Tuesday, November 11, 2014

Unpacking Bad Faith

A very smart lawyer at a very large firm once told me something very convincing.

All the good stuff lies in the privilege log.

The notion of "bad faith" prompted this comment. And by bad faith, I generally refer to the defense perception that many competition cases simply are motivated by a piling on of litigation costs - usually from an established player onto a start-up or nascent rival. As bad faith is often the standard for fee-shifting - certainly under state trade secrets law - then the concept becomes important for building a defense.

The problem for many defense lawyers (and more importantly, their clients) is proving bad faith. The concept smacks of deception, and by its nature the source of its proof largely is outside the control of the defense. On rare occasions, the defense will uncover a smoking gun - this usually is an e-mail, by the way - or a document that suggests an improper purpose behind the lawsuit. That purpose would be to achieve something other than a victory on the merits or a legitimate settlement of a valid claim.

A problem that has vexed me for some time is how to unpack bad faith through discovery. It's a knotty issue, with proof often a patchwork maze of inferences here and there from poorly conceived claims or simple lack of proof. But even a crummy case on the merits might not equate to "bad faith."

Is there something else? Some other way to prove it?

I have talked before about lawyer involvement in perpetuating bad faith claims as a major issue that underlies competition lawsuits. Lawyers often assume their clients' identities and are complicit in maintaining claims that fill up the courts for no legitimate reason. Because competition disputes are amenable to discovery morasses, this is a serious issue. Another serious issue is incompetence. Competition law is not easy, nor intuitive. And many lawyers simply don't understand the law very well. Add to that the declining market for legal services, and attorneys able to grab a competition case see a source of fee revenue for the taking. It's a toxic brew.

So recalling what my colleague said about privilege, is there a way to circumvent it? There might be. It's called the "crime-fraud" exception. Lawyers and clients labor under a terrible misconception of privilege. It is the exception and not the rule, so it's carefully scrutinized and particularly favored. This is particularly so since it's antithetical to the goal of the adversarial process: to find out the truth when reaching a result.

The essence of the crime-fraud exception is fairly straightforward: a lawyer does not render professional services if she is assisting the client to perpetrate a crime or a fraud. In some places, courts give "fraud" a rather broad interpretation. It follows, then, that if a lawyer is facilitating a frivolous suit, then her discussions with her client about how to achieve this should be discoverable. This may loosely be called a "fraud upon the court" (though I recoil at that term), or something akin to fraud.

The procedural hurdle is that the party seeking discovery must advance a preliminary showing of bad faith. This is no small feat. But if a party can present this, then it may ask the court to review otherwise designated privileged material. This in camera review (likely, of attorney-client e-mails) will enable the court to act as a gatekeeper and ferret out truly privileged materials that don't further the fraud.

But communications where a client seeks counsel's assistance in perpetuating a frivolous claim are not privileged and should be disclosed. This rule makes sense when one considers that counsel have an ethical duty to the court, as well as her client. And it further makes sense when one realizes courts have the inherent authority to control their docket and advance cases towards a speedy, just resolution. If a lawyer is assisting a client perpetuate a nonsense claim, why should this help be immune from disclosure?

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