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WHAT’S THE CASE
GOING TO COST?
Introduction:
A common question we
receive at the beginning of a case is a request for the likely total
cost of the litigation being commenced. This is certainly
understandable. With attorneys costing hundreds of dollars an hour and
cases lasting years, with experts who testify often costing even more
than attorneys, and the related expenses of deposition reporters, jury
fees, etc. the litigant should be fully briefed on the likely total
expenses so an intelligent and appropriate budget can be promulgated.
The reader should
review our articles on
American Litigation and our
articles on
Mediation and Arbitration
before reading further to get the overall process that is
being considered.
One complaint often
heard about lawyers is that they will not commit to firm predictions on
fee and cost estimates and, instead, give vague and wide ranging
possibilities. As discussed below, there is good reason for this
tendency. Nevertheless, as also discussed below, it should be possible
to accurately gauge the likely cost that the client faces and to create
“decision trees” for key decision points in the litigation so that
choices can be made to alter the likely course thus costs of the case as
the case develops.
This article shall
consider the problems inherent in accurate estimation of the cost of
litigation and make some recommendations as to the budgeting process.
The reader should also review our article on
Cost Benefit in
American Litigation after reading the criteria described
below.
The
Problem: Variables.
The difficulty in
providing a precise estimate is relatively simple. Unlike repairing an
automobile or installing a sink, litigation is a form of warfare against
trained and presumably effective opponents who have their own agenda and
strategy. As one general wrote, “No plan survives contact with the
enemy.” That can also pertain to litigation. One has one and sometimes
many more adversaries each seeking to jockey for a better position and
to impose their will on the other parties. For example, a deposition
which should last a day can be made to last three days by an aggressive
opponent or even by a co defendant whose attorney is too detail
oriented…and the costs necessarily exceed the budget.
Further, litigation
is prone to surprises. A witness changes his testimony in a deposition.
A new document is discovered which changes the landscape of the case. A
party who was supposed to be nearly bankrupt suddenly finds substantial
funding and can afford a scorched earth type of litigation and insists
upon taking a dozen depositions. All these things can and do happen.
Even outside the
scope of the litigation events can transpire that alter the initial
budgetary analysis. A witness dies; a market collapses; a new product
enters the market and suddenly the business being fought over has very
limited value.
While all human
endeavor is subject to change and variables, litigation and its private
equivalent,
arbitration, are especially prone to the vagaries of an
altering universe simply because so many parties in opposition to each
other are involved and conflict necessarily entails movement of
positions.
But a good and solid
analysis can still result in predications of cost and range of costs
that can be quite useful. Further, decision points can be created in
which the litigation plan is altered predicated on changes in the
situation.
One thing that can
never be given is a “guaranty” of results or an absolute precise
estimate of fees. As one elderly attorney told this writer, “The only
time I know I am going to win is after the jury gives the verdict.
Period.” As for fees, if my opponent notices a deposition that I think
is foolish and wasteful for him, I normally still have to appear at the
deposition or face the danger that, unrepresented, the witness may be
fooled into making a disastrous admission. Opponents control our
budget…just as we control theirs.
But, within the
limits described above, tools to create a reasonably accurate estimate
are available.
The Tools
of Analysis:
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The Process of
Litigation:
Each case or
arbitration has certain predictable steps. A summons and complaint
is drafted and filed. The other side answers or demurs. After law
and motion on the pleadings, discovery commences with first written
discovery and then depositions. Assuming no motions to dismiss, the
case progresses to trial preparation, then trial and judgment. The
task of the legal team is to estimate, for each stage of the
process, the likely cost based on the amount of discovery, the
complexity of the matter, and the number of opponents. For example,
a typical analysis on a simple breach of contract claim would be a
relatively short summons and complaint with unlikely law and motion
(say three thousand dollar to file, serve and respond to motions to
dismiss) coupled with written discovery and four or five
depositions (perhaps another ten to twenty thousand dollars)
followed by trial preparation and trial (expensive-usually ten to
thirty thousand dollars for a typical relatively short trial. For
arbitration, cut it by a third.). The timing of such expenses being
incurred is also pretty standard. Any good attorney knowing the
backlog in the courts and the number of depositions required can
give a roughly accurate estimate of the time the events will occur,
thus when the fees and costs will be incurred. This forms the “back
bone” of the estimate of the likely budget required.
-
The Type of
Opponents.
Who you fight matters. If going against a well funded opponent who
has in house counsel, you must assume a good deal more discovery
than a small company already close to the economic wire. Few
individuals as opponents will freely spend the money in litigation
that a company, which can deduct the cost, will. The litigation
history of the opponent can also often be discovered and can give a
good idea as to the likely reaction and allocation of resources to
be made by the opposing counsel.
-
The Number of
Opponents.
The more adversaries, the higher the cost. Simple as that.
-
The Bureaucratic
Nature of the Opponent.
Certain large entities, such as insurance companies or publicly
traded companies, have institutionalized decision making processes
that do not really allow them to cut corners. They must proceed
through all discovery and law and motion before they can undertake
even the most basic analysis of the case to determine if settlement
is possible or undertake a good analysis of their own cost benefit.
Quite often someone with authority to settle does not even enter the
picture until after those processes are completed. In international
litigation, the American system may seem so odd that opponents are
incapable of analyzing it correctly.
-
The Opposing
Counsel.
Most experienced counsel say that having a good and experienced
opponent is always better in a case since money is not wasted in
useless bickering and posturing and the issues are quickly put on
the table for analysis and possible resolution. However, even a good
lawyer from certain jurisdictions (Los Angeles and New York are
often cited) have a methodology that is usually extremely aggressive
and expensive and some lawyers are given “marching orders” by their
own clients to spend a great deal of money to force the opponents to
their knees.
-
The Value of the
Outcome.
While all attorneys sooner or later become involved in
grudge fights,
most parties will hone their own budgets to the value of the matter
being contested. If a contract worth a million dollars is at issue,
one can expect the parties to each spend several hundred thousand
dollars in seeking to win…but if the outcome is worth under fifty
thousand dollars, all the parties should have an interest in
reducing overall costs.
-
The System
Selected To Hear The Matter.
Arbitration or State court normally will cost less to bring a matter
to conclusion than a full blown federal trial...but not always. A
good judge or arbitrator can radically improve the efficiency of a
matter and it must be remembered that one of the reasons arbitration
is so often recommended is the normal reduction in costs of bringing
the matter to trial.
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The Use of Teams
and Specialists.
As noted in our
firm profile, our
office normally assigns teams of personnel with different expertise
and billing rates to a matter so that a mix of such personnel can
more efficiently try the matter. Using a paralegal who costs less
than a hundred dollars an hour to review a packet of documents
rather than an attorney who costs more than three hundred dollars is
useful to save costs if there is sufficient oversight and expertise.
Some cases lend themselves more to the team approach than others.
-
The Need for
Experts and Outside Consultants.
Forensic experts are expensive and if one is involved in a complex
construction project analysis requiring such experts or require
computer experts to determine what may have been erased from a hard
drive, the costs are likely to be in the tens of thousands of
dollars.
-
Attorney Fee
Clauses.
As stated in our article on
Contracts, in the United
States normally each party must bear its own costs and attorneys
fees even if they win. Thus to spend fifty thousand dollars in fees
to collect fifty thousand dollars in a judgment accomplishes little
but vengeance. This fact of life can limit the cost benefit of a
case since the parties must all take that into account. An attorneys
fees clause providing that the prevailing party gets attorneys fees
can alter that analysis significantly and cause much more commitment
to extensive discovery.
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Non Economic
Issues.
Never underestimate the effect of emotion in altering the landscape
of litigation. Even a typical business dispute can become mired in
anger and pride in which costs are secondary to “proving a point.”
Put simply, the more emotion, the higher the cost.
-
Market Forces.
Matters entirely outside the case may alter the landscape. Assuming
a market opens up or a customer expresses a deep interest in the
outcome of the case, the parties may alter their own cost benefit
and the analysis must be altered accordingly. Our office once spent
hundreds of thousands of dollars fighting over a thirty thousand
dollar contract because our client wanted to make sure the customer
knew that we would be adamant in protecting the territory. Since
millions of dollars in future business was at stake, the contract
amount was only the tip of the ice berg of the value of the case.
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The State of the
Law.
If a matter is one of first impression in which appeal is likely,
the cost can be expected to increase significantly and the case to
take several more years as the matter works itself up the appellate
courts.
How to Get
a Valid Estimate.
Despite the
propaganda to the contrary, most attorneys are hardworking professionals
who want not only to win but to please their client. Any experienced
attorney is going to know that a cost benefit analysis of the value of a
case is vital for the attorney client relationship to prosper.
Where we find most
discussions as to the cost of a case break down is when the client
insists upon an absolutely firm estimate or cap to the fees and the
attorney, knowing full well the variables above, feels incapable of
providing it. The client may feel the attorney is not being forthcoming
with a true estimate and the attorney may feel the client is being
unreasonable in expecting certainly where none can be provided.
The way to create a
budget is to do it in cooperation with the attorney. The attorney will
never know the fact situation on the ground and with the case as well as
the client and the client can never know the legal system as well as the
attorney. Working together, and understanding the limitations on any
such estimate, a reasonable budget can normally be created.
But the nature of
litigation should make the client realize that an estimate is just
that…an estimate. While normally accurate to within ten or twenty
percent, the actions of the opposing party can alter that for the better
or the worse.
Indeed, one client a
few years ago found herself with a hundred thousand dollars on hand she
had allocated to what was going to be an expensive fight when our
opposing party simply filed bankruptcy and disappeared. While delighted
with the additional funds on hand, she was rather nonplussed, having
geared herself up for a prolonged battle. The complete collapse of our
opponents the week after we filed suit may have suited her business
needs-but was oddly unsatisfying, she commented.
But perhaps the most
salient comment on the vagaries of budgeting for litigation arises form
the author Samuel Taylor Coleridge who wrote in the early 19th
Century, “No man does anything from a single motive.” And with
multiple motivations and multiple parties, the estimate can never
expected to be precise. |
