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1.8.2 Techniques to Investigate Potential Defendants

When suing public corporations, annual reports to shareholders and various filings required by the U.S. Securities and Exchange Commission may provide helpful information about the company. The principal filing is the annual report on Form 10K. In addition, a new issue of securities is usually registered using SEC Form S-1. Form S-1 must be filed for such things as securitizations of B- to D-grade car paper and home mortgages. These filings will often lead plaintiffs’ counsel to additional defendants and provide detailed information about the business relationships underlying the used-car or mortgage fraud perpetrated on the client. For further information on accessing publicly available corporate information, review Researching Public Companies through EDGAR: A Guide for Investors.163

If the prospective defendant is believed to be an affiliate of a public company, the existence and nature of the relationship can be ascertained by an online computer search of 10Ks and similar filings of public companies.164 Since public companies must disclose significant business relationships, it is sometimes possible to obtain information about nonpublic companies through this computer search. In addition, since public companies must disclose material litigation, it is often possible to determine whether the company has been accused of similar conduct elsewhere.

Other regulated industries have various annual filing or registration requirements. For example, insurance companies file annual reports with state insurance departments. Banks, savings and loan associations, and other financial institutions are required to file periodic reports with various regulatory agencies.

For smaller businesses, there are a variety of pre-litigation investigative techniques:

  • Search engines. As a rule, the best starting point is your own favorite online search engine (for example, Google). Type in the company name and see what you get. Disgruntled customers may make comments online. The company may have its own site. The possibilities are endless, and the results come fast.
  • Get public information and, if necessary, file Freedom of Information Act requests. Federal and state agencies often have a wealth of information about a prospective defendant. It is best to try the informal approach first—call, write, or e-mail the appropriate person. If cooperation is not forthcoming, consider filing freedom of information act requests with regulatory and consumer protection agencies—such as a state banking agency, the state agency regulating automobile dealers, the Federal Trade Commission, and the state attorney general—that might have jurisdiction over any portion of the proposed defendant’s business. Whether you do so formally or informally, find out whether they have received any complaints about the company or whether consent decrees have been entered into by the company. If the company operates in other states, seek this same information from agencies in those states as well. State agency records may contain much useful information, such as the annual sales volume of a car dealership that counsel is planning to sue. Informal or formal information requests should be routinely made for both small and large companies.
  • Visit the establishment. For example, if the potential defendant is a used-car dealer, observe the number of cars on the lot, the number of salespeople employed, and the advertising on the lot.
  • Obtain the company’s filings from the Secretary of State. These will provide the names of the corporate officers and the registered agent and disclose how long the company has been in business. This information can be accessed from online databases, which have the added advantage that one can check for other companies in which the officers of the prospective defendant have an interest, companies that are located at the same address as the prospective defendant, or companies that have names sufficiently similar to suggest corporate affiliation. The Secretary of State may also report whether the company is a corporation in good standing or whether it has been dissolved, voluntarily or involuntarily. The Secretary of State may also have a copy of the company’s annual report.
  • Check UCC filings against the company. This information can be accessed from online databases in many states. Online searches will disclose what apparent assets the company actually owns and where the company obtains its financing. In many cases, searches will reveal additional defendants. For example, banks will often fund the operations of finance companies in low-income neighborhoods and take security interests in the paper generated by the finance companies rather than openly lend in such areas.
  • Order a Dun and Bradstreet (D&B) report on the company. The D&B report gives some financial information, lists the principal owners, and indicates whether the company pays its debts on time. These are available through Lexis and Westlaw, or directly from D&B online (www.dnb.com/us).
  • Check computer databases. Look at databases containing news articles and financial information to see if any information about the company or its principals is available. In many states, real estate records and court dockets are computerized and can be accessed through Lexis or Westlaw. In a smaller community, the local newspaper may be a useful source of information.
  • Check court filings. Find out how many people a year are sued by the company, whether the company is a defendant in any other cases, the nature of other claims that have been made against the company in the past, and whether there are any unsatisfied judgments against the company. Collection cases brought by the company often contain valuable information, such as copies of the company’s form contracts, which may show the extent of the challenged practices. Contacting persons formerly sued by the company often provides valuable information about its pattern of dealing. A review of court files may also reveal that a company, selling goods or services on credit, transfers its paper to third parties. These transferees often will be far more financially responsible than the company under investigation. Consideration should be given to adding such transferees as defendants.
  • Compile a list of employees and other persons connected with the company. The list should include employees who dealt with the named plaintiff, signed the plaintiff’s contract, or signed other documents related to her claim, for example, those in collection files. If documents signed by the prospective witness were notarized, the notary may have on file the signer’s name, address, and identification information, such as a copy of a driver’s license.
  • ◦ Former employees, particularly those who did not part on good terms, are often the most valuable source of information about a prospective defendant. The best place to find disgruntled former employees is among those who left the company and filed unemployment claims. If public, state unemployment records can be a goldmine.
  • ◦ Before contacting current or former employees of the company, be sure to review your state’s rules of ethics regarding what constitutes contact with a party known to be represented by an attorney, as well as the exceptions to the general prohibition on such contact. In most states, you are allowed to contact non-managerial employees who are no longer employed by the company and those whose conduct is not the basis for your claim against the company.
  • Check the state’s registration or licensing requirements. Find out if the state has requirements for any aspect of the proposed defendant’s business and if the company has complied with those requirements. Noncompliance may give rise to a separate cause of action and suggests that the company is at least careless about observance of legal requirements. Be sure to consider all applicable licensing requirements. For example, in any case in which a consumer buys on credit and is offered or sold credit insurance, the person or entity closing the transaction may need to possess an insurance license.
  • Look for company advertising on television, on radio, or in newspapers. Advertisements purporting to offer items for free sometimes in fact have hidden costs. Advertisements promising that financing is liberally granted (regardless of credit rating) and that low payments are available should be of particular interest to those representing low-income clients.
  • ● If the underlying claims involve allegations of securities violations or improprieties by so-called “money-managers” or “wealth advisors,” check the websites of the Securities Investor Protection Corporation165 and the Financial Industry Regulatory Authority (FINRA),166 to see what information is available on the business, broker, or investment manager. The FINRA website offers a broker check, and prior complaints and dispositions of any alleged misconduct will often be found reported through its database.167

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