When faced with a new class action, in-house counsel must ensure that the company immediately takes all necessary steps to begin an active defence, and to demonstrate to all persons observing its reaction to the lawsuit (industry analysts, media representatives, the investing public, suppliers, competitors and customers, and of course shareholders and employees) that the company is acting swiftly and decisively.
Some of the tasks that must be undertaken are the same steps necessary in response to any ordinary action, but class actions pose some unique challenges. To launch the necessary factual investigation and legal assessment of the claim, while at the same time managing public and shareholder interest in the action, in-house counsel must focus on four main tasks:
1. forming an in-house team;
2. communicating with interested persons inside and outside the organization;
3. locating and retaining relevant documents; and
4. retaining outside counsel.
1. Forming an in-house team
An internal class action team needs to be formed with tasks delegated to each team member. Depending on the complexity of the litigation and the size of your company, an internal team of existing staff may be adequate, so long as external counsel is retained. If the case is especially complex or all-consuming, other possibilities may include retaining additional internal counsel on contract (for tasks such as document review) or having external counsel provide seconded counsel for a period of time. The key is to have the appropriate people in place to effectively manage the myriad issues arising from the new litigation, while minimizing the impact of the litigation on the company’s day-to-day operations.
2. Developing a communications strategy
In the case of a new class action, you must immediately consider both your internal and external audiences. To respond to outside enquiries (or to proactively communicate your response), it is important to identify a communications point person immediately, either in-house, if such a department exists, or by retaining external advisers. A class action tends to receive more media attention than an ordinary claim, and requires sensitive and skilled handling. Indeed, the plaintiffs and their lawyers may, coincident with or even before issuing their Statement of Claim, launch a media campaign to curry public favour and support for their case. You need to be ready to respond with an effective and consistent message. Internally, you must also be ready to manage the flow of information about the lawsuit to employees, and of course to the officers and directors of the company. Finally, you must also address reporting requirements and insurance issues arising from the possible exposure represented by the new litigation.
3. Document retention
As with any action, the defendant has an obligation, subject to considerations of privilege, to produce all documents that have a "semblance of relevance" to the allegations made in the lawsuit. A Court can impose serious penalties if a company faced with litigation fails to secure and preserve the relevant documents which will be required for production during the action.
In addition, an early and detailed document review is necessary to bring the strengths and weaknesses of the company’s position into clear relief. The longer it takes the company to conclude its investigation, and the more limited its ability to do so because of missing documents, the more difficult it is for the company to develop a co-ordinated and effective short- and long-term strategy for the litigation.
Accordingly, if a document retention policy is not already in place, a memo should immediately go out to all employees with involvement in the matter, requiring them to identify, segregate, secure and preserve their relevant documents (in every media). It is critical to ensure that each step in this process is carefully documented, as the lawyers for the plaintiffs will critically evaluate both the manner and results of the company’s document search and production efforts.
4. Retaining outside counsel
It is absolutely critical to identify and retain the right outside counsel immediately. Careful consideration must be given to the breadth of expertise and resources that a law firm can bring to your defence. You will of course be looking to outside counsel to provide you with legal advice about the substance of the Statement of Claim and the appropriate responding defences, but they should also be able to work with you to think strategically in a number of other important areas:
- analyzing the risks and benefits of early settlement initiatives or preliminary motions to immediately attack the plaintiffs’ case;
- managing the tempo of the litigation;
- streamlining efforts and co-ordinating responses if the litigation is proceeding in multiple jurisdictions;
- advising on handling media and internal communications; and
- addressing stakeholders such as shareholders and the Board of Directors.
In addition, forward-thinking lead counsel can assist internal counsel to search for and identify any related issues that could lead to other litigation, including future class actions, and to develop appropriate risk containment policies.