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Litigation Journal

Summer 2024

Is Silence Golden?

Robert E Shapiro

Summary

  • Any kind of public comment about a legal matter is fraught.
  • Silence may not be golden, but it creates less trouble further on.
  • No matter how good a public release sounds to your client’s ear, it may still cause all kinds of headaches in the litigation to come.
Is Silence Golden?
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A senior defense lawyer took to schooling a younger colleague on the fine points of handling the news media in a high-profile case:

“So, when the press comes to you, first ask the reporter whether you can go off the record.” “OK.” “They never refuse.” “All right.” “Then once you are off the record, you say: ‘My off-the-record comment is no comment.’”

Funny. And effective too, up to a point. Almost universally, reporters feel honor-bound to respect the rule of never quoting off-the-record comments. With this kind of interchange, there is literally nothing the reporter can say in a subsequent article about your client’s viewpoint beyond perhaps a bland recital that the defendant “could not be reached for comment.” The ruse would seem to insulate your client fully from ever being quoted about the merits, or even the fact, of the lawsuit.

Tell this to a member of the news media and you’ll undoubtedly get an earful. Members of the Fourth Estate work hard to be able to do what they do, and such an intentional frustration of legitimate reporting efforts is likely to set a reporter’s teeth on edge. This might matter little, in fact might add to your own glee, were it not that the press would not be alone in being irritated. Joining its voice to that of the media might very well be your own client, equally unhappy that you have lowered the cone of silence over the lawsuit, at least insofar as your side’s point of view is concerned. Should that change your approach?

Probably not. Your client’s desires and its chafing at an imposed media silence are surely understandable. Sometimes lawyers caught up in their daily activities forget that, for the client, getting sued is more than just inconvenient and costly. It can be a source of often-justified anger and frustration, particularly at the one-sided way the dispute will likely be presented in and publicized from the complaint. Clients want an immediate chance to vindicate themselves publicly, refute their critics, or just fight back. And the more newsworthy the lawsuit and lurid the allegations in the complaint, and the more eager the press is for a scoop or a response, the more determined the client may be to set the public record straight. You’ll hear all kinds of reasons, or rationalizations, for needing to make a statement, from what’s necessary for the business to what the client’s personal honor requires.

The Less Said in the Press, the Better

Such arguments are mostly bad. The fact is that almost any kind of response is usually a mistake. Regardless of the sense of the rejoinder, any additional noise in a headline-grabbing lawsuit will just prolong the agony. In this instance, you need to apply the old adage backward: When you are the target of an attention-grabbing complaint, there really is no such thing as good publicity. Especially with social media today, the more said, the more the echo effects of the lawsuit will resound, climbing the lawsuit up the algorithm, just the opposite of what the client wants. The less said, the better.

This is all the more true because no one really listens to the response, which must be short and therefore unlikely to be convincing, no matter how skillfully composed. The whole undertaking depends on a fundamental misunderstanding about the press and press coverage, and the way the contemporary public processes information. Many clients want to believe they can, through carefully devised press statements, control the public narrative. The public, safe to say, has already moved on. And even if it hasn’t, reporters have their own ideas of what they think the public wants to know or hear. The idea that you will get them to report things in a fashion favorable to your interests is illusory at best, or just downright foolhardy. Reporters have their own narrative to push, regardless how ill-informed you think them. You’re unlikely to change it.

Worse still, no matter how good a public release sounds to your client’s ear, or effective in developing a certain kind of press reporting, it may still cause all kinds of headaches in the litigation to come. Clients lack the ability to foresee how the case might develop. Lawyers would do well to warn clients who get sued that what appears to be a reasonable and likely defense now when the case has first been filed may look like a huge mistake from the perspective of what all the evidence shows. A sharp rejoinder can go awry. Even a meticulous recitation of facts as they are then known can look misleading in the context of the entire record.

Perhaps a lawyer with a litigator’s or (better) trial lawyer’s mindset can minimize the risk. In one notorious case that garnered major headlines across the United States, a lawyer gave in to the imprecations of his client to fire back at the relentless negative publicity by agreeing that there could be contacts with the press but only by the lawyer himself. But even the most careful lawyer might not be able to foresee what will arise, particularly if the dialogue with the press begins before all the documents have been reviewed and the witnesses interviewed. The baseline narrative is set by the complaint, and a statement to the press can do only so much and may appear in retrospect to be cagey or misleading, fodder for an argument to that effect in a later motion or during cross-examination. Plaintiffs’ lawyers are expert in knowing how to use such statements against your client.

The truth is that the harm done by the complaint can seldom be undone. Think how often you have read about a new lawsuit in the press. Any amount of experience in litigating cases should cause you to look at a new filing with a gimlet eye, wondering what the other half or side of the story is. But even those who might have the benefit of long practice don’t always do this. Insofar as the public is concerned, the matter is almost hopeless.

So the senior lawyer’s lesson at the outset may be a good one. Anything that comparably brings public discussion to an abrupt halt would seem best. Nothing is better than anything. Or if you must, something like “the case is without merit” or “we deny that we have done anything wrong and look forward to being vindicated in court” can be the fallback. Or consider a simple statement that the client “does not comment on pending litigation.”

But it has got to be true too. Members of the press are often enterprising enough to know when it isn’t. So one must be wary of using the excuse of supposedly never commenting if there is ample evidence that other cases spawned comments galore. Say these words when there has been ample comment on other cases and you are likely to see some sharp criticism to that effect in the reporting. And, of course, even if it is true, when that really awful and newsworthy case comes along, the client is going to want to make it the exception, so the work-around tends to be a double failure. It doesn’t eliminate the pressure on you to comment this time, and the urge once satisfied makes it impossible to take that approach in subsequent cases.

To sum it all up, silence, or something like it, is golden. Or at least it was. Now there is the decision in City of Fort Lauderdale Police & Firefighters’ Retirement System v. Pegasystems, Inc., No. 22-cv-11220 (D. Mass. July 24, 2023), to make everyone wonder how to respond.

The Potential Dangers of “Without Merit”

The Pegasystems case arose as a second round of litigation faced by the defendant, a publicly traded entity, after confronting an earlier case brought by Appian Corporation for the misappropriation by Pegasystems of Appian’s trade secrets. The underlying case did not go well. In its original filing, Appian sought more than $90 million from Pegasystems for its alleged wrongdoing. This prompted no comment from the latter. After some initial discovery, however, Appian juiced its alleged damages to $3 billion, which, because it came in an amendment, doesn’t seem to have sparked much new publicity. As a publicly traded entity, however, Pegasystems believed it could no longer go without commenting on the escalating damages. That came in the form of a bland statement in its 10-K filing about the burgeoning damages amount, together with the contention that the case was “without merit.”

Simple enough. But ultimately disastrous. When the Appian lawsuit went to trial, the jury awarded that company $2 billion, based on the conduct of senior Pegasystems executives. The stock, which had sunk on the filing of the amended complaint (investors were apparently paying attention), took another hit upon the fulsome verdict. Investors were upset, and a lawsuit for a violation of Rule 10b-5 ensued.

The case alleged that Pegasystems’ “without merit” comment in its 10-K, as well as its earlier silence, constituted a material misrepresentation in light of the subsequent verdict. Pegasystems moved to dismiss the case, but the district court denied the motion. It noted that the complaint alleged that the same senior executives who undoubtedly approved and swore to the filing were alleged by Appian to have been the wrongdoers, and so they must have known the substance of their own misconduct. At least as alleged in the 10b-5 complaint, the district court reasoned, they cannot have made the statement denying merit without knowing it was false so that, pending discovery, it was premature to dismiss the case. In effect, the court assumed what Pegasystems’ management likewise did when it uttered the “without merit” comment, viz. that it could have influenced investors to some extent.

For all the reasons previously noted, this is dubious at best. This is not to say that including the “without merit” statement in its filings with the Securities and Exchange Commission had no significance at all. But was it reasonable to believe that it prevented the stock from sinking further upon the filing of the amendment? Chances are the investors were more focused on the latter than the former. And what could or should Pegasystems have done differently? Even if it made no statement in the Securities and Exchange Commission filings, would that have protected the company? Note that the plaintiffs also sought relief for silence itself. Under the district court’s logic, that surely would be a 10(b)(5) violation as well, given that a material omission is just as misleading under that section as an actual material misrepresentation. In fact, even the senior lawyer’s gambit at the start of this article might not have worked. There would be no record of the company ever being asked, but total silence might be deemed a material omission as well.

What was Pegasystems to do? Admit to wrongdoing, which the judge said it must have known of? Surely not. Better, Pegasystems might have stated only that it would vigorously defend itself in the lawsuit. But that too is uncertain to have worked, as it implied that Pegasystems would have no liability. Would anything have worked? Under the district court’s thinking, seems not. And this makes no sense at all. There were a host of grounds on which Pegasystems might have defended itself on the merits other than merely whether the underlying conduct had occurred. For example, theft of trade secrets cases often founder on the fact that the information taken was not really a trade secret. Or that the complaining company had not protected it as such and/or that legitimate means were used to obtain it. There could have been all kinds of grounds on which the lawsuit would not have borne fruit or, to be more exact, might have been “without merit,” other than the conduct alleged and proved by Appian.

In effect, the district court’s approach, while logical, was unrealistic. There are all kinds of ways the comment may have been justified and the later lawsuit be viewed as nothing but reverse engineering. Most important was that the “without merit” comment, and even silence, should be known by investors not to be “material.” The response was formulaic, press fodder, easily recognized as a mere placeholder. Maybe it reflected a belief by Pegasystems’ management that it would ultimately succeed in parrying the lawsuit, by settlement or other means. Perhaps on a motion to dismiss, such a conclusion would seem premature. But the realities of the American press, and press comment, would militate in favor of recognizing the statement as mere persiflage, and not material at all.

If nothing else, Pegasystems stands as a warning of how fraught any kind of public comment is. Silence may not be golden, but it creates less trouble further on. And at least it recognizes what the district court didn’t, which is that such public comment serves little real purpose at all.

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