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COST BENEFIT
CRITERIA IN AMERICAN LITIGATION
INTRODUCTION:
1. The
Power Vested In The Litigant.
Litigation in the
American system of courts is expensive. But one gets what one pays for.
Our legal system is by far the most effective in the world, with a world
wide reputation for integrity and effectiveness. And expense.
The American system
of law, like the American economy, gives the individual tremendous power
and latitude in conducting a legal action. Unlike Europe in which the
Court takes a proactive role in controlling both the case and the
development of evidence, or much of Asia where the courts are seldom
utilized due to custom and ineffective enforcement procedures, the
United States Constitution and the various states have created a system
where, if one wishes to spend the money, one can compel parties and
witnesses to respond to extensive discovery proceedings and a public
trial before a jury of one’s peers. One decides for the most part how to
develop the case, what evidence to introduce, and has the power to
investigate to obtain evidence and to cross examine witnesses long
before the actual trial begins. See our article on
American Litigation.
It is fair to say
that no legal system in the world vests such power into the hands of its
citizens and provides so many effective means to discover evidence and
personally present the results before an objective Trier of fact. As
more than one judge has said to the lawyer, “It’s your case, counsel.
You decide what to put before the jury.” Such a statement would be
unheard of in 90% of the Courts in the world and is a right treasured by
most Americans.
Most people who come
into a lawyer’s office concerning the possibility of filing suit may be
classified into two large groups: those who have already decided to sue
and simply want to get the litigation commenced and those who are unsure
if commencing litigation makes sense.
With those who have
already decided to file suit, the question they confront is how best to
progress to judgment with the most efficient cost benefit allocation of
resources. And for those being sued by someone else, there is little
hesitation about what their next step must be, since they have already
been forced into court.
But for those
pondering whether commencing a legal action makes sense, they confront a
bewildering array of variables all of which seem to cost money and
create risk, many of which will take years to fully develop, and all of
which seem to require very expensive professionals to implement. Or, as
one client put it, “The right to file suit seems to be the right to jump
off a cliff and hope my enemy is below me when I hit the ground.”
It’s not that bad,
of course. If it was, no one would ever file suit. But the germ of truth
in that statement is the fact that once one commences legal action one
becomes immersed in a system that is not entirely subject to one’s own
control.
The Courts exist to
create a system by which individuals may seek justice by trying their
cases after extensive rights to discover evidence. It is not made for
efficiency. It is not made to save money. Developed over centuries, it
presumes that two or more litigants, using their private resources, and
arguing before an impartial Trier of fact, will be able to achieve
justice and will consider the cost of justice well worth it.
Each trial costs the
State or Federal government tens of thousands of dollars. A court room
and judge, bailiff, clerk and reporter are provided by the State or
Federal government for free. The State assumes that the parties should
therefore pay the other costs of the litigation. The government provides
the arena: the litigants pay the costs of developing their own case and
trying it in the arena.
And those costs can
be substantial. The reader should review our article on
American Litigation
to get a general idea of the steps to judgment in this nation. Suffice
to state that the cost of discovery described in that article is often
tens of thousands of dollars, sometimes hundreds of thousands of
dollars, and few trials occur costing less than thirty to eighty
thousands dollars to complete. Since one party can easily force the
other party to spend money defending depositions or responding to
motions brought in court, one is often forced to match dollars spent by
the opponent even if the case is not worth the money. See our article on
Grudge Fights in
the Courts.
2. The
Cost Of The Power Available In The Courts.
As any business
person can tell you, the Courts are extremely powerful and useful tools
that anyone in business and individuals who are wronged can use with
good cost benefit results. It takes calm and clear thinking to consider,
plan, and implement a litigation plan that is of benefit and the
possible maneuvering of the opponents must be factored into the
strategy.
Litigation is the
civil equivalent to war. One seeks to outmaneuver, confuse and
ultimately defeat an opponent using the various weapons the law makes
available. One allocates resources, one hires generals (senior lawyers)
and soldiers (associates and paralegals), one wins or loses skirmishes
and battles on the way to seeing if the overall war can be won.
And one often makes
peace long before the final battle, either by convincing the other side
of the strength of your case, or by creating a case that makes their own
downside so dangerous that your settlement proposal is preferable. At
other times, a weakness in your own case appears over time and you must
decide to make peace to avoid further loss. Indeed, most cases settle
before trial…but after discovery is completed.
Such a battle can be
thrilling, indeed, intoxicating. The intensity of a trial is the stuff
of movies and television for a very good reason…it often is dramatic,
riveting and satisfying in a way that normal life seldom can match. As
one client told the writer after trial, “Now what can I possibly do
after this that seems more than flat and boring?”
Contingency cases,
in which the lawyer receives a percentage of the recovery, and semi
contingency cases, in which the lawyer is paid a percentage of their
usual hourly fees and receives a reduced percentage of the recovery, are
common in certain types of litigation (personal injury, medical
malpractice, anti trust) but are seldom used in most business, probate,
real estate, and construction litigation simply because in such settings
settlements and maneuvering for market share or other non-monetary goals
are so often the underlying goal that the monetary recovery is
secondary. (Often a case brought to protect a market may result in
small recovery in terms of cash but tremendous long term value to a
client-but which can not be reduced to a percentage recovery that could
be paid to the lawyer. In probate disputes, one encounters agendas that
have more to do with family dynamics than cash in hand, etc.). Put
simply, most good attorneys are paid on an hourly basis and that is an
economic fact of life each potential litigant must face.
Thus the wise
litigant will, before the case commences, seek to obtain a good idea of
what the price tag is likely to be so as to determine if the likely
results are possibly worth it. And that analysis is not a simple one.
This article shall seek to give some broad outlines as to appropriate
criteria that should be applied.
THE CRITERIA
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The Goal:
What do you want?
This may, at first,
seem like an obvious question, but in our experience it is not. Few
goals are simply black and white. While many business disputes are
simply over money (they breached the contract and owe me money) most
family disputes go far beyond money to family relationships and long
buried slights that can make money simply a symbol for revenge or
assertion of power long ignored by other family members.
Even in the business
context, the answer is not always obvious. Seeking to protect a trade
mark or protect oneself from unfair business tactics may actually be the
apparent goal but the underlying goal may be to force a competitor to
waste time and resources in a bitter fight that would otherwise be spent
eroding one’s own market. And at times emotion can enter even the
business arena as a litigant can be enraged at the conduct of a vendor
or customer and wish to teach them a lesson long after the money that
can be gained is exceeded by the cost of the fight.
It is vital for the
wise potential litigant to carefully understand all of the goals
both the litigant…AND the opponents…may have so that the “upside” of the
litigation can be fully evaluated.
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What is it
Worth?
Now that you know
what you want, what will you be willing to pay for it? This involves
budgeting not only money but budgeting for time, for litigation will
require involvement by oneself or one’s personnel both in the discovery
stage of the proceedings and in the trial. This not only takes time away
from other activity, but requires energy and concentration. (Of course
the opponent faces the same issues as you do and that can be factored,
perhaps, in your upside.)
This analysis should
assume the matter goes all the way to trial. While ninety percent of
cases settle, and while abandoning the claim may be possible if it gets
too expensive, for the purpose of this analysis, one must assume a full
scale trial may ensue and determine if the results are worth it.
A typical example:
Assume a debt collection case against a solvent debtor who owes you
fifty thousand dollars. Assuming there is no attorney fee shifting
clause (awarding attorney fees to the prevailing party) and assuming the
case is a simple one in which not much preparation will be required,
thus not much of your own time in discovery. Clearly any result in
which one receives more than the attorneys fees incurred is worth it.
That also means that spending over fifty thousand dollars makes no
sense-the case is “worth” somewhat less than fifty thousand dollars to
you.
But let us assume
the debtor is also a competitor who is underselling you with a key
customer, possibly at a loss, in an effort to steal that customer. The
value of getting a judgment to use to seize that competitor’s accounts
may now be much greater than merely fifty thousand dollars. By forcing
them to abandon the market or lose their resources to undersell you, you
may save a customer worth millions in profit.
Or you may want to
make an example of them to scare away other potential competitors.
Or to show your
customer that these people are deadbeats not to be trusted.
All those factors
become part of your cost benefit analysis so you can determine what the
case is truly “worth” to you.
That is the type of
analysis one must undertake.
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What Will It
Cost…and When?
The two main costs
of litigation are the attorney fees and the out of pocket costs of
experts, deposition reporters, filing papers, etc. Many of these
expenses can be both anticipated and budgeted over time by experienced
counsel, and while one is always subject to the vagaries of the
opponent’s tactics requiring a change in the schedule, most cases do go
along a predictable path. (This is also a good method to determine if
your attorney is experienced enough to know how the typical case such as
yours goes.)
A typical example
would be that debt collection case above. The initial cost of
investigating the claim, drafting the complaint and serving it can
easily be estimated by an attorney, normally will take about a month to
six weeks, thus that should be budgeted to require payment within sixty
days. Most discovery then progresses over the next six months to a year
and assuming the attorney predicts two or three depositions before
trial, that cost can be estimated and assumed to occur over the next
year.
No attorney can give
a precise cost of most litigation precisely because the other opposing
“general” will be engaged in his or her own counter moves. But a good
estimate and time table for likely costs is normally possible and should
be requested by any potential litigant.
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Counter Claims
and Costs of Same.
Once sued, it is
common for a defendant to try to develop a cross complaint back both to
give the plaintiff something to lose and because there may be causes of
action that the defendant would not have considered worth bringing but
as long as the defendant is in court, it now makes sense.
It is vital for the
potential plaintiff to discuss all such possibilities with counsel since
a valid cross complaint can radically alter the likely avenue of the
case and greatly increase the costs…and the potential downside.
Often a statute of
limitations may run for potential counter claims while the longer
statute of limitations may not run for the potential plaintiff. That
must also be factored into the strategy of when and if to sue.
If the likely
counter claim is clearly invalid, it still must be factored in to some
extent simply because it costs money to fight.
And do not assume
the opponent will be logical in his or her own cost benefit analysis. It
is possible that an emotional defendant, desperate to justify him or
herself before others, will concoct obviously absurd counter claims
that, even if likely to lose, will cost time and money to contest.
Knowing the personality and emotionalism of the opponent can be a useful
tool in determining if the fight is worth it. One elderly businessman
known to this writer refused to sue an ex employee who had clearly
violated his duty of confidentiality because “…the idiot loves the
courts too much. Suing him is like touching a tar baby. I will win…but
it will cost me a fortune to do so.”
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Likelihood of Collection.
Winning does not
only mean getting a judgment in most cases. It means getting money or
property. An insolvent opponent or one likely to file
bankruptcy
may lose the case but win the war by making it impossible to
collect. It is a good plan to run a full asset check on any potential
defendant to make sure there is likelihood of actual collection. It is a
good idea, if there is any doubt, to utilize investigators to obtain
such a report prior to filing any truly expensive action.
The tools to enforce
a judgment are powerful. One can attach accounts, sell property owned by
the debtor, attach wages, even attach the debtors of the judgment debtor
to have them pay the money directly to you. But such collection efforts
take time and additional money and must be factored into the overall
cost benefit analysis.
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Collateral Damage.
The possible cost of
litigation may not only be the attorneys or court costs or possibility
of defeat. It can also be the adverse reaction of others in the market
place or family who find the commencement of litigation a matter of
reprobation. In certain markets, most notably in Asia, commencing
litigation can be seen as an unethical act that can result in a business
losing valuable customers. A wise litigant will carefully consider such
reactions before commencing litigation.
It must be noted
that often the collateral effect is to the benefit of the litigant. One
client told the writer that he cared little if he won a particularly
vicious fight against a copy right infringer since he was aware that a
dozen other “thieves” were out there and he needed to show them that if
he was “crossed, I know what to do to make them sorry…”
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Other Means of Relief.
Given the above
factors, it is always wise to consider if other methods outside of Court
may allow effective relief. Such tools as
mediation and arbitration
or complaints to
governmental agencies should be considered to be used instead of or in
conjunction with filing a complaint. In some countries, speaking to a
respected member of the industry or community can result in resolution
of a claim and within families there is often an elder who can perhaps
intercede.
And there is always
the chance that a problem will resolve itself if you wait long enough.
One embezzler was sued by our client but was arrested just before his
deposition by the police after he stole from yet another victim. Our
client was delighted though this ended the chance for a good judgment
since the culprit would soon be in jail. “I never expected to
collect…but wanted him off the streets. I’m satisfied.”
8.
State of Mind: the Will to Fight.
Polonius in Hamlet
put it well. Dread becoming involved in a fight-but once in, be sure the
other side dreads you.
It is vital to have
a state of mind to objectively and firmly engage in the litigation
activity or one will soon find oneself buffeted by the actions of the
opposing party. Once in the fight, one must participate with vigor and
effectiveness, or, at the least, form a legal team with experience and
skill and give them the resources and direction to win. This is often
difficult for some people who feel that any dispute should be able to be
resolved amicably or who do not want the often caustic communications in
litigation to be part of their lives.
One hires the
lawyers to handle the actual machinations in the legal arena and to
engage in those very communications, but any good lawyer will want
involvement and final decision making engagement from the client. It is,
after all, the client’s case. This necessarily requires a continuing
involvement by the client and a willingness to participate in that
uniquely American activity of the civil trial. Some find it
invigorating and interesting. Some can not stand even the thought of the
combat.
But in making your
cost benefit analysis, be sure to consider your own state of mind. Are
you willing to fight for what you want in the courts and develop the
type of thinking that will require?
CONCLUSION
It is no accident
that access to the Courts was made a central aspect of the United States
Constitution’s Bill of Rights. Almost all of them involve legal
procedure and safe guards. Our civil courts are not only the constant
subject of novels, movies and television, but a matter of deep interest
throughout the world. They are as uniquely American as our method of
capitalism and our freedom of speech and religion.
It was determined by
our Founding Fathers to allow the public unfettered access to our courts
to protect their individual interests and claims. It was assumed that a
free people would need to have a tool to allow them to bring some of the
powers of the government to bear to protect their own interests. That
is, essentially, what our courts have become. If you are wronged where
do you go? If you want to assert a right, where do you go? If someone
breaches their duty to you or violates a contract signed by you, where
do you go?
But, like any tool,
it must be used with care and with knowledge. Used correctly, it can be
the most effective and powerful tool any person can bring to bear. Used
poorly, it can lead to turmoil and large expense without gain.
Using the criteria
above and some good advice from professionals, there is no reason why
the average person can not make an informed decision about whether to
“unleash the Dogs of War.” |
