Goals Matter: Discovery Strategy in Litigation Involving Family-Owned Businesses

Watch any legal drama play out on TV, and you might think that litigation is all about trials. Not so. The most time-consuming and expensive part of any lawsuit is in fact the process of discovery, where the plaintiff’s and the defendant’s lawyers prepare for trial by gathering and exchanging information. In lawsuits involving family-owned businesses, discovery comes with its own set of rules and risks that unfortunately can include hurt feelings and crumbled relationships. Experienced attorneys will try to forestall such developments. But more about that later.

First, let’s look at the process of discovery in general. In California, the Code of Civil Procedure lays out the scope of permissible discovery quite broadly: Basically, the parties in a lawsuit can seek to obtain information that is relevant to the case as well as information that “appears reasonably calculated” to lead to relevant evidence. To prevent abuse, the law also provides for limits on what can be discovered. E.g., the California Evidence Code deems conversations between spouses private and thus beyond the reach of any discovery tools lawyers may employ.

The procedures lawyers usually use for discovery include interrogatories, depositions, requests for the production of written and electronic documents, and requests for admissions. Each one can be useful, but each also carries costs. Take a lawsuit alleging that a vendor breached contractual obligations to a corporation: Theoretically, the lawyer representing the corporation could seek to obtain every email and letter pertaining to the contract that employees for the vendor ever wrote. But what if it then takes a lawyer or a paralegal hours and hours to review all those documents? In the end, what was gained in terms of knowledge may not be worth the expense.

Speaking of gain versus cost: In lawsuits involving family-owned businesses, lawyers need to also consider the emotional cost of any action they may take. A lawsuit filed by a minority shareholder alleging that the majority shareholder withheld information or mismanaged corporate assets has a different character when the majority and minority shareholders are brother and sister or mother and son. Just because an attorney can subpoena information from one relative or require another to testify at a deposition, he should not necessarily do so. Yes, he might be able to obtain seemingly critical information. But what if, in the process, a family bond breaks beyond repair. Would it be worth it?

In my experience, attorneys can help avoid such rifts by being proactive. When I represent clients in lawsuits involving family-owned businesses I always discuss strategic matters right away, meaning even before discovery begins. This is the only way I know to ensure two things: that the goals of litigation are consistent with the goals of the business, and that family relationships remain intact even after the lawsuit.

By Kevin J. Moore

Kevin Moore, Founder of Kevin J. Moore & Associates, is focused in the areas of estate planning, trusts and probate services with additional expertise in both domestic and international business transactions and tax planning and tax controversy representation for individuals and companies.