A line foreman at the plant sends an email to you with one sentence – “We need to talk.” The ensuing phone call reveals that a potential defect in your manufacturing process has been discovered, and even more concerning, the timeframe when it commenced is unknown and could have resulted in defective product being shipped to the field. This worst case scenario often plays itself out in the minds of quality control managers and vice-presidents of manufacturing and can happen to any business despite the tightest quality control procedures and manufacturing standards. What is the first step? Who should be contacted? What should the message be?
Product manufacturers or suppliers often walk a tight rope when first learning of potential defects with their products and processes. Investigating the scope of the problem, identifying the customers it may affect and developing a message for those customers while minimizing litigation risk is a challenge. Promptly mapping out a strategy and commencing an investigation that involves experienced outside counsel is an important step in dealing with potential product issues.
The First Steps and the Team
As an initial and immediate matter, the potential defect needs to be isolated. Any manufacturing line or process that could potentially be affected should be shut down, and any resulting product or inventory not yet delivered to a customer should be collected and stored in a safe area. All existing documentation (hard copies and electronic) regarding the situation should be preserved so that allegations of destruction of evidence does not become an issue in any future litigation.
A small team of internal personnel with decision-making authority that are highly knowledgeable about the processes and the quality control procedures at issue as well as the market segment affected should be assembled. The ultimate goal when creating the “team” is to have a small and knowledgeable group that can address issues quickly and make appropriate decisions while controlling internal documentation and communications regarding the investigation. Preferably, the team should not include any employees that are personally involved with the potentially defective process or products at issue. The team should have strong and centralized leadership with the authority to make decisions, and it should include a management executive and legal counsel. While internal company counsel should be on the team and should be utilized to commence these investigations, it is advantageous to promptly retain outside legal counsel that is experienced with product defect litigation to lead the investigation. The retention of experienced outside counsel is important so that litigation risks can be minimized and the protections of applicable investigatory and attorney-client privileges can be maximized.
The goal of any investigation into a potential product defect is to accurately identify and define the problem and its cause as well as the scope of those customers potentially affected so that they can be informed in a prompt manner.
An important part of any investigation is to ensure that the communications and information gathered are accurate and controlled. Employees that are not on the team, especially those that are potentially involved with the issue at hand, should be instructed to refrain from any discussions or communications related to any potential defects in the product or process with anyone until they are contacted by the investigating team. Employees that are not experienced with conducting or participating in an internal investigation can substantially increase the litigation exposure of the company by creating discoverable communications, especially emails, that will often contain unconfirmed statements, rumors, speculation and opinions that may later turn out to be inaccurate or exaggerated. A big challenge early in an investigation is eliminating the rumor mill and misinformation.
Hasty and/or compromised investigations can result in outside communications to suppliers and customers that are not only inaccurate, but that also have the potential to exacerbate problems for customers and unnecessarily increase litigation exposure.
The investigation should remain confidential and controlled until directed otherwise by counsel and management. While it is paramount to gather and evaluate all the relevant information as well as interview witnesses (which should be directed and led by counsel), team members should be reminded that unofficial written communications need to be minimized and based only on facts described with dry language and not based on speculation, opinions or flowery descriptions. Team members should primarily communicate in person or by phone during the investigation on an as needed basis with those who have a need to know, and to the extent possible, such discussions and communication strings should be commenced and led by, or directly addressed to, counsel.
Likewise, any outside testing laboratories or companies necessary for product testing or evaluation should be directly retained and supervised by outside counsel. While it may be necessary for outside counsel to receive input from team members regarding testing parameters and product information, communications between any company employees and outside testing laboratories and companies should be avoided.
Written communications to third parties, even if made by counsel, may be discoverable in any future litigation. Therefore, any official communications arising from the team or the company, especially those to third parties (like suppliers, customers, insurers, government agencies or the media), should be completely accurate and initially drafted and/or reviewed by counsel and management before being finalized and released. It is important that the company act with a single voice that is consistent and accurate during the investigation.
The Conclusion of the Investigation
While time is often of the essence regarding the investigation of potential product defects, and internal business pressures are sometimes present, it is important that the investigation is thorough and that the information obtained and conclusions reached are accurate. If there is the potential that product defects may cause bodily harm or significant property damage prior to the conclusion of the investigation, then a communication with customers that may potentially be affected prior to the conclusion of the investigation may be necessary to inform the customer so that any potentially harmful product can be set aside.
The decisions and actions of the company in such an emergency situation must involve significant input from experienced outside legal counsel and management, especially in regard to outside communications. It is often concerning to customers when they are notified about a potential product defect, but there is very little basic information about the problems and few answers to simple questions. Consequently, the recommended course of action is to wait for the investigation to reach conclusion before communicating with customers so that their questions can be answered accurately and promptly.
Regardless of the situation, hasty and/or compromised investigations can result in outside communications to suppliers and customers that are not only inaccurate, but that also have the potential to exacerbate problems for customers and unnecessarily increase litigation exposure for the company and its customers. While these situations are always unpleasant for customers, many understand that problems can arise in the manufacturing process and appreciate credible and direct communications that are based on a thorough and reliable investigation.
Phillip Sampson and Richard Whiteley are trial partners at the law firm of Bracewell & Giuliani. Sampson has tried numerous cases to jury verdict for both plaintiffs and defendants in state and federal courts, as well as before arbitration panels. His experience includes prosecuting and defending cases involving construction and products liability-related claims. Whiteley represents and counsels clients in litigation, trial work and arbitration, with an emphasis on construction litigation, products liability and intellectual property litigation. He has obtained favorable outcomes for both plaintiffs and defendants on claims of construction defects, products liability and construction disputes.