The Trial of the Hidden Agenda: Part II

Proving a Hidden Agenda: The Technology Joint-Venture Case 
Several years ago we represented the U.S. subsidiary of a Japanese company in litigation in which the two parties to a technology joint venture blamed each other for its failure. At the time, virtually every new personal computer came equipped with a so-called floppy disk drive, and the most common means of transferring electronic files was via floppy disks, which could store slightly more than a megabyte of data on a magnetic-coated circular membrane encased within a hard plastic case. Higher-capacity methods of storing and transferring data were still in their infancy. Our client, a successful manufacturer of computer components (including disk drives) and other electronic parts, was interested in developing a new type of disk drive that would replace the standard, low-capacity floppy drive with a dual-function drive, which would read from and write to the ubiquitous floppy disks but also accommodate a new form of disk with several hundred times greater capacity. Our opponent was a U.S. company based a few miles from the courthouse; its primary line of business was manufacturing precision test equipment for electronic parts.

In investigating the potential project, our client had learned that the test-equipment manufacturer owned a license for some patented technology that appeared essential to the success of the drive. When our client sought a sublicense, the test-equipment manufacturer negotiated hard—insisting on a significant role in the project. As a result, our client entered into a joint venture with the test-equipment manufacturer, rather than obtain a license for the needed technology. The joint-venture agreement allocated to our client the responsibility to develop and manufacture the disk drive—a logical if ambitious extension of the expertise of a company with a track record of manufacturing precision disk drives and other data-storage devices. Our opponent, on the other hand, successfully negotiated for itself the responsibility for developing and manufacturing the “media”—the new high-capacity disk with same form factor as a standard floppy disk.

The venture failed. Litigation followed, with each party blaming the other for the failure. Our client actually filed the suit, seeking a declaratory judgment terminating the joint venture, but the opponent’s multi-billion-dollar counterclaim effectively reversed the parties’ positions and put us on the defensive. Our client claimed that our opponent had failed in its effort to develop satisfactory high-capacity disks, dooming the project. The opponent claimed that it had developed satisfactory media—working in concert with disk manufacturers—and that the project could have succeeded if our client had been willing to proceed into the production stage of the project. There was a third possibility: that neither party was at fault, but rather that the project was simply ahead of its time, and that technology did not exist to permit magnetically storing 500 megabytes of data on a size of disk usually used for storing a fraction of that amount.

Each side had its trial theme (or themes). One of ours was that our opponent, the manufacturer of test equipment, was not qualified to fulfill its responsibility and essentially functioned as nothing more than a procurement department, outsourcing its duties—contacting a diskette manufacturer, providing it with the desired specifications for the high-capacity disk, and hoping that several weeks or months later the manufacturer would come back with an acceptable prototype. The theme had some support in the facts. Our opponent had been successful in selling low-volume, high-priced test instruments, but had never developed a product for mass production, let alone manufactured one. Lacking any capacity to design or produce diskettes, the opponent had no intention of doing so, and had in fact requested prototype disks from a succession of disk manufacturers with the intention of contracting for the manufacturing of the disks.

Our opponent’s fine trial team, led by Allen Ruby of San Jose and Roy Bartlett of San Francisco, had its own theme. According to them, our client—again, the American subsidiary of a Japanese corporation—had never really wanted to join in the venture with their client, and ignored their client’s real progress in developing the necessary magnetic storage media. Thus, in their version of the story, our client had gone through the motions, waiting for the venture to fail so that it could abandon its joint-venture partner and work directly with a diskette manufacturer—a Japanese one, at that—rather than with the opponent as a middleman. (Their theme was not true, by the way. It’s my article. You’ll have to call Allen or Roy for the other side of the story.)

The case settled after three weeks of trial, so we never knew which theme might have prevailed. Candidly, however, I have to say that our opponent’s theme was the stronger one—because it included a hidden agenda, one that had several of the elements that make for a persuasive argument of an improper motive.

First, there was strong circumstantial support, objective and otherwise, for our client’s supposed hidden agenda. Our client had a history of successful relationships with manufacturers of diskettes and other storage media—including, in particular, Japanese manufacturers. And during the course of the project, our client had, without question, become frustrated with the perceived lack of performance of its joint-venture partner. Our client had been reluctant to enter into the venture, and thereafter its executives and engineers had made clear their belief that the venture’s chances for success would improve if our opponent allowed them to work directly with media manufacturers. Mid-project, they had attempted to negotiate a modification of the joint-venture agreement under which our client would assume responsibility for development of the media as well as the drive, and our opponent would receive a reduced royalty on the sale of disks if the venture succeeded. Finally, our client was the party that ended the project, declining to proceed with manufacturing and marketing when the opponent was urging that the parties do so.

In our view, the refusal to proceed was not motivated by a desire to force the opponent out of the venture; the real reason was that our client was convinced that the parties had not succeeded in developing the technology—whether drive, media, or both—to the point that would give the product launch a reasonable chance for success. Unlike the opponent, our client had substantial assets to protect from product-liability claims, and a reputation that could suffer damage from the public-relations debacle of a launch of an inferior product. But the opponent certainly had several pieces of circumstantial proof that would have supported a persuasive argument in its favor.

And there was one other factor that favored our opponent’s theme: It played to the anticipated biases of the triers of fact. We had a Silicon Valley jury deciding a dispute between a Silicon Valley company and a Japan-based enterprise. At the time, American print and broadcast media were full of stories about trade deficits, Japanese ascendancy, declining U.S. technological capacity, protectionism, and the like. Studies show that when jurors (or other decision makers) are called upon to decide questions involving complex issues that they do not understand, they tend to make judgments based on past experiences, rules of thumb, or even personal biases. Our opponent’s trial theme subtly played into a prevailing perception that Japan and Japanese companies were somehow competing unfairly with their U.S. counterparts.

As often happens, the mid-trial settlement meant that we never knew which trial theme would have prevailed—but I have to tip my hat to worthy adversaries for developing and using a powerful one that skillfully employed a hidden agenda.

Ascertaining the Hidden Agenda
As I’ve said, not every case involves a nefarious litigant whose actions are determined by unstated improper intentions. So how do you go about determining whether a concealed motive is driving your opponent’s litigation strategy?

1. Start early. The search for case themes begins the moment you know that litigation is inevitable. Consideration of your opponent’s possible hidden agenda should likewise begin early—so that you can use formal and informal discovery, as necessary, to gather any needed proof.

2. Learn all you can about the opponent’s business and history. As with other aspects of trial preparation, there is no substitute for encyclopedic knowledge—here, of facts that are readily available to your opposing counsel but that will require creative research on your part.

3. Put yourself in your opponent’s shoes. An essential step is adopting—temporarily, at least—the mindset of the other party. Devote some thought to your opponent’s thought processes; incorporate a sort of retrospective game theory into your case evaluation. What might have motivated the opposing party to act as it did, other than naked greed or opportunism?

4. Enlist your client in the search. In most cases, your client will have known the opponent for months or years longer than you have, and will have lived with the dispute for a period of time before you were engaged for the litigation. Take advantage of your client’s knowledge in seeking out any unstated motives driving your opponent’s pre-suit behavior and litigation strategy. You’ll almost certainly be planning to have brainstorming sessions with the client team to discuss trial themes; to these meetings or teleconferences, add an agenda item for consideration of the hidden agenda. In the Stoneville arbitration that I discussed in Part I of this article, our realization that the faithless distributor had been planning its exit from the relationship for years came during just such a strategy session in a windowless conference room in the client’s office.

As in-house counsel, you have an advantage over me—a familiarity with your company’s business arising out of having lived it every day. Nevertheless, the members of the business unit involved in the litigation probably have a level of knowledge that exceeds even your own. Take advantage of it.

5. Use discovery to gather circumstantial proof of motive. The information you can get from your opponent isn’t limited to what will obviously be admissible at trial; you’re entitled to inquire into—in the familiar words of Rule 26(b)(1) of the Federal Rules of Civil Procedure—“. . . any nonprivileged matter that is relevant to any party’s claim or defense . . .” including information “reasonably calculated to lead to the discovery of admissible evidence.” In drafting your requests for production, and in preparing your deposition outlines, consider what documents might serve as objective evidence of motive or what answers from an unsuspecting witness could reveal unstated motives.

The Presentation and Proof of the Hidden Agenda: Four Lessons
The case history set forth above, as well as the two case examples in Part I of this article illustrate some of the issues to consider in asserting and proving that your opponent’s conduct was motivated by an improper hidden agenda. There are others. Here’s my list of five lessons for your consideration.

1. Don’t lose sight of the explicit elements of your claims or defenses. For all of the utility of proving that your opponent acted pursuant to an unstated wrongful motivation, there are cautions to be observed. Again, the other party’s intent is rarely an explicit issue in the case—an element of a cause of action or defense. Instead, it is usually employed to rebut, by inference, the opponent’s claim or defense. Thus, you normally don’t have to prove the hidden agenda to win. Don’t let the desire to demonstrate improper motive overwhelm the methodical proof or disproof of actual elements of the claims or defenses.

2. Don’t assume an unnecessary burden of proof. This caution also flows from the nature of the hidden agenda, which (like motive in a criminal case) is a useful but usually not essential part of your case. The trap to be avoided is creating, in the minds of jurors (or other trier of fact—judge or arbitrator) the impression that you can only prevail if they agree that the hidden agenda controlled your opponent’s conduct—and they hold against your client because they aren’t convinced of the existence of the improper implicit motive.

As you proffer the hidden agenda—in interim summation, closing argument, trial brief, or wherever—make it clear that while you believe it explains your opponent’s conduct, it is not essential to your claim or defense, and that the evidence you have adduced requires a verdict or judgment or award in your favor, regardless of whether the trier of fact agrees with your view of the opponent’s unstated motive.

3. Marshall your circumstantial proof. Again, the defining characteristic of a hidden agenda is that it is just that—hidden. The direct testimony of your opponent’s motive or purpose remains under the control of your opponent and its counsel. They are not going to testify to the concealed improper purpose, and your witnesses won’t be allowed to speculate as to what was in the mind of the opponent.

Accordingly, the proof of the hidden agenda will almost always be circumstantial. Often it will be objective and uncontested—like the records of purchases and sales of seed in our arbitration involving the Stoneville seed producer and distributor described in Part I. Sometimes it will involve testimony from your witnesses as to conduct of the opponent that is ambiguous but best explained in terms of your suggested motive. And you build your case by stacking the blocks of proof on each other, one by one, until the most logical inference points to the concealed purpose that you will argue controlled the opponent’s actions.

4. Determine the best time to raise the hidden agenda, and the best way to do so. In some cases, you may choose to present the hidden agenda from the outset—in your opening statement, or even in your pretrial briefing. It thus becomes the theme (or one of the themes) to which your evidence is tied, one that helps the judge or jury or arbitrator remember your proof when it comes time to decide the case. In the seed producer/distributor arbitration, for example, we mentioned the hidden agenda in our opening statement at the hearing on the merits and referred to it at least indirectly in direct- and cross-examinations as well as in closing argument.

There are, however, reasons why you might choose to wait until closing argument, or at least some other late stage of the trial or arbitration, to bring up the concept that your opponent’s conduct and litigating posture is best explained by an unstated improper purpose.

First, studies have repeatedly shown that we do a better job of remembering and hold more firmly to conclusions we have reached on our own, than we do to facts or arguments or points of view we have read or heard expressed by others. Jurors and judges and arbitrators are no different. If you withhold your explicit proffer of the hidden agenda until a late stage of the case, while in the meantime presenting your circumstantial building blocks of proof in an orderly fashion from the outset and throughout the case, you allow the decision maker to reach his or her own conclusion—the one you reached, months earlier, when you were evaluating the case and interviewing witnesses and reviewing documents. And your closing argument still gives you the opportunity to either emphasize the point or to present it to a trier of fact who hasn’t managed to formulate it in his or her own mind.

Further, a juror or a judge or an arbitrator who has been given the task of deciding between competing contentions will be naturally inclined to view each side’s arguments with skepticism until evidence has been presented that supports them. The contention that your opponent acted based on a concealed improper purpose may fall flat—may, in fact, be discounted as nothing more than shrill advocacy—if made in opening statement or other early stage of the presentation, before the jury or judge or arbitrator has had the opportunity to see and hear evidence that supports the argument.

In short: If your opponent’s proper or improper purpose is not (as in the section 220 case described in Part I) an explicit element of a claim or defense, calling for an express finding, it may be best to develop the hidden agenda gradually, throughout the proceeding, instead of asserting it from the outset, and you may consider even holding it back for closing argument.

Conclusion
Trial lawyers routinely place their clients’ economic livelihoods in the hands of jurors, judges, or arbitrators and ask them to render decisions based on a few days or hours of observation and evaluation. You increase your chances for success if you can make the decision makers comfortable that a determination in your client’s favor is the fair and correct one. And one way to do that is to come from the opposite direction—with persuasive evidence that your opponent isn’t to be trusted, and its evidence is not credible, because the opponent provoked the dispute by acting with unstated and improper motives. Hence the search for such motives and for methods of proving them.

Not every case involves a hidden agenda. But when one party’s conduct arguably is driven by an unstated motive, the presentation of that hidden agenda at trial is a powerful tool of persuasion.

Keywords: litigation, corporate counsel, criminal litigation, motive, Proprietary Seed

T. Ray Guy is a partner with Weil, Gotshal & Manges LLP in Dallas, Texas.