Business Litigation: An Overview

LEE

By: Lee Gresham

The January 28, 1960 issue of The Washington Post contained a letter from John Steinbeck to Adlai Stevenson. In the letter, Steinbeck said, “A strange species we are. We can stand anything God and nature throw at us save only plenty. If I wanted to destroy a nation, I would give it too much and I would have it on its knees: miserable, greedy, and sick.”

Perhaps that sums up where our country is today, and perhaps it also explains the advent and explosion of business litigation, a term which encompasses a wide array of legal disputes involving business. Peter Drucker, noted author and “business thinker” said that business is easily defined—“[i]t’s other people’s money”. That seems to be the prevailing thought in the business world today. The anything goes mentality is evidenced by the all-too-familiar refrain: “It’s not personal, it’s just business”. In the 1983 movie, Trading Places, Randolph Duke, who was born into privilege, told his brother Mortimer, “Mother always said you were greedy”, to which Mortimer replied: “She meant it as a compliment.” Unfortunately, Mortimer’s mindset seems to infect a great number of business dealings, many of which ultimately end in litigation.

A recent study revealed that wealthier people are more likely to cheat and to lie. This is a disturbing, but perhaps not surprising, revelation. Some would argue that it is not wealthy people who are more prone to cheat and to lie, but corporations, which seem so willing to put profits before people. Ambrose Bierce, editorialist and satirist in the late 1800s-early 1900s, wrote a decade ago that a “[c]orporation…is an ingenious device for obtaining profit without individual responsibility.” This is indeed a cynical view of corporations, but is it legitimate? The growth of business litigation seems to argue Bierce’s point.

A prime, and now famous, example of corporate greed is the Pennzoil v. Getty Oil case. In 1984, Pennzoil entered into an informal merger agreement with Getty Oil whereby Pennzoil would acquire Getty. Pennzoil and Getty signed a Memorandum of Agreement subject to the approval of each board and issued a press release regarding the merger. Texaco heard of the offer and made an offer of its own to buy Getty. Getty then repudiated its agreement with Pennzoil and accepted Texaco’s offer.

Pennzoil sued Texaco in state court in Texas for tortious interference with a contract. Pennzoil’s lawyer tried the case on a simple theme, “What is a handshake worth today?” The jury answered that question by returning a verdict for Pennzoil in the amount of $10.53 Billion against Texaco. Texaco appealed, and the verdict was upheld on condition that Pennzoil agree to reduce punitive damages from $3 Billion to $1 Billion. Compensatory damages of $7.53 Billion remained unaffected. Obviously the jury and the appellate court felt that a handshake is worth a lot in the State of Texas. Unfortunately, that sentiment does not resonate with everyone in the business community.

Nationally, there has been a general downward movement in tort filings since 1990. By contrast, contract filings have increased significantly. In 2004, tort cases (e.g., personal injury, medical malpractice, negligence cases) accounted for only 5% of general civil cases filed in unified courts in six states reporting, while contract cases (often a business suing another business) comprised 27% of the filed cases. In 2008, tort cases accounted for just 4.4% of all civil cases filed.

A 2011 Litigation Trends Survey in which 405 lawyers, most of whom are general counsel or heads of litigation, who represent both public and private companies, responded revealed that the most numerous types of cases pending against their companies were labor and employment cases and contract cases. These lawyers also cited regulatory matters, intellectual property/patents and product liability cases among other types of pending cases.

Types of Business Litigation

There are a number of different types of cases that fall under the broad heading, “business litigation”. Some of the most common are:

Misuse of Intellectual Property: Patents, copyrights, trademarks, trade dress, service marks, and trade secrets.

Antitrust Violations: Monopolization of a line of business, group boycotts, price discrimination, tying arrangements, and conspiracies to fix prices, allocate customers, divide territories, or otherwise prevent competition.

Fraud and Deceptive Trade Practices: Misrepresentations and fraud in business transactions.

Securities Law Violations: Deceptive or manipulative conduct in connection with buying and selling stocks, bonds, mutual funds, and other securities.

Breach of fiduciary duty by persons in positions of trust, including corporate officers and directors, agents, trustees, partners, or majority shareholders.

Employer/Employee Disputes: Overtime, disabilities, health and pension benefits, and discrimination (age, race, and gender).

Collection of Debt: Promissory notes, guaranty agreements, and mortgages/deeds of trust.

Breach of Contract: Mergers and acquisitions, purchases and sales of securities, transactions in real estate and other business assets, and agreements to provide goods or services.

Tortious Interference with Contract: A third party’s hindering or preventing performance of an agreement.

Agreements Limiting Competition: Non-competition, non-solicitation, and non-disclosure agreements by former business owners and employees. These suits often include requests for emergency relief such as a restraining order or pre-trial injunction.

Corporate Litigation: Breach of fiduciary duty, shareholder oppression.

Lender Liability: Breach of contract, misrepresentation of loan terms, bogus or inflated fees, inaccurate appraisals, securities fraud, discrimination based on race or gender, predatory lending.

Bad Faith: Failure to defend, failure to pay, undervaluing a fair claim.

Real Estate Disputes: Breach of contract, commercial landlord-tenant disputes, failure to disclose defects, leases & assignments, mortgage foreclosure, option agreements, security interests, title issues