How to Lose Cases: Litigation Dangers From Emails and Other Internal Business Documents
Contents © 2012-2013. Edward F. Mannino. All rights reserved.
During World War II, defense workers were warned not to talk about their work because “a slip of a lip can sink a ship,” an expression so familiar that it led to a hit song of the same name by Duke Ellington. Today, we might paraphrase the warning to alert employees that a slip of their computer key may sink their company in litigation.
Casually prepared, thoughtless, or snarky emails and other internal business communications often are at the heart of plaintiff’s evidence in high-stakes corporate litigation. In chapter 10 of my book, Lender Liability and Banking Litigation, for example, I devote six pages to discussing several examples of internal business communications that led to multimillion dollar verdicts against the banks and other lending institutions whose employees had prepared them. These internal documents incorporated comments about such things as mistreatment of borrowers, awareness of improprieties in the lending relationship, and second guessing of loan administration. In one Wyoming case, a lending officer recorded that “we are not entirely blameless” on a loan that went to foreclosure because “It was a bad deal all around, and we helped make it so.” That case resulted in a jury verdict over $3 million dollars being returned against the lender.
Such slips of the computer key are not limited to bankers. In its recent case against Standard & Poor’s for fraud in the rating of mortgage bonds, the Department of Justice quoted liberally in its complaint from emails and other internal documentation prepared by employees of Standard & Poor’s which contained comments which, among other things, criticized the investment-grade ratings and documented a deterioration in the housing markets.
Antitrust prosecutions are also assisted by thoughtless internal memoranda and emails prepared by the defendants’ employees. Recently, government antitrust regulators reviewing proposed or even completed mergers have begun to shift the focus of their reviews from market structure to the merger participants’ internal views on such issues as market definition, the impact of the merger on competition, and whether the merger partner is an actual competitor. In recent antitrust cases brought to challenge mergers involving H&R Block, Staples and Office Depot, and Bazaarvoice, the Department of Justice and Federal Trade Commission have relied heavily upon internal documents expressing views that the merger partners were in actual competition, or viewing the market in terms which demonstrated that the merger would lessen competition.
How can corporations mitigate the litigation risk posed by sloppy internal communications? A wise old politician once gave the sage advice, “Never write a letter, or throw one away.” Companies which have tried this approach by cautioning employees not to take notes of meetings have generally been unsuccessful. Indeed, Standard & Poor’s allegedly gave instructions to its employees not to take notes of meetings at which the participants discussed how they could increase the fees they received for rating mortgage bonds, but the employees did so anyway.
Corporate training on litigation risk is paramount to address this recurring problem. Directions not to record comments made at business meetings or to be careful in preparing documentation are too general to be effective. In my practice, I have found that the best approach is to gather employees in a room with an outside lawyer who reads actual emails and other internal documentation which were used in litigation which resulted in large verdicts against the companies whose employees had prepared the documentation, and instructs the employees how to be thoughtful in preparing any documentation. This is especially important for emails, the preparation of which typically occurs without the presence of the usual common sense censor which (hopefully) is activated where longer and more formal documents are involved. Corporate training is most effective, of course, where the internal documentation originates from the same industry in which the employees being trained actually work.
References:
Edward F. Mannino, Lender Liability and Banking Litigation (Law Journal Press, 2013), Chapter 10.
Antitrust Law: Beyond the Basics (Pa. Bar Institute Publication No. 2013-7628, 2013) , pp. 13-14, 21.
“Analysis: S&P paper trail may lead nowhere in government case,” Reuters, March 11, 2013.
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