Smoking guns and the law of unintended consequences

The failure to communicate causes countless problems.  It’s one of the largest causes of defects and problems in any organization, according to quality expert Philip Crosby. The legal environment of business is no different. Smoking guns fuel litigation. Memories can fade, but company records can be virtually immortal, especially if they are not managed properly.

All too often documents created in the course of business are created in haste. High-tech devices have further increased not only the avenues of communication but also the need for speed.  Just think about all those flying Blackberry thumbs.

Most employees don’t appreciate the pivotal role they play in creating business documents or the role those documents can play in protecting their company’s legal health. It is this lack of understanding can turn every day business documents into litigation wild cards.

Take for example the cautionary tale involving a customer complaint about poor product performance. The salesman assigned to the account fills out a standard customer complaint form. In the section requiring his comments he writes, “Product is not good!” Why? Because that’s what the customer told him.

Later, a credit memo issuing a refund to the customer identifies the reason for the refund as “out of spec, not working.” Why? Because that’s what the salesman told accounting.

When the customer subsequently files a $5 million suit for breach of product warranty, the plaintiff uses both the customer complaint form and the credit memo as evidence to prove the contract violation. Essentially, the company’s own words are used against it, and the two documents become proverbial smoking guns.

The hitch is that the product delivered to the customer could perform as specified. The product didn’t work only because the customer didn’t know how to use it properly.  

Unfortunately, the two documents posed serious stumbling blocks in defending the lawsuit. In legal parlance, they were admissions made by the company that the product was not good. Had the salesman written that the “customer claims the product is not good” or the credit memo stated that the “customer claims the product is out of specification,” the analysis would have been different. It would have been more accurate.

Similarly, qualifying the comment with reference to the need for further testing or inquiry about how the customer used the product, or acknowledging other factors that could contribute to the ultimate product performance would have made a difference. Instead, the exculpatory follow-up occurred only after a lawsuit was filed and long after the customer-complaint form and credit memo accepting full blame were issued and placed in the company files.

After evaluating the situation, the company reluctantly concluded that it was less expensive to settle the case than incur trial preparation expenses and take a chance on an unpredictable jury. The case settled for much less than originally demanded but considerably more than merited by the facts. All because two little pieces of paper misstated the situation. It was an expense mistake that was completely avoidable.

Managing the document-creation process with more legal literacy reduces the risk of smoking guns and ensures that company documents tell an accurate story, one of respectable conduct that the company can be proud of. Managing the process of how business documents are created and stored in hard files and hard drives is therefore a smart legal risk management tool and a good investment.

Knowing what to say and how to say it can make a huge difference in a company’s overall risk profile.