June 14, 2018

Can You Be Deposed as a Board Member, and What Should You Do If You Get a Notice of Deposition?

Jonathan Tomes

Jonathan Tomes
President, Consultant/EMR Legal, Inc.

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The short answer is "yes." A better response is "sometimes." The wrong answer is "never, I'm immune. After all, if the President can be deposed, as was President Clinton, why can't a board member be?

This article will discuss why you should care about the possibility of being deposed as a board member, when you can and when you can’t be deposed in that capacity, what to do if you receive a notice of deposition, and how to prepare to be deposed.

Why Should You Care Whether You Are to Be Deposed?

The main, overriding reason, as you well know, is quite simply that it is your fiduciary duty to protect the corporation or other entity of which you are a board member from any adverse effects that may arise out of your being deposed. But other, sometimes more personal, reasons to be concerned exist. The easiest one to understand is that it is just a hassle. It will consume time that you could spend more productively (and comfortably). You may, unless it is a telephonic deposition, have to travel to the site of the deposition. Besides travel time, the deposition itself may last a day or even longer. It will entail time spent preparing. And unless your organization pays for your time, deposition fees for others than expert witnesses are negligible, and the other side is not going to pay, for example, for First Class travel and lodging on the Gold Level of the Fairmont Hotel in Washington, D.C., or dinner at Peter Lugar's Steakhouse in New York City.

More importantly, no matter whether you bear any responsibility for the issue that resulted in the litigation against the entity that you are a board member of, you may face civil or criminal liability resulting from your deposition performance over and above the harm that the entity itself may face. If the deposition relates to a federal crime, such as insider trading, and you choose not to assert your Fifth Amendment right against self-incrimination, you could face perjury charges as, for example, Martha Stewart did. She was not convicted and imprisoned for the underlying crime of insider trading, but rather for perjury. And you do not have to be consciously deceptive to have an aggressive federal prosecutor trap you into making a misstatement that could be construed as perjury, as the current independent counsel wants so badly to do if the President is stupid enough to agree to be deposed. And as of the date of this article, there isn't even any evidence of an underlying crime. Note that, even if invoking one's privilege against self-incrimination in a civil proceeding does not result in a perjury prosecution, it can result in the judge instructing the jury that they may draw an adverse inference from a witness's having invoked the self-incrimination privilege.

Without any intention of impugning your character, you must realize that, if you are being deposed in a criminal matter involving the organization that you are a board member of, you could face criminal liability.

There are a number of federal statutes under which a corporation and its officers can be criminally liable. Among them are Medicare fraud, insider trading, racketeering, tax crimes, banking and savings and loan fraud, reckless homicide in the death of a worker or customer, and many others. In addition, violation of a federal civil statute may result in a state criminal prosecution.

Corporate board members, officers, and employees can be held criminally liable for any criminal acts that they personally commit even if they were acting in furtherance of the corporation's interests. Corporate board members, officers, and agents must answer for any personal wrongdoing. A board member's criminal act or omission cannot be shielded by the corporate entity. An officer and a board member can also be held criminally responsible for criminal acts committed by their agents under their control under the respondeat superior theory. Under that theory, an employer is responsible for the actions of employees performed within the course of their employment. Board members, officers, and employees may also be criminally responsible for any crime that they aid and abet.

Board members may also be subject to criminal liability for any crime under the theory that they failed to prevent the crime by neglecting to control the misconduct of those subject to their control. Under this theory, a person is criminally liable based on his or her "responsible relation" to the criminal violation regardless of whether he or she has any knowledge of the criminal activity.

It is, however, very rare to be deposed in a criminal case, and a defendant or possible co-defendant could certainly assert the privilege against self-incrimination. But board members certainly can be, and often are, deposed in civil matters, including some with criminal implications.

May Board Members Be Deposed?

So, do board members have to submit to being deposed? Maybe. Or perhaps it would be better to say probably. Generally speaking, the opposing party may depose any person, including one who is not a party to the lawsuit, who has knowledge of the facts and circumstances of the matter being litigated or who has knowledge of such things that would lead to the discovery of admissible evidence.

An evidentiary privilege confers the right not to testify about certain matters. Perhaps the most well-known one is the privilege against self-incrimination mentioned above. The others would seldom, if ever, be applicable in corporate litigation, such as the priest/penitent privilege, the doctor/patient privilege, the psychotherapist/client privilege, and the spousal privilege. No privilege exists specifically for board members or for management in general.

Other than successful assertion of a privilege, the only way to avoid being deposed is not to have any knowledge of the matter in question or facts and circumstances that could reasonably lead to admissible evidence. Stated another way, if the board member was actually involved in some substantive way in the actions giving rise to the litigation, the court would allow the deposition. This situation is especially likely if your company is small. Quite often, however, the opposing counsel seeks to depose board members as a form of harassment. Typically, the goal of such a deposition is not primarily to uncover information relevant to the litigation. Rather, its goal is to exert pressure to try to get a better settlement and to obtain testimony from a high-ranking officer or board member that may be favorable, principally because such deponent has little or no personal information about the issue involved in the case. In the event of the use of such tactics, the counsel representing the corporation can seek to prevent the deposition by reliance on the Apex doctrine.

The federal rule and cases interpreting the Apex doctrine demonstrate that it was developed to combat the aggressive use of coercive deposition discovery against corporations by requiring that depositions of their highest-ranking corporate officials should not occur without a showing that the corporate official had specific, unique knowledge and that the opposing party had made an initial attempt to obtain the relevant, necessary discovery through less intrusive means.[1] These "less intrusive means" can include interrogatories, document requests, and depositions of lower-ranking officials who have direct knowledge of the matters in issue.[2] Many states have adopted rules similar to the federal rule.[3]

Your counsel's opposition to an Apex deposition should focus on showing that the deposition is likely to add nothing of value to the information exchange between the parties. An affidavit from the board member or corporate officer as to his duties and responsibilities and his lack of direct knowledge about the matters in controversy, perhaps with copies of correspondence from corporate counsel sent to the opposing party suggesting alternative means to obtain the desired information, is more likely to be successful than asserting how busy the board member is or how burdensome the deposition will be.  This method demonstrates to the court that the corporate party is not attempting to obstruct the discovery process, but rather to streamline it and make it more efficient.[4]

One method to oppose an Apex deposition is to offer the opportunity for a Rule 30(B)(6) deposition instead. Under this rule, the party seeking the deposition simply lists the subjects on which he would like to take a deposition and leaves it up to the company to designate a person to speak for the corporation on these issues. The designated person must be educated by the company so that he can speak authoritatively on behalf of the company on the subjects listed.[5]

Although it is possible for a board member to avoid being deposed, it will be a rare case when this happens--that is, when, for example, the board member was uninvolved in the matter and has no direct knowledge about the case. So, what should you do if you get a notice that you will be deposed?

What Should You Do If Noticed for a Deposition?

A board member could receive a deposition notice in one of two ways: Personal service with the notice from the opposition party or getting it from your corporation's counsel. Obviously, if you get it personally, you must immediately take it to your corporate counsel. If you do not have one, you should have an outside law firm that handles the corporation's legal matters.

In large firms, it would be unusual for in-house counsel to actually litigate a case, part of which would involve defending depositions. Rather, the in-house counsel would farm the case out to a law firm specializing in corporate litigation. In a small corporation, if there is an in-house counsel, he may actually litigate the matter if licensed in the relevant jurisdiction.

A word of caution. The in-house counsel or outside law firm does not automatically represent you as an individual just because you are a board member. Rather, such an attorney represents the corporation, not its individual board members, officers, managers, or other employees notwithstanding that such representation might incidentally benefit such individuals.[6] The lawyer may, however, represent both board members and the corporation under the joint representation doctrine if the corporate and the individual interests do not differ.[7]

Thus, no matter how good your relationship with corporate counsel may be, if your interests and the corporation’s interests differ, that attorney cannot ethically represent your interests over that of the corporation that is, after all, his client. Why should you be concerned about this issue when you get a notice of deposition?

First, depending on the exact terms of your appointment, the corporation may indemnify you for liability arising out of the performance of your duties as a board member. If so, the corporation will provide for expenses incurred and amounts paid in defending claims brought against you for actions taken in good faith on behalf of the corporation. Consequently, you would want to learn, early on, whether you will have this protection in the particular matter being litigated. But not all acts qualify for this indemnification, and you would want to know whether you will be personally responsible for the costs and damages, if any, arising out of the matter.[8] Further, your contract may require you to report such events in a timely manner or lose the indemnification.

Second, even if you qualify for indemnification and, consequently, will be represented by the corporation's counsel, confidentiality issues may arise. Absent a joint defense agreement, also known as the common interest privilege, communications between yourself and others may not qualify for the attorney-client privilege.[9] If, for example, you may have some liability that the corporation would not indemnify you for, you might not want to disclose it to the corporation's counsel or others involved in the litigation because that would, in effect, waive the privilege.

Finally, can you totally rule out the corporation "hanging you out to dry" to shift its liability to you or to minimize its liability vis-a-vis yours?

The upshot is that you may well need to discuss the matter with your own personal lawyer or one that he refers you to if corporate liability is outside his competence. That discussion will let you know whether you need outside counsel to represent your interests for the matter, including the deposition.

Preparing for the Deposition

Assuming that you must be deposed, your lawyer should prepare you for the deposition.  He may begin by informing you of the purposes of a deposition. The main objectives of a deposition include the following:

  • Find out facts, both favorable and unfavorable.
  • Find out what you know, what you don't know, and who else may have information relevant to the case.
  • Acquire information to cross examine you or another witness at trial. Or, if your attorney is deposing you, acquire information to help you answer cross examination questions.
  • Size you up as a witness--that is, will the jury have a favorable impression of you as a witness?

 You should prepare for the deposition much as you would prepare to give a presentation to the board about why they should approve your recommendation on a critical issue before the board. Review any relevant documents, including your responses to interrogatories that you have completed. You do not want your deposition testimony to differ from your interrogatory answers. Consider having your attorney review your answers to interrogatories before providing them to opposing counsel. Better yet, have your attorney prepare the answer based on discussions with you and drafts that you prepare for his review. Keep a record of what documents you reviewed because opposing counsel will likely ask you what materials you reviewed to prepare for the deposition and the time that you spent doing so.

Your lawyer may give you general guidance as to how to handle yourself during the deposition, such as, for example, the following:

  • Always tell the truth, even if it is unfavorable.
  • Always wait until the question is complete before answering.
  • Listen to the question, and then pause before you answer. This method gives your lawyer time to object to the question, gives you time to formulate an answer, and let's you exercise some control over the deposition.
  • Give the shortest truthful answer. If opposing counsel asks you, for example, "Is your current residence in Chicago?" and it is, your answer should simply be, "Yes." Not, "I've lived in Chicago until the company I worked for went bankrupt in 2015 and I had to find a new job." That answer opens up a whole new line of inquiry focusing on whether you were responsible for the bankruptcy in some way. Or, if the question was, "Did you dance with Ms. Garcia at the Christmas party?" and you did, just answer "Yes." Not "Yes, I danced with every female employee." Do not be concerned if your short answer makes you look bad. Your attorney will follow up by asking you to explain your yes or no answer if necessary. If you cannot answer yes or no, say "I cannot answer that question yes or no. I can explain why."
  • If you do not understand the question or did not hear it, say so. A good technique to help answer the question asked is to repeat the question as a statement. For example, you could answer the question, "Why did you vote against declaring a dividend?" by starting off by saying, "I voted against declaring a dividend because . . . ." Besides helping make sure that you understood the question, this method buys you a little time to formulate your answer.
  • If you are asked a question that you cannot answer because you don't remember the matter, simply say, "I don't remember." That answer is better than some attempt to formulate an answer based on something that you may have heard or some vague memory that may or may not be accurate. Remember, an incorrect answer could lead to a perjury claim.
  • With your attorney's guidance and approval, you can bring in written materials to jog your memory and, after asking whether you may, you can refer to them when answering questions. Keep in mind that you will have to provide the writings to the opposing counsel.
  • If your attorney objects to the question, immediately stop speaking, even if you have the most brilliant response in the history of litigation. Often, your attorney is making an objection to preserve the objection in the event that the deposition is to be used at trial. In that event, your counsel will object and either after discussing it with opposing counsel or without doing so say, "You may answer." Or if he remains silent, you may answer. Very rarely, the lawyers may recess the deposition to get a ruling from the judge assigned to the case.
  • Do not vent any anger that you may have about the matter or the deposition. Do not become argumentative with opposing counsel. Remain professional at all times.
  • If you get tired and afraid that you may not understand questions or misspeak, ask for a break.
  • Do not talk with other deponents because doing so may waive the attorney-client privilege or violate the guidelines for deposition witnesses.
  • Follow your attorney's instructions on how to be deposed.

Now that you know generally how to answer questions, what areas might be covered in the deposition? You may expect to be questioned on the following:

  • Personal background. Name, address, date of birth, marital status, children, and the like.
  • Educational background. Usually from high school on up and including military service.
  • Criminal background. Conviction of a felony, license suspension or revocation.
  • Whether you have been deposed before and the nature of the matter.
  • How you prepared for the deposition. What documents you reviewed. Who talked to you? You can say that you talked to your attorney on certain dates for such and such a period of time, but cannot speak about what was said as this would violate the attorney-client privilege.
  • Professional background. Past employers, positions held, duties, certifications, membership in professional organizations, and the like
  • Facts and circumstances of the matter(s) at issue in the case.

 Conclusion

Doing well in a deposition fulfills a board member’s fiduciary duty to the corporation to protect it during litigation. Board members who receive notice for deposition must determine whether they face any individual liability and whether they need independent counsel. Preparing for the deposition is key. This article is not meant to substitute for preparation with and as directed by your counsel. But, preparing in advance, such as by reviewing pertinent documents and getting the facts straight in your head before meeting with your lawyer to prepare will enhance that preparation. Remember, if you are successful enough to be on a board of board members, you are professional enough to be a very good deponent!

* Jon Tomes is a member of the Oklahoma Bar and is a retired or inactive member of the bars of Illinois, Missouri, and Kansas and the Federal District Courts for the Northern District of Illinois (Trial Bar), the Western District of Missouri, the District of Kansas, the Federal Courts of Appeal for the 5th, 10th, and Federal Circuits, and the U.S. Supreme Court. He has prepared witnesses for depositions, defended depositions, and been deposed himself a number of times as an expert witness.

[1] Federal Rule of Civil Procedure 26(b)(2) provides that on motion or on its own, the court must limit the frequency or extent of discovery otherwise allowed by these rules or by local rule if it determines that:

(i) the discovery sought is unreasonably cumulative or duplicative, or can be obtained from some other source that is more convenient, less burdensome, or less expensive;

(ii) the party seeking discovery has had ample opportunity to obtain the information by discovery in the action; or

(iii) the proposed discovery is outside the scope permitted by Rule 26(b)(1).

(b)(1) specifies that unless otherwise limited by court order, the scope of discovery is as follows: Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties' relative access to relevant information, the parties' resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit. Information within this scope of discovery need not be admissible in evidence to be discoverable.

[2] Robert F. Parker, "Successfully Opposing the "Apex" Deposition," Burke, Constanza, and Carberry, Attorneys at Law, (Sept. 28, 2009). at https://www.bcclegal.com/litigation-blog/2009/9/28/successfully-opposing-the-apex-deposition.html.

[3] E.g., Indiana Trial Rule 26. California Code of Civil Procedure 2017.020, When court may limit scope of discovery, specifies:

(a) The court shall limit the scope of discovery if it determines that "the burden, expense, or intrusiveness of that discovery clearly outweighs the likelihood that the information sought will lead to the discovery of admissible evidence . . . ."

(b) "[the] cost, time, expense and disruption of normal business resulting from an order compelling the discovery [is weighed] against the probative value of the material which might be disclosed if the discovery is ordered."

[4] Parker, n. 2.

[5] Id.

[6] ABA Model Rule 1.13 provides that "[a] lawyer employed or retained by an organization represents the organization acting through its duly authorized constituents."

[7] ABA Model Rule 1.4 permits joint representation but requires that the lawyer provide clients information necessary for "informed decisions regarding the representation." But even informed consent is not sufficient. The rules require, in addition, Rule 1.7, that the lawyer independently reasonably determine that joint representation will not adversely affect either client's interests over and above merely obtaining the informed consent.

[8] Typical acts that do not qualify for indemnification include the following:

  • Intentional breach of the duty of care to the corporation.
  • Intentional breach of the duty of loyalty to the corporation.
  • Misappropriation of a corporate asset for personal use.
  • Commingling of personal and business assets.
  • Failure to disclose a potential or actual conflict of interest.
  • Crimes against the corporation.

[9] States each have their own attorney-client privilege, most having been adopted from Rule 502 of the Uniform Rules of Evidence. Federal cases use the privilege of the state in which the controversy arose except that diversity cases use Rule 502 of the Federal Rules of Evidence. The privilege does not apply to two situations inherent in joint defenses: (1) the communication was made in the presence of individuals who were neither attorney nor client or was disclosed to such individuals or (2) the client has waived the privilege, such as, for example, by disclosing the information to others than one's attorney and his staff.

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