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Risk Assessment

Litigation Risk 

For many Japanese companies, the largest potential legal risk they face is the possibility of a costly lawsuit or investigation from North America. Every company operating or exporting to the US is exposed to such risks, with each industry and service facing different levels of risk and potential liability. It is critical for any company operating in the US to gain an early understanding of the dimensions any specific litigation, as well as a general understanding of the types of lawsuits, investigations, and other legal exposure they may face.

 

One of the reasons US litigation is so expensive and burdensome is that litigants are most often in a reactionary posture. Without the benefit of foresight, it is easy to miss opportunities to take control of a lawsuit. With a proactive approach, the scope of discovery can typically be narrowed, resulting in substantially reduced legal fees.

 

Over 95% of lawsuits brought in the US conclude in settlements. Risk assessments provide the benefit of long-range visibility and probability into a case, often before it really begins.  Understanding the probability of success at every stage offers more clarity in settlement discussions, often creating opportunities to bring matters to a faster resolution or avoid them altogether.

 

Good risk assessments are relatively concise, prepared in a matter of weeks, and entail 

a thorough analysis of the following elements:

 

  • A summary of the facts at issue as well as the likely evidence available to both parties.

  • A procedural outline of the litigation including its preliminary motions, duration, timeline, role of alternative dispute resolution, and potential for appeals.

  • A timeline for the matter and budget for the legal costs at each interval of the case.  

  • Legal analysis of the case including a summary of applicable and laws and their prevailing treatment of the facts at hand.

  • A summary of the strong and weak points of the case based on the available evidence, governing law, governing jurisdiction(s), and the potential for appeals.

  • A probability analysis of the results of the litigation, including a statistical analysis based on the outcomes of similar matters.  

  • An analysis of the impact of any political, economic, or otherwise un-quantifiable considerations that may influence the results of the case.

  • A recommended course of action based on a comprehensive analysis of all the preceding elements.

General Legal Risk Assessment

The best method for avoiding legal pitfalls and burdensome litigation is to analyze your active legal risks in the United States. Aside from the threat of any specific lawsuit, three primary areas of legal risk deserve careful consideration; contract risk, regulatory risks, and operational risks.

Contract Risk

A contract risk assessment begins with examining the levels of legal exposure in contracts with customers and counterparties. This entails an analysis of all risk related provisions including provisions discussion indemnity, choice of law, price change triggers, risk transfer events, dispute resolution, force majeure, insurance obligations, term interpretation, material breaches, and the core terms of the agreements themselves. Beyond single contracts, it is important to ensure that all contracts are internally consistent, spread risk evenly, and match the level of risk tolerance chosen by company.

Regulatory Risk

There are potentially thousands of laws that apply to your business activities in the United States. Analyzing your companies regulatory risks entails identifying all the federal, state, and local laws that govern your business activities, followed by an assessment of your companies compliance with those laws, and recommendations for implementing or altering risk management measures whenever necessary. Strong regulatory risk assessments also include careful consideration of potential regulatory changes that could substantially impact your business activities. This includes, but is not limited to, considerations of potential changes in tax laws, reporting and licensing requirements, insurance and collateralization requirements, bankruptcy rules, trade agreements, internal control requirements, or any government agency guidelines that might impact your business operations. If there is a distinct possibility of any regulatory changes that would impact your business activities, an analysis should be conducted to explore the likelihood of those regulatory changes occurring, the potential impact of those changes on your business, and what measures should be implemented to mitigate or take advantage of those changes when they occur. 

Operational Risks

Operating a business with exposure to the North American legal system poses distinct risks. Operational risk involves losses resulting from human error or malfeasance, failed internal controls, or external forces. Failures in the area of human resources, corporate governance, adherence to product safety standards, and accidents in manufacturing are all examples of operational risks. Identifying and estimating the legal consequences of such risks is critical to performing a cost benefit analysis of operating businesses in the US. The legal implications of any incident can be heavily dependent on a companies product line, industry, corporate structure, and state (州) of operation, to name a few. As an example, a pharmaceutical company operating in Philadelphia Pennsylvania faces a higher risk for product liability lawsuits than a similar company operating in Minneapolis Minnesota, however, that same company would face higher risks for employment discrimination and wage related disputes in Minneapolis Minnesota than Philadelphia Pennsylvania. It is important to understand the operational risks your business faces in its US operations, and more important to know what measures you can take to reduce those risks.

 

In House Advisory Group has been providing risks analysis services for over 7 years, to both corporations and individuals. Our strength lies both in our experience and in our network of both legal and business experts in a broad array of industries and specialties. 

 

Case Study

Our risk analysis work often overlaps with other legal services. In late 2018, a Japanese client asked us to review a development agreement for a commercial real estate venture while rendering an opinion on the risk of using a specific type of offshore funding to finance the construction of a hotel in Northern California. The finance mechanism was contingent upon US government program that was subject to expire within three weeks, and was the topic of heated debate within the majority party in the US congress. An upcoming congressional election promised to complicate matters further as the minority party had publicly announced interest in altering the program. The deadline for funding the project preceded the expiration date of the government program. Our task was to determine the probability of congress extending or changing the program, estimate the probability of changes with a new congressional majority, determine the financial and operational consequences to the project in both scenarios, craft terms favorable to our client to safeguard against those risks, and to negotiate with our client’s counter-parties to successfully implement those terms.

 

Through careful review of congressional testimony and consultation with our network of fellow attorneys in Washington DC, we accurately determined both the eventual extension of the program as well as its survival through a new majority in congress. We successfully negotiated changes to key provisions of the agreement with our client’s counter-parties and drastically reduced our client’s risk in the venture. Our work included a risk analysis report we prepared within 10 business days that identified each discernible risk involved in the project, a probability analysis of the outcomes, and recommended measures for protecting our client’s