GCs Must Ask Hard Questions to Get in Front of Potential Product/Service Claims

Friday, September 7, 2018 - 15:36

 

Here are five tips from Sills mass tort co-chair James E. Tyrrell, Jr. on anticipating claims, and five more on building a proactive institutional framework.

CCBJ: What does it mean to get ahead of the curve in the context of large-scale litigation?

Jim Tyrrell: There are five factors in-house counsel should consider to stay ahead of problems. The first is the importance of anticipating future claims. If you’re in a product or service business, you should anticipate that you will get claims that involve your product or service. Stay on top of what issues are raised.

Next, you need to understand the products or ingredients you use in creating your products or services. For example, we represented a major medical company. They purchased a breakthrough substance from a competitor that made the service much more efficient, but that product was challenged in major litigation, so our client was drawn into that litigation. An intermediary used in the delivery of your service or the fabrication of your product can pose risks. It makes sense to track those risks.

Also, anticipate how customers use your product. The classic example here is off-label use of medication. If customers are using your product improperly and you continue to provide it to them, that could potentially raise claims. The pharma industry faces claims all the time for alleged improper or overextended use of an approved drug.

General counsel need to be thinking about what claims are popular, too, even those not inherently part of their business. For example, companies all over are being sued for cybersecurity violations even though cybersecurity itself is not their business – but they sell products and must protect customer records and data. 

Similar is the importance of watching trends. You can’t open a newspaper these days without finding an enormous amount of press on harassment litigation. Since these issues are receiving significant attention in the popular media, you have to assume there may be a heightened degree of employment practice claims against your company simply because people are thinking about it. You need to be preparing for that, perhaps reinvigorating the investigation and early resolution of claims that you think might possibly be made instead of waiting for the claim to mature.

A further thought to stay ahead of the curve is what I call proactive risk minimization. You can’t just know there’s a risk. You’ve got to do something about it.

What is the next step after anticipating future claims?

Regarding issues raised by your own product, your company knows its products or services – they track them, regulate them – so talk to and work with product specialists in your company.

You don’t necessarily know the products you use as well as your supplier does, and your supplier may not be willing to disclose problems with a product that they want you to buy. So consider building into your purchase agreements that, if your suppliers find out there’s a problem, they have an obligation to disclose it to you.

As to how your customers use or misuse your product, one of the best ways to get information is your sales force. They are out there asking customers to buy products. Here, too, look to requiring that customers disclose how they’re using a product, so you get as early an indication as possible if they’re using it improperly.

For identifying popular claims and trends, outside counsel can be very helpful. Because they are representing a large number of clients, they see the frequency with which there are, for example, cyber claims, and can bring those concerns to the company. The same is true with trends. Just like plaintiffs are thinking of what claims they can bring, defense counsel are often talking with plaintiffs’ counsel, outside scientists and others to see what litigation is likely in the future.

What’s your advice when a claim is made, or is going to be made?

I always advise my clients to be very aggressive in their response. That could mean settling; it could mean fighting; it could mean asking for a prelitigation demand from a known claimant. But allowing it to sit there and fester gives the other side an opportunity to work up their claim, perhaps see if there are more claims.

Give us an example of when staying ahead of the curve in litigation proved successful for you.

In the Deepwater Horizon litigation in the Gulf of Mexico, clearly the first target was going to be British Petroleum. But you didn’t have to think too far ahead to realize that other companies – those that owned the platform, built the platform, maintained the platform – were going to be next in line. We approached clients in those industries, but we didn’t stop there. You could see that there would be a next wave of claims. For example, when they needed to disperse the oil, they used a chemical, and you could see that people were going to claim that the chemical used to get rid of the oil injured them, and that company would become a target.

The most extreme example was the maritime company that owned the seagoing tugs and fire boats that put out the fire on the rig. Their exposure was the claim that they put so much water on the platform that they destabilized it, causing it to sink. By bringing this risk to the attention of the company that owned the tug and fire boats, we were engaged by them to represent their interests. We were ahead of it by having done research on the immunities that first responders are entitled to, in part based on work we had done as lead counsel for the City of New York in the World Trade Center litigation. We were able to get that company completely out of the case early on by focusing on motions that dealt with those immunities.

What large-scale litigation threats are on the horizon for corporate America?

One is lawsuits involving opioids. A manufacturer of opioids might be a first target, but it is a little less clear for companies that distribute wholesale pharmaceuticals. And yet, those distributors have now widely been sued.

Take it down to the next level. Major pharmacies have been sued with a variety of claims. You’re beginning to see hospitals being sued, doctors sued. Anybody that seems to have touched opioids has become fair game as plaintiffs spin their theories, both for personal injury and financial loss.

With respect to the type of claims, addiction was the initial covering allegation, and we’ve seen that before with tobacco and alcohol. But there are now claims going well beyond addiction to side effects caused by opioid medications. Some of those become medical malpractice claims; some become consumer fraud claims – that the opioid manufacturer or distributor knew the risks and failed to disclose it. Financial claims, too, are being asserted, with the government and major health insurers saying, “We have paid far too much money because of the overprescription of opioid drugs, and we want that money back.”

Opioids are a good example of anticipating the likely next defendants or claims. Benzodiazepines are psychotropic drugs used for anxiety and depression, and they could be an area that may closely parallel opioids. Looking at popular claims and trends, and considering the number of suicides, it isn’t long before you’re going to see claims that these drugs are overprescribed, that they cause medical issues, that they cause suicide. So if you are a manufacturer or distributor of benzodiazepines, working with your inside counsel and knowing what your suppliers provide and how your customers use your product can help with risk minimization.

It is generally considered that the food industry – including the agriculture industry in relation to genetically engineered seeds, genetically engineered pesticides and pesticides generally – is going to be under heavy attack in the future. Episodes of contamination, of lettuce or other products, for example, are increasingly being addressed in consumer fraud cases: You claim that your product does not contain genetically engineered substances, but the plaintiffs say, “We’ve looked at it very hard, and it does.” In some states, you don’t have to prove injury to make a consumer fraud claim. You don’t even have to prove damages.

Another example that we’ve talked about is cyber. Every single time there is a security breach through hacking, the company that’s affected is sued. Even if it hasn’t happened to you, you’d be well-advised to have a cyber czar within the company who spends time focusing on what your vulnerabilities are and doing everything possible so that if the claim comes, it doesn’t look like you were standing there doing nothing to prepare for it.

These concerns extend over multiple areas: artificial intelligence, self-driving vehicles, drones (as to injury and privacy). Delivery companies, I am sure, are analyzing what risks are associated with delivery by drones. AI claims are clearly going to be increasing as it becomes part of our everyday life. If those products or businesses touch your areas, you need to be thinking about what claims you might face.

What strategies can those in the chain of commerce employ to minimize their risk?

I suggest putting together a team with a mission to forecast risk for the company. That team probably should be led by inside counsel and include the business side of the company, particularly product and service executives who know exactly what products are being sold and what services are being delivered. The team should probably also include outside counsel, in part to protect privilege, but certainly to give you outside thought with respect to best practices and trends. Depending on the products or services involved, it may include outside science experts. A new add to the team might be social media experts. They know what’s trending in the Facebook world, in tweets. They can see people expressing concerns, and listening to them even if there’s no scientific basis for those concerns.

Then empower the team to investigate and make recommendations about a problem. A team that stands by the wayside, or recognizes a problem but does nothing to solve it, can be more detrimental in the context of a claim or litigation than doing nothing at all. If you do nothing at all, at least you can claim you didn’t know about the problem. If you put together a team and learn about a problem, and then you do nothing, you look worse because it will be claimed that you chose to expose your customer or the public to the risk.

Last, use the maximum application of attorney-client privilege. Most courts have extended pretty broad privilege to in-house counsel. But courts still acknowledge a broader application of privilege when outside counsel are involved. Clearly, it is in my interest to suggest that outside counsel be involved, but I really mean it, both to maximize the privilege so that all your good groundwork doesn’t get turned against you, and to be in a position where outside counsel can use their broad experience representing other clients to identify the popular cases that are being brought and to forecast trends.

What’s your final piece of advice to general counsel regarding these types of litigation matters?

Number one, ask tough questions to your in-house legal team. Most general counsel do, but in terms of protecting the company, this is not an area to be shy about. What happened? Is there a claim? How serious is it? Are there going to be more of the same kinds of claims? Then go beyond the world that you control. Talk and ask hard questions of your executives, chief financial officer, product managers. How do they evaluate the risk?

Second, own the issue. That doesn’t mean that the general counsel who’s got a million other things to do has to own the issue personally, but assign someone on your team or outside counsel to get on top of an issue and to stay on top so that it doesn’t drift. If no one owns an issue, nothing will get done.

Third, do the best you can to quantify the risk. If you can’t quantify it in dollars, qualify it in some other way – for example, does it threaten the brand?

Fourth, involve top business leaders. Don’t be the only one who knows what the risk is. Talk to the CEO. Talk to the board, in consultation with the CEO. These are the people who, if the risk is going to be addressed, will need to allocate the resources, time and money to do it. The longer you sit on the knowledge of a risk, the longer it is going to take for the risk to be taken seriously by people who have the authority and wherewithal to do something about it.

Last, it is critical that you document the protective actions that you take once you’ve identified a risk, and that you do it contemporaneously. Keep as much as possible under the protection of attorney client privilege. It doesn’t help you if you identify the risk, do something about it, and five years later, it becomes a lawsuit and you can’t document how reasonable your actions were in responding to the risk.


James E. Tyrrell, Jr. is co-chair of the mass tort practice group and a member of the litigation and product liability practice groups. His focus is on toxic tort, product liability, hospitals and medical devices, intellectual property, antitrust, class actions and general commercial litigation. He served as lead counsel for the City of New York, and as liaison counsel for all defendants, in the World Trade Center litigation. Reach him at jtyrrell@sillscummis.com.