Creating Powerful Litigation Complaints
By David H. Glusman, CPA/CFF, FABFA, CFS, Cr. FA, Partner, Advisory Services & David B. Friend, MD, MBA, Principal, Management Consulting
The first formal step in litigation is drafting a persuasive and well-pleaded complaint. Poorly crafted complaints significantly impact litigation. They usually result in unnecessary and time-consuming amendments, and if a cause of action or factual allegations are missing, discovery could be limited or significant damages could be omitted.
The state of the art for complaints is evolving to more powerful documents with improvements in form and a more intense focus on the causes of action, factual allegations, damages, and resolutions or outcomes. A well-crafted first complaint eliminates future amendments, establishes authority with judges, creates hurdles for the opposition, and serves as a roadmap to guide discovery and subsequent actions.
One longstanding limitation of complaints is that, at the time they are filed early in litigation, information about the matter is incomplete. Complaints are often based on just the litigant’s limited information. That information often has a complex, clouded, and incomplete history. A closely related problem is that in today’s complex and technical world, disputes arise over highly complex and technical issues. An example is the common failure of IT systems and networks to perform according to contractual specifications.
Another limitation is that the causes of action and the nature and extent of damages are not accurately and completely identified and quantified. Complaints may fail to accurately or completely identify a tortuous act, a failure to perform a legal or contractual obligation, a breach of duty, or a violation or invasion of a trust. This may be due to incomplete information, but it could also be an inaccurate analysis of available information or an incomplete understanding of the nature of damages and their relationship to legal causes of action. These shortcomings create a huge burden for attorneys, who must develop an exacting and convincing case for damages or resolution that trumps a countersuit or a motion to dismiss.
Limited access to information is particularly relevant in contractual management services agreements, or in agreements characterized by complex or technical services. For example, say medical billing is outsourced to an outside company. In technical and complex services, attorneys may not understand the full and also subtle nature of breaches and the exact performance terms, or the events or failures that led to the lawsuit. Failure to fully understand and describe the specific elements of what did or did not occur can result in a misdirected focus on the nature and extent of damages and the causes of action.
Financial Analysis and Quantification of Damages
Increasingly Marcum’s litigation professionals are involved early in litigation to provide technical analysis and advice on the facts that serve as the basis of litigation. A forensic accountant can play a central role in helping attorneys understand the financial impact of a dispute or lawsuit. The financial basis and information required vary by the nature of the dispute. Common categories of business litigation include purchase; sale and merger transactions; management services agreements; and joint ventures. Each category involves very diverse and complex business arrangements and contractual terms. Likewise, the underlying accounting principles and records vary dramatically. The financial analysis of a merger transaction is much different from that of a management services agreement. Moreover, given the rapid transformation across all types of business relationships, financial analysis has become much more complex.
A forensic accountant can assist attorneys in the early stages of litigation by providing:
- A brief consultation to review the nature, scope, and merits of financial and business valuation damages presented by a litigant.
- A review of the accuracy of financial statements, tax returns, general ledgers, or other financial records.
- An accurate compilation and presentation of financial statements.
- An authoritative analysis of lost profits or devaluation of a business.
- Assistance to attorneys in presenting the theory or nature of damages.
- Crafting properly worded factual allegations of the accounting or legal basis and scope of financial damages.
Industry-Specific Business Knowledge
Industry-specific technical knowledge is essential in drafting a complaint. The entire business world is becoming much more complex, and effective complaints must reflect a thorough understanding of the current business environment. That understanding often encapsulates industry regulations, best practices, state-of-the-art information systems, performance standards, operational procedures, and technical/scientific processes or procedures. Marcum’s forensic team members have expertise in many different industries and can assist attorneys in understanding the true nature and full extent of an adverse event, and the potential outcome or resolution. Our experts can also assist attorneys craft complaints that properly explain how industry-specific factors contribute to factual allegations of damages.