Managing a Legal Crisis Develop a plan for managing business operations when the unexpected occurs. By Mark D. Hinderks
A flood spreads an oil spill across other properties. A grain elevator explosion shatters a normal business day. Developed property is unexpectedly tied up in a tribal land claim. Technology at the core of sales and operations is challenged in an intellectual property lawsuit. Legal disasters or crises often arrive unexpectedly in a dizzying array of dimensions. Each crisis must be evaluated in context, but a few general lessons can help a business prepare for the unexpected.
Hold Everything Post Enron, every business faced with the likelihood of litigation must immediately implement and document a “litigation hold” to preserve documents. The litigation hold must go to all officers and employees who may have relevant documents, and must encompass hard copy and electronic documents. Failure to preserve documents in a timely fashion can result in severe penalties and sanctions, including substantial monetary fines and “adverse presumptions” about the content of documents not preserved. A plan must be implemented to:
Preserve electronic documents on servers and individual computer hard drives.
Prevent automatic deletion/recycling of back-ups.
Take electronic snapshots of the relevant storage locations.
A cottage industry of consultants makes litigation document retrieval and preservation their lifeblood. However, the best and more economically efficient plan is one devised within a business’s regular technology plan that is ready to be implemented when triggered by events.
Evaluate Whether Criminal Charges Are Possible Civil lawsuits are one thing. Criminal charges or regulatory penalties that put a business or its employees in jeopardy are another thing entirely. Disasters receiving public attention often result in calls for grand jury investigations or provide opportunities for political or regulatory authorities to take hard-line approaches. From the start of any legal crisis or disaster, consider this possibility. The Right Legal Representation Every business has or should have regular legal representation. If the disaster that strikes is different in character or magnitude from the normal scope of representation, it is important to revisit the adequacy of the legal team. If necessary, consider adding counsel who has worked in the pressure cooker of the “bet the company” environment. Lawyers, even those at large law firms, do not share the same expertise and are not interchangeable. However, take maximum advantage of existing counsel’s familiarity with the business. Then find specialized counsel willing to work with the company’s existing legal team, whose knowledge of the business and its decision-makers will provide an important liaison role. Temperament is as important as area expertise. A lawyer with a cool head in a room of shouting people is invaluable.
Insurance: Before and After Evaluate your insurance every year, across at least three parameters. Do not leave this to the broker, who may not know the business. Insurance-related questions to consider include:
Does the business have all the right types of insurance to cover foreseeable disasters? The ubiquitous “comprehensive general liability” policy is not necessarily comprehensive or general. The business may also need flood, business interruption, pollution or other types of insurance, in addition to property and vehicle coverage.
Are the coverage amounts up to date, and are sub-limits per type of risk appropriate?
What are each policy’s provisions concerning legal defense? Are they adequate, and how and by whom is counsel selected?
After disaster strikes, most policies require prompt notice of the loss to the insurer. In substantial loss situations, seek knowledgeable counsel on coverage issues. Substantial bodies of law have built up around customary coverage language and exclusions. Legal work up front to properly characterize and document loss almost always improves the end result.
Public Relations Public disasters or crises can have obvious detrimental effects on the performance of any business that sells products or services in the community. Many lawyers immediately shut off the flow of information from the company to the community in order to avoid admissions or adverse statements. The media both influences and is a reflection of public (and potential jury) sentiment. A good public relations consultant specializing in disasters can work with counsel to craft an appropriate response to temper and read public reaction. This approach can put a human face on the company’s management, and benefit business and litigation strategies. Crises and disasters—whether natural or man-made—are an unfortunate reality. However, preparation before the unexpected strikes is key to managing business operations during a crisis or disaster. It’s important to realize there is not a “one size fits all” approach to dealing with a crisis. You need to consider a wide range of issues in order to adequately prepare for and appropriately react to an unforeseen situation.
Mark Hinderks is a partner in the Business Litigation Division of Stinson Morrison Hecker LLP. The business crises described in the introduction are not hypothetical. They are examples of substantial matters in which the author has assisted clients of the firm. You can reach him at (913) 344-6706 or
