Litigation Tango – Dancing Through Disputes Together

In products liability cases, every step must be executed with precision, much like a carefully choreographed dance. A misstep in this intricate “Litigation Tango” can lead to significant financial, reputational, and operational consequences. This dance becomes ever more challenging when it involves multiple business partners, each with its own set of interests. Today’s litigious environment is characterized by an ever-present blame game, where the risk of internal conflicts looms large, particularly when joint defense strategies begin to unravel. This complexity is further magnified in cases involving numerous stakeholders—manufacturers, suppliers, distributors, and end consumers—all entangled in a web of shifting responsibilities and priorities.

Relationship Management in Product Liability

Fostering Strategic Relationships

In products cases, the strength and resilience of relationships with suppliers, distributors, and even competitors are not just advantageous—they are essential. These relationships form the foundation of any successful defense strategy. But building these relationships requires more than transactional interactions; it demands a culture of mutual accountability, transparency, and trust. When a defect is identified, the speed and effectiveness of the response hinge on these relationships. Companies that have invested in robust, transparent partnerships are better equipped to coordinate a swift and effective response, whether that involves a recall, redesign, or other corrective measures.

Moreover, relationship management in this context transcends mere communication. It requires a strategic approach where all parties are aligned in their objectives and willing to share both risks and rewards. For instance, consider the auto industry, where recalls are a regular occurrence. A manufacturer with strong ties to its suppliers can often negotiate shared responsibilities for recall costs, reducing the financial burden and reinforcing the partnership for future collaborations.

Strategic Communication: Beyond the Basics

Effective communication is often cited as the cornerstone of successful relationship management, but in the context of product liability, it must be more than frequent or consistent—it must be strategic. The right people need to engage in the right conversations at the right time, ensuring that critical information flows seamlessly across all relevant teams.

The Boeing 737 MAX crisis illustrates the catastrophic consequences of communication failures. Internal silos and inadequate cross-functional communication contributed to missed warnings and a delayed response to design flaws, ultimately leading to tragic outcomes and massive legal repercussions.[1] [2]

The 737 Max crisis underscores the critical importance of continuous, strategic communication throughout the entire product lifecycle, from initial development to post-market surveillance. The Boeing cases reveal the dangers of prioritizing task completion over rigorous, self-critical analysis aimed at maintaining the highest standards of quality and safety. This vigilance is especially crucial in industries like aviation, where products are not just commodities but lifelines that millions of people depend on daily. Manufacturers must always keep in mind that any flaw, however small, could have catastrophic consequences, placing lives at risk.

All the entities that create components for a final product should establish a customary communication protocol that is robust and well-documented. Regular cross-functional meetings, detailed documentation of decisions, and a clear chain of command can prevent misunderstandings and ensure that all stakeholders are informed and aligned. This approach not only mitigates risks but also enhances a company’s ability to respond effectively to emerging issues, whether they involve a potential defect, regulatory compliance, or public safety.

Leveraging Relationships with Precision

Leverage in the context of product liability can be a powerful tool, but it must be exercised with precision and care. Companies often hold significant bargaining power over their suppliers, particularly in industries where a few large players dominate the market. However, this power should be used to foster cooperation rather than extract one-sided concessions.

The Volkswagen emissions scandal provides a cautionary tale.[3] The company’s aggressive demands on suppliers to meet cost targets without compromising quality contributed to an environment where cutting corners became a norm, ultimately leading to the disastrous decision to manipulate emissions data.[4]

Strategic leverage should aim to create a collaborative environment where suppliers and distributors are incentivized to meet high standards and share responsibility for product safety. This might involve offering technical support, co-investing in quality improvements, or aligning incentives with safety and compliance goals. By balancing power dynamics in this way, companies can reduce liability risks and enhance the overall safety and quality of their products.

Advanced Risk Management Strategies

Evolving and Sustaining Agreements: The Legal Lifeline

Contracts with suppliers, manufacturers, and distributors are often the first line of defense against product liability claims. However, these agreements must evolve alongside the products they govern, especially in industries characterized by rapid technological advancements and shifting regulatory landscapes. Outdated agreements can leave companies exposed to risks that were not anticipated when the contracts were originally drafted. For instance, an agreement that does not address cybersecurity risks in a smart device could expose a company to significant liability in the event of a data breach. These kinds of concerns are commonplace. The failure to evolve could be costly. Regular reviews and updates to these agreements are crucial, ensuring they reflect current legal standards, technological realities, and industry best practices.

Clear and comprehensive indemnity provisions, supported by sufficient insurance requirements, are essential. These provisions should be tailored to address the specific risks associated with the product, taking into account both the current legal environment and the potential for future developments. By proactively managing these agreements, companies can better protect themselves from liability and reduce the likelihood of disputes escalating into litigation.

Arbitration and ADR

Arbitration clauses are a common feature in contracts designed to avoid the unpredictability of litigation, but their effectiveness in product liability cases is nuanced. While arbitration can provide a faster and more confidential resolution, it is not always the best option, particularly in complex cases involving multiple parties. Arbitration clauses can complicate multi-party disputes, where not all parties may be bound by the same arbitration agreement, leading to fragmented and inconsistent outcomes. Additionally, the lack of right to appeal can be a significant disadvantage for either party in an arbitration.

Alternative dispute resolution (ADR) mechanisms, such as mediation or expert determination, may offer more suitable options in these cases. Mediation allows for a more collaborative approach, preserving business relationships while seeking a mutually acceptable solution. Expert determination, where technical disputes are resolved by an independent expert, can provide a more informed and reliable resolution without the formalities of a full trial.[5] Companies should weigh these options carefully, considering the specific risks and dynamics of each case.

Liquidated Damages

Liquidated damages provisions are a key tool in managing product liability risks, providing a predetermined framework for compensation in the event of a defect. However, these provisions must be crafted with precision to avoid unintended consequences. A well-drafted liquidated damages clause can provide a clear, predictable resolution in case of a defect. For example, in the construction industry, where delays and defects are common, liquidated damages provisions are standard practice.

However, setting the liquidated damages amount too high can discourage cooperation and lead to strained relationships. For instance, a supplier might be reluctant to acknowledge a defect if they fear being held liable for excessive damages. Conversely, setting the amount too low may not adequately compensate for the damages incurred, leaving the company exposed to further liability.

The key is to balance precision with flexibility. Liquidated damages should reflect the actual risks and potential damages associated with the product, taking into account industry standards, market conditions, and the specific circumstances of the contract. Again, such clauses should be monitored over time to remain their effectiveness and relevance. This requires collaboration between legal and financial experts, ensuring that the provisions are realistic, enforceable, and aligned with the company’s overall risk management strategy.

Navigating Co-Defendant Relationships

The Joint Defense Agreement [6]

In products litigation, a Joint Defense Agreement (JDA) provides a mechanism for defendants, who are often competitors or otherwise unrelated entities, to collaborate in their legal defense. This arrangement allows for the sharing of information, strategies, and resources without waiving attorney-client privilege or work product protection. However, while JDAs offer significant advantages, they also present certain risks and challenges that must be carefully managed.

Pros of a Joint Defense Agreement

One of the key benefits of a JDA in products liability cases is the cost-sharing aspect. Litigation, particularly in complex products liability cases, can be extraordinarily expensive. By pooling resources, defendants can reduce their individual financial burdens. Another significant advantage is the ability to coordinate defense strategies. Multiple defendants may be facing similar allegations regarding the same product or similar products. A JDA allows these defendants to present a united front, reducing the risk of inconsistent defenses that could be exploited by the plaintiffs. Coordinated strategies can help streamline the litigation process, avoid duplicative efforts, and potentially lead to more favorable outcomes for all parties involved.

Cons of a Joint Defense Agreement

Despite these benefits, JDAs also carry substantial risks. One of the most prominent concerns is the potential for conflicts of interest. While defendants may initially share common goals, their interests may diverge as the litigation progresses. For example, one defendant might decide that settling the case is in their best interest, while others prefer to go to trial. In such situations, the JDA could become a source of tension, and the defendants might find themselves in a position where they have to navigate these conflicts carefully, potentially jeopardizing their collective defense.

Parties bound by a JDA must avoid the risk of inadvertent disclosure of sensitive information. While JDAs are designed to protect shared communications under the joint defense privilege, the more parties involved, the greater the risk that privileged information could be leaked, either intentionally or inadvertently. This risk is exacerbated by the fact that different defendants may have different levels of internal controls and practices regarding the handling of confidential information. If privileged information is disclosed, it could not only harm the individual defendant but also potentially waive privilege for all parties involved in the JDA.

Additionally, JDAs can also complicate settlement negotiations. When multiple defendants are bound by a JDA, any settlement offer made by the plaintiffs may need to be considered collectively. This can slow down the negotiation process and create additional layers of complexity, especially if one or more defendants have different risk tolerances or financial considerations. Moreover, plaintiffs might attempt to exploit any perceived or actual divisions among the defendants, using settlement discussions as a tool to drive a wedge between them.

Finally, the legal enforceability and ethical implications of JDAs must be carefully considered. The effectiveness of a JDA depends not only on its initial drafting but also on its ongoing management. Regular communication and coordination among the parties are essential to maintaining a cohesive defense strategy. The JDA should establish a framework for regular meetings, updates, and decision-making processes, ensuring that all parties remain aligned and informed as the case progresses. This continuous engagement helps to anticipate and address any emerging conflicts before they can disrupt the defense strategy.

Tolling Agreements

Tolling agreements and JDAs are critical tools in managing the complexity of product liability litigation. Tolling agreements provide a valuable reprieve, allowing parties to negotiate a settlement or explore alternative dispute resolution options without the pressure of an impending trial. This is particularly beneficial in product liability cases, where the issues are often complex and require time to fully assess. However, tolling agreements must be carefully drafted to avoid unintended consequences, such as inadvertently waiving important rights or extending the statute of limitations in a way that disadvantages one party.

Absent a JDA, Parties Should Consider Avoiding the Blame Game

When co-defendants begin to shift fault onto each other, it can weaken the overall defense and damage the credibility of all involved. In the absence of a JDA,  co-defendants should still focus on aligning their interests and presenting a cohesive defense. This might involve agreeing to a shared liability framework, where each party accepts responsibility for their role in the defect and collaborate to focus on mitigating damages. Such an approach not only strengthens the defense, but also helps preserve business relationships, which can be crucial for future collaborations.

However, achieving this alignment is challenging, particularly when the stakes are high, and the parties have differing views on their respective liabilities. Effective negotiation and strategic planning are essential, with a focus on long-term interests rather than short-term gains. In some cases, it may be necessary to involve a neutral mediator to help facilitate these discussions and reach a mutually acceptable agreement.

The Strategic Role of Outside Counsel

The Imperative of Comprehensive Disclosure

Defending a product liability case hinges on the client’s ability to provide comprehensive and accurate information from the outset—embracing the good, the bad, and the ugly. This goes beyond merely providing technical details about the product; it involves a thorough examination of internal communications, historical data, and any prior incidents that may influence the case’s trajectory. This trust empowers counsel to navigate the complexities of the case more effectively, tailoring strategies to the client’s specific objectives.

All too often, however, attorneys are initially presented with incomplete or inaccurate narratives, only to discover later that crucial details were either misunderstood or omitted. This disconnect can have devastating consequences for the case. These omissions are frequently unintentional, often stemming from lapses in memory rather than deliberate concealment. Additionally, conducting an exhaustive investigation into a client’s systems to uncover the necessary details can be both time-consuming and costly. The true scale of a product liability case is rarely apparent at the beginning, so attorneys must rely heavily on the information provided by those within the client’s organization who are presumed to have the relevant knowledge.

Strategic Management of Expectations

Litigation often involves protracted timelines, intricate technical details, and the participation of multiple parties across various jurisdictions. It is essential that outside counsel manage client expectations by providing a realistic assessment of these complexities. Unlike a transactional matter, where outcomes can be more predictable, product liability cases are fraught with variables that can significantly alter the course of litigation. Outside counsel must ensure that clients understand the fluid nature of these cases, where jury decisions, judicial rulings, and the emergence of new evidence can dramatically shift the landscape. A key aspect of managing these expectations is encouraging clients to focus on a range of potential outcomes rather than fixating on a single desired result. This approach allows for more strategic decision-making, particularly when considering the merits of settlement versus continuing litigation. Counsel’s role is to provide clear, objective advice on these pivotal decisions, weighing the costs, risks, and benefits of each option in alignment with the client’s broader business goals.

The Role of Expertise and Strategic Trust

Outside counsel is often engaged for their specialized expertise in handling complex product liability cases. This expertise is vital when making informed decisions about litigation strategy, particularly when selecting expert witnesses or responding to technical discovery requests. However, the relationship between client and counsel should be one of strategic trust, rather than blind acceptance. Clients should be encouraged to engage actively in the decision-making process, asking questions and seeking clarifications to ensure that they fully understand the implications of the legal strategies being proposed. This collaborative approach not only enhances the quality of the defense but also ensures that the client’s broader business objectives are consistently integrated into the legal strategy.

Aligning Legal Strategy with Business Objectives

Outside counsel must be deeply attuned to the client’s business model, industry dynamics, and key relationships with suppliers, distributors, and other stakeholders. Outside counsel should not be going “scorched earth” in an effort to shift blame to one of the client’s business partners without an understanding of the consequences. A litigation strategy that aggressively pursues legal victories without considering the potential impact on critical business relationships can lead to long-term damage that may be difficult to repair. Instead, counsel must constantly be communicating about the strategy where it involves critical business relationships – especially if the strategy is to shift blame toward those companies. Ultimately, the goal is not just to win the case but to do so in a manner that supports the client’s ongoing business success and positions them favorably for future dealings.

Conclusion

The Litigation Tango of product liability litigation requires a strategic, multi-faceted approach that integrates legal expertise with business acumen, risk management, and relationship preservation. By fostering strong relationships, leveraging effective communication, employing creative solutions, and partnering strategically with outside counsel, companies can navigate the complexities of product liability litigation with agility and precision. These strategies not only protect the company’s legal and financial interests but also ensure that the company emerges from litigation with its business relationships, reputation, and future prospects intact.

Five Things to Remember

[1] https://www.radicalcompliance.com/2019/06/02/another-lesson-from-boeing-silos/

[2] https://www.prdaily.com/how-boeing-has-communicated-about-737-max-9-disaster/

[3] https://www.bbc.com/news/business-34324772

[4] https://www.caranddriver.com/news/a15339250/everything-you-need-to-know-about-the-vw-diesel-emissions-scandal/

[5] https://www.wipo.int/amc/en/expert-determination/what-is-exp.html

[6] https://www.americanbar.org/content/dam/aba/publishing/aba_tax_times/12win-ptr1-partain.pdf