel tried to introduce this e-mail and other e-mails like it.

            The trial court overruled the objections, the e-mails were admitted into evidence, and the Court of Appeals affirmed, holding that the employer's computer policy made clear that Holmes had no legitimate reason to believe that communications from her company e-mail account were private, regardless of whether the employer actually monitored her e-mail.

            Thus, given the CTR policy, Holmes was held to have knowingly disclosed her attorney-client communications to her employer and waived the privilege.

            Holmes is a 2011 California decision.  In 2007, a New York court reached a similar conclusion.  In Scott v. Beth Israel Med. Ctr., the e-mail policy stated:

“This Policy clarifies and codifies the rules for the use and protection of the Medical Center’s computer and communications systems.  This policy applies to everyone who works at or for the Medical Center including employees, consultants, independent contractors and all other persons who use or have access to these systems.

     1.  All Medical Center computer systems, telephone systems, voice mail systems, facsimile equipment, electronic mail systems, Internet access systems, related technology systems, and the wired or wireless networks that connect them are the property of the Medical Center and should be used for business purposes only.

     2.  All information and documents created, received, saved or sent on the Medical Center’s computer or communications systems are the property of the Medical Center.

     Employees have no personal privacy right in any material created, received, saved or sent using Medical Center communications or computer systems.  The Medical Center reserves the right to access and disclose such material at any time without prior notice.” [2]

            The policy was available in hard copy and maintained in the officer of the administrator for each of the Center’s departments and on the intranet.

            The plaintiff, Dr. Scott, was the chairman of the orthopedics department and worked closely with the department administrator. 

            In 2002, every employee received an employee handbook which contained a brief summary of the e-mail policy.  After 2002, newly hired doctors were required to sign a form acknowledging that they had read and were familiar with it.

            However, Dr. Scott never signed such an acknowledgement and denied knowing of it.

            Nevertheless, this “no personal use” policy, combined with a policy allowing for employer monitoring and the employee’s knowledge of these two policies, diminished any expectation of privacy.

            The issue materialized when Dr. Scott used Center computers to communicate by e-mail with his counsel.  When Dr. Scott asserted the attorney-client privilege, the Center rejected his claim to the privilege, citing the policy. 

            So Dr. Scott sought a protective order from the court, but the court denied it.

            In denying Dr. Scott’s request for a protective order, the court cited a federal bankruptcy case, which held that the attorney-client privilege was inapplicable if: 

  • (1) … the corporation maintain[s] a policy banning personal or other objectionable use,

  • (2) … the company monitor[s] the use of the employee’s computer or e-mail,

  • (3) … third parties have a right of access to the computer or e-mails, and

  • (4) … the corporation notif[ies] the employee, or the employee was aware, of the use and monitoring policies.[3]

                In Scott, the court found that the first two elements were satisfied by the Center’s “no personal use” and monitoring policies; found the third element inapplicable; and held that Dr. Scott had both actual and constructive notice of the policy because the policy had been disseminated to each employee in 2002, including Dr. Scott, and because the Center made the policy available by notice on the Center’s intranet. 

                In addition, because Dr. Scott was an administrator, he was held to have constructive notice of the policy, in part because he required newly hired doctors under his supervision to acknowledge in writing that they were aware of it.

            As a final matter, the court rejected the argument that the attorney’s notice in its e-mails to Dr. Scott changed the outcome.  The notice stated:  “This message is intended only for the use of the Addressee and may contain information that is privileged and confidential.  If you are not the intended recipient, re hereby notified that any dissemination of this communication is strictly prohibited.  If you have received this communication in error, please erase all copies of the message and its attachments and notify us immediately.”

            This (not atypical) notice appeared in every e-mail from counsel to Dr. Scott.  However, the court held that the notice could not create a right of privacy out of whole cloth, and did not alter the Center’s policy, stating:  “When client confidences are at risk, [counsel’s] pro forma notice at the end of the e-mail is insufficient and not a reasonable precaution to protect its clients.”      

What an employer should NOT do

            Given its long and venerable history, no employer should expect courts to frequently hold that the attorney-client privilege has been waived.

1.  Undermine the Policy by Conduct

            However, actions often speak louder than words. Suppose that a company had a CTR policy identical to the policy described in Petrovich.

            But now suppose that the company sent the message that non-compliance would be tolerated.  That message undermines the policy, and it is known as “operational reality.”

            The "operational reality" test is used in the Ninth Circuit and was discussed in a 2008 opinion, Quon v. Arch Wireless Operating Co.[4]

            In Quon, the plaintiff had a reasonable expectation of privacy as to his personal text messages sent from his company pager because of an informal policy that contradicted the written policy.  The plaintiff's supervisor had made it clear that text messages would not be audited if employees paid any applicable overage charges, even though the employer's policy prohibited the personal use of pagers.

            In other words, the "operational reality" was that the plaintiff had a reasonable expectation that his personal text messages would be kept private.  Thus, under those circumstances, an informal policy effectively voided the written policy.

            Why can we have some confidence in the CTR policy in Holmes?  Because Holmes actually argued that she had a reasonable expectation that her e-mails to her attorney were private because of the "operational reality" that the company did not audit employee computers during her employment.

            But that argument failed.  The Court of Appeal rejected it because there was no evidence that the company had an informal policy that contradicted its express, written policy. 

            So the message is fairly clear.  If a company promulgates a written policy, no supervisor should undercut it with a verbal policy to the contrary.

2.  Permit employees to use personal computer resources for work

            Holmes also argued that she had a reasonable expectation of privacy, because she used a private password for her company e-mail account and deleted the e-mails after they were sent. The Court also rejected this argument because Holmes utilized her company e-mail account, not her personal e-mail account.

            But suppose that the CTR policy is not clear, and an employee uses a company computer to access a personal, password-protected, web-based e-mail system to communicate with his or her attorney.

            A New Jersey appellate court addressed these facts in 2010.[5]  There, the plaintiff used her company issued laptop to access her Yahoo account to e-mail her attorney about bringing an employment discrimination lawsuit against her employer. The company CTR policy had not prohibited this.  

            Not surprisingly, the New Jersey court held that the attorney-client privilege had not been waived.

            Moreover, the New Jersey court noted that a policy permitting an employer to retrieve and read an employee's attorney-client communications accessed on a personal, password-protected e-mail account would not be enforceable because, in New Jersey, it would be void as a matter of public policy.

3.  Fail to have employees read and sign the policy

            Courts are reluctant to create exceptions to the attorney-client privilege, so hiccups in implementing a CTR policy can matter and change the outcome of a case.  In Mintz v. Mark Bartelstein & Assoc., Inc., Holmes was distinguished by the Court, and was not followed because the employee did not read or sign the Employment Manual.[6]  Holmes was also distinguished because the plaintiff used his home computer, not a company device.[7]  Evidently, there were no grounds for holding the employee to constructive notice, as in Scott.

            Under the circumstances, the Court’s ruling that Mintz had not waived his attorney-client privilege was not unexpected.  Without requiring Mintz to read or sign the policy, and because there was no showing that Mintz had some supervisory capacity that would have made him aware of it, he could not be held to it. 

The Internet of Things

            Employers have been requiring employees to sign No Privacy policies since 2002, if not before.  But the Internet of Things—the IoT—did not exist in 2002.  Now the future is clear:  the world will be populated with billions of smart, embedded computer devices that interact with our personal lives, and interact with each other.  That’s the Internet of Things.

            Thus, one of the subjects of the Computer Technology Resource Policy must be the devices that people, in their private lives, use to access their own personal data.  The focus is not the data such devices access from the environment, i.e., the weather conditions, which is not personal to them.  The focus is the data such devices access from their own bodies, for example, such as smart phones or watches or other kinds of wearable devices that measure temperature, blood pressure, and so forth.  Such data is personal, private, and confidential to the persons who wear or otherwise carry them.

            Any sensible person would see the difference between the data collected by such personal (and so private) devices and the enterprise computer ecosystem. 

            But, clearly, there is a potential for the personal device to exchange data with an enterprise device. 

            And so we have put our finger on a two-way street:  the IoT opens a potential doorway for the enterprise to learn about an employee’s otherwise personal information, and it also opens a path for the enterprise to open itself up to a hacker attack.  We can’t think of a better reason for a CTR policy to ban devices known as BYODs. 

            So, to protect privacy as well as to protect the enterprise, employees should not be permitted to use their personal devices for work. 

The Federal Trade Commission

            There is yet another reason to have CTR policy.  In the context of an enterprise interacting with its customers, the Federal Trade Commission (FTC) has recently asserted a broad authority to protect the consumer.  The Federal Trade Commission Act (the Act) prohibits “unfair or deceptive acts or practices in or affecting commerce,” and enables the FTC as a regulatory, enforcing agency.  15 U.S.C. §45(a).  The Act defines “unfair acts or practices” as acts or practices that cause or are likely to cause “substantial injury to consumers which [are] not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition.”[8] 

            For example, in a recent case, which was resolved by settlement, the FTC filed an enforcement action against TRENDNet, which makes routers, Internet cameras, and other networking devices. 

            The FTC alleged that TRENDNet had failed to adequately secure its Internet camera devices, which could have permitted users’ live video streams to be exposed to the public.  The adverse results were the litigation costs (of course), but also a requirement to revise its security policies and mandatory third-party reviews of its security obligations for the next twenty years. 

            In addition, there were restrictions on TRENDNet’s marketing and its customer support obligations.

            So a “trend” is clear.[9]  Businesses can expect that a failure to adopt a privacy policy (at least in the context of the data it collects from consumers), or worse, a failure to abide by its own policies, may be seen as an unfair and deceptive act under the law.

            Accordingly, businesses should, in addition to advising their engineers to secure the devices, have a CTR policy in order to demonstrate that it had a policy that was reasonable and had implemented it.

Footnotes:

[1]  191 Cal.App.4th 1047, 119 Cal.Rptr.3d 878 (2011).

[2]  See 17 Misc. 934, 847 N.Y.S.2d 436 (2007).

[3]  In re Asia Global Crossing, Ltd., 322 B.R.247 (S.D.N.Y. 2005).

[4]  Quon v. Arch Wireless Operating Co., 529 F.3d 892 (9th Cir. 2008), rev'd on other grounds by City of Ontario, Cal. v. Quon, ___ U.S. ___, 130 S.Ct. 2619, 177 L.Ed.2d 216 (2010) (reversing on Fourth Amendment grounds only); see also City of Ontario, 130 S.Ct. at 2627 ("The petition for certiorari filed by Arch Wireless challenging the Ninth Circuit's ruling that Arch Wireless violated the SCA was denied.").

[5]  Stengart v. Loving Care Agency, Inc., 990 A.2d 650 (N.J. 2010).

[6]  Mintz v. Mark Bartelstein & Assoc., Inc., 885 F.Supp.2d 987, 998 (C.D. Cal. 2012). 

[7]  Ibid.

[8]  See 15 U.S.C. 45(n).  The FTC can enforce this prohibition using administrative remedies and/or judicial remedies, including in a federal court proceeding in which civil penalties and or injunctions may be sought.  15 U.S.C. 45(b) and 53(b).  The FTC argues that the scope of its authority is broad because Congress intentionally did not define “unfair” and left it to the FTC to do so.  See the FTC’s Brief in Federal Trade Commission v. Wyndham Hotels & Resorts, LLC, No. 14-3514 at pp. 16-17 (3rd Cir. Nov. 14, 2014).  www.ftc.gov/system/files/documents/cases/141105wyndham_3cir_ftcbrief.pdf, (last accessed April 8, 2015).

[9]  The broadness of the FTC’s authority is being challenged in an interlocutory appeal to the Third Circuit.  See Federal Trade Commission v. Wyndham Hotels and Resorts, LLC, Case No. 14-3514 (3d Cir. 2014).

Q. Wouldn’t the attorneys or executives prefer not to know

A.   The original source of this answer is taken from Chapter 24 of Preventing Litigation. However, portions of this chapter, and footnotes 2 through 4, have been omitted for brevity. Intraspexion’s use of this material is permitted by Nick Brestoff's contract with the publisher.

Richard Susskind put it first and our view is his:

[T]he profession needs to rethink its role from that of an ambulance at the bottom of a cliff (remedial practice) to helping people to manage risks on top of the cliff.  While the practice at the bottom of the cliff can be very profitable, clients and consumers should be reminded to avoid practices that are detrimental in the longer run.

To practise [sic] preventive law, we must first work with relevant data.  Some of our colleagues may not consider this part of the job description of the legal function, but it is down to us to embrace it or watch someone else do so in the course of taking our profession to the next level.  In today’s big data era, this is not an option, but a necessity.[1]

But we contend that we humans have learned, in other contexts, that it is far better to know than not to know.  The Greeks knew this long ago, and we have already mentioned their phrase for it:  Forewarned is forearmed.  The ostrich defense—sticking one’s head in the sand to avoid knowing about the nearby predator—has never worked very well for the ostrich.  In American jurisprudence, this defense is not well known as a successful strategy and has been alternatively called the "dumb CEO defense," "dummy defense," "idiot defense," or "Sergeant Schultz defense."[5]

In our view, it is better to suffer through some number of false positives than to be blind-sided by a preventable litigation catastrophe.

We think Bill Gates would agree.  In 1999, he wrote a book[6] to which he devoted a whole section and six chapters to explain why.  Chapter 10 was entitled, “Bad News Must Travel Fast.”  He even went a step further, and began the section this way:

“I have a natural instinct for hunting down grim news.  If it’s out there, I want to know about it.  The people who work for me have figured this out.  Sometimes I get an e-mail that begins, “in keeping with the dictum that bad news should travel faster than good news, here’s a gem….”[7]        

Gates provides lots of examples, including from the computer industry.  He mentioned IBM, when its mainframe and minicomputer businesses were undermined by the PC; Digital Equipment Corporation, when its minicomputer business was undercut by still smaller PCs, which DEC had dismissed as toys; and Wang, which lost the word processing market when it stuck with putting word processing software on dedicated hardware systems rather than on the PC.[8] 

He also mentions Ford, Douglas Aircraft, and why the United States was not prepared for the attack on Pearl Harbor.[9]

Gates advised this:

“A change in corporate attitude, encouraging and listening to bad news, has to come from the top….  The bearer of bad tidings should be rewarded, not punished….  You can’t turn off the alarm and go back to sleep.  Not if you want your company to survive….[10]

Gates asserts that leaders should heed the early warnings from salespeople, product developers, and customers, but he doesn’t mention the Legal Department.  We can excuse the Legal Departments of the past.  They had no way to see litigation in-the-making, and so could not sound off to give what Gates called an “alert.” 

But now they can see.  An alert from a system intended to prevent litigation is like a smoke alarm: When it goes off, it doesn't necessarily tell you there's a fire; but you have to pay attention to it. (Boldface added.)

Footnotes

[1] Kenneth Tung. March, 2015. “A Kodak moment for the legal profession,” www.lexology.com/library/detail.aspx?g=2eae2fe3-8226-45b2-931e-97b7d66ed7d1 (last accessed April 11, 2015).  In 2008, law practice guru Richard Susskind, who endorsed Preventing Litigation, said as much in The End of Lawyers? Rethinking the Nature of Legal Services (Oxford: Oxford University Press), p. 224.

[5] U.S. Legal, Inc.  Unknown date. “Ostrich Defense Law and Legal Definition.” http://definitions.uslegal.com/o/ostrich-defense/ (last accessed April 27, 2015). Furthermore, an ostrich defense does not open the door to favorable treatment for being proactive under the criminal sentencing guidelines, and defies the mandates of Sarbanes Oxley requiring publicly traded companies and their executives to adopt and use proactive policies and procedures to uncover fraud and illegality. 

[6] William H. (Bill) Gates III, with Collins Hemingway. 1999. Business @ the Speed of Thought:  Using a Digital Nervous System (New York: Warner Books, Inc. 1999), pp. 159-200.

[7] Ibid. at 159-160.

[8] Ibid. at 179-180.

[9] Ibid. at 180. For the Pearl Harbor example, Gates cites Gordon Prange, At Dawn We Slept (New York:  McGraw Hill, 1981) at 439-492 (chapters 54 through 59), for communications breakdowns and “fundamental disbelief” on the U.S. side during the weekend of December 6-7, 1941. 

[10] Ibid. at 179.

Q. Should attorneys train a company's employees how to write?

By Nick Brestoff

A. Watch out! On February 20, 2013, attorney Lori B. Leskin wrote an article for the American Bar Assn. section on Litigation, addressing the topic of Product Liability. The title: "Assessing Litigation Risks Before It's Too Late." 

Under a subhead, "Write Right," she wrote:

"Thus, it is important that company employees are trained on how to write and create documents early on in their careers. It is important, too, however, that litigation concerns not serve as a block to true scientific discussion and that employees not be—or feel—discouraged from expressing actual concerns or discussing factual information for fear of litigation. This is not a matter of “covering up” bad information. Rather, the focus in document training is on the creation of accurate documents; it is about injecting thoughtful, common sense discipline into internal corporate writing to avoid the unintended consequences that flow from speculative, inaccurate, or insensitive language. Employees must be taught to think carefully before generating documents, and they must understand the potential harmful consequences their written words can have on the company." (Boldface added.)

Attorney Leskin's advice is carefully phrased. But training employees how to "write right" doesn't preclude other attorneys from trying to train employees to not "write wrong." 

How would anyone train employees to not "write wrong"? The answer, of course, is by giving examples of what not to write. That's what happened in connection with GM's Ignition Switch debacle. GM's attorneys wanted to stop its engineers from using "charged" words, so they created a "word rug" to hide the truth of what its engineers had been saying.

In addition to 63 other words and phrases, GM's attorneys advised GM engineers to "not write" the following six:

Challenger, deathtrap, Hindenburg, Kevorkianesque, Titanic and "you're toast."

Read "These Are The 69 Words GM Employees Were Forbidden From Using" by Sam Frizell, in Time. Published on May 17, 2014.

In paragraph 20 of the Consent Decree, GM was required to disavow what GM's attorneys had advised. You can access the Consent Decree in Tom Gara's May 16, 2014 Wall Street Journal blog post article entitled, "The 69 Words You Can't Use at GM." To read the Consent Decree, click on the phrase "legal documents released" in the portion you can still read.  

And later, some of GM's corporate attorneys were fired

So that's the worst. 

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