There is an old gypsy curse that is perhaps appropriate for any person commencing litigation in the United States: "May you be involved in a law suit in which you know you are in the right."
No activity in civil life so resembles warfare as engaging in litigation in the United States courts. Unlike most nations, the parties in American litigation enter into legal combat with the court merely occupying the limited role of impartial referee and, ultimately, the trier of fact, be it judge or jury, will determine the victor based on the ability of the parties to compete against each other in the court room using the various legal techniques and skills of their professionals.
The reader is invited to read the various articles on this website relating to litigation and its characteristics for a fuller description of the ebb and flow of American Litigation. The purpose of this article is to both advocate and describe a method for the client to engage in some cost benefit analysis of the litigation before, during and after the case has commenced.
What is vital for the client to understand is that the courts in the United States are not interested in creating a system or procedure that is fast and inexpensive. The legal system of the United States is the most complex, comprehensive and expensive in the world and is both the pride and the bane of American business. The system is usually fair, often dramatic, often the most exciting and frightening activity engaged in by most people...and invariably expensive. The system is created to allow the parties to discover evidence and explore before trial the other sides' arguments and supporting evidence by expensive procedures such as depositions and subpoenas . Any party can normally request the expensive procedure of trial by jury. The system is designed to provide full access to procedures to ferret out the evidence and to present it to a fair and impartial trier of fact.
It is not designed to save money and it is not designed to make it easy for a party without money to prevail against a party with a great deal of money. A wag once quipped that the American system of justice is the best that money can buy...and so long as one has money, one can buy the justice one wants.
A typical small trial can easily cost twenty to fifty thousand dollars. A major trial can easily cost millions of dollars.
But it is vital to also note that controlling one's budget is particularly difficult since one's adversary can easily force you to spend more money than you wish in countering the adversaries' expensive tactics or procedures. Thus, if your opponent decides to take fifty depositions in a case in which the cost is not worth it...you will probably still have to spend the money to attend the depositions since the opponent has the right to take all relevant...or even potentially relevant...depositions. Thus a case can easily begin to cost a great deal more than predicted if an adversaries' cost benefit analysis of the worth of the case varies from your own.
Further, as in any contest, the enthusiasm of the battle, the excitement of the strategic maneuvering, can often so enthrall a party that one loses sight of the underlying purpose of the litigation. It is difficult to forgo a plan or strategic move due to monetary considerations when one is locked in a battle of wits and legal technique.
A client once remarked to the writer that one of the enjoyments of his old age was that he could engage in litigation without regard to its intrinsic value and, indeed, he did enjoy filing suit as a type of sport. But for most business people and individuals, the purpose of the case is to achieve an end that is economically valuable...and that, in turn, requires application of some type of analysis as described below both before commencing action and during the stages of the litigation.
Criteria for Cost Benefit Analysis:
It's not all about money, of course and when it is about money quite often the analysis is not straight forward dollars and cents to be gained by a verdict. Often it is vital to demonstrate to a market that one is ready, willing and able to protect one's rights; sometimes it is critical to protect intellectual property or to make an example of an ex employee who is violating a confidentiality provision of a contract with a competitor.
Nevertheless, even if not easily computed it is essential for a party to determine "what the case is worth" prior to launching into litigation and this is true whether one is a plaintiff or defendant. Invariably it is possible to settle a matter at the commencement of litigation and the settlement offer must consider not only the chances of prevailing but the cost of the litigation required to prevail.
The following criteria must be used in analyzing the benefit...and downside...of any possible litigation.
1. COSTS OF THE LITIGATION AND ATTORNEYS FEES
Attorneys are a high expense and the costs of depositions, experts, jury fees, and the like can easily be in the tens of thousands or even greater. Most of the time, one must pay the attorney monthly or quarterly even though the trial may be years away. A typical small commercial litigation will run to thirty thousand dollars in attorneys fees and ten thousand dollars in deposition and experts costs.
As discussed in the web articles on American Litigation and on Contracts, an attorneys fees clause in the agreement can make a substantial difference in the analysis both up and down side since a weak case involving a relatively small amount in dispute can still result in a large verdict if the attorneys fees are awarded to the other side and you lose. Likewise, the party confident of its own case can feel much better about its cost benefit analysis if there is an attorneys fees clause and there is a good chance of a judgment for those fees. (Quite often the confident party will ask the other party to stipulate to agreeing that attorneys fees will be awarded to the prevailing party so as to improve the chances of achieving a real net profit from the litigation...but absent such agreement, it should be remembered that American law does not usually award attorneys fees to the prevailing party.)
2. LOST TIME OF KEY PERSONNEL
A hidden cost often ignored when planning for litigation is the substantial time required for important personnel to commit not just to trial and strategic planning, but for answering discovery, whether written or in depositions, and interacting with legal counsel. Invariably top personnel can expect to lose weeks if not months of time in major litigation and the process disrupts the smooth running of most companies.
3. PREOCCUPATION OF MANAGEMENT
Litigation is an intense and often exciting experience and many companies discover to their shock that otherwise staid personnel become preoccupied or even fixated on the litigation and the strategic "game" that it entails. One usually successful salesperson, responsible for the bulk of one client's sales, saw his performance plummet since he found he enjoyed attending depositions and participating in legal planning far more than the humdrum calling on customers that he had been doing for many decades. Personnel find themselves both attracted and repelled to the intense world of litigation and this writer knows of at least one bookkeeping employee of a client who quit because she could no longer stand the day to day intensity of oncoming litigation.
4. DISRUPTION OF SCHEDULES AND BUDGETING
As described in detail in the web articles on litigation, a key aspect of litigation is that one's opponents have tremendous tools (weapons, if you will) to use in their case which can compel a company to both alter its plans and budgeting to respond to subpoenas or to counter their various moves in court. To a company that carefully hones its schedule or budgetary practice, such hard to predict events can wreck havoc and cause many sleepless nights.
5. THE CHANCES OF DEFEAT
Queen Elizabeth once refused to go to war since she disliked engaging in an expensive process in which chance would play such a vital role. It is possible to lose even the strongest case and while most judges and juries do their best to judge fairly, all of us know of remarkable verdicts that seem outside the bounds of reason. Witnesses who seem truthful or cooperative before trial may turn out to be destroyed on the witness stand or may "not want to be involved" when the time comes to actually testify.
No matter how powerful your case, one must always seek to objectively factor in the chance of losing it.
6. EFFECT ON MARKET AS A WHOLE
Certain markets resent and, indeed, fear the litigation- prone American companies and a reputation for aggressive litigation must be carefully weighed as to whether it hurts or helps an entity in the market. Asian customers would be prone to resent or avoid such an entity but in certain locales such a reputation will be vital to avoid the unscrupulous business methods common in those areas.
7. ABILITY TO COLLECT A JUDGMENT
Winning a case gives you a piece of paper called a judgment. Whether that is of value depends on whether the powerful tools of collection normally available in the United States will result in a monetary recovery or effective relief. Obtaining a judgment against a bankrupt defendant or a defendant with assets in a locale such as China or Indonesia may very well be useless regardless of its amount. There are various methods to determine if the judgment, if achieved, is of real value and those should be carefully explored before commencing action.
8. COMPARISON TO OTHER MEANS OF RELIEF OUTSIDE OF LITIGATION
Often relief can be achieved by seeking same from governmental authorities or from local power elites who, in some nations, actually have far more power than the courts. In much of Asia, for example, local powerful business people can bring tremendous influence to bear on possible miscreants and their help is normally "rewarded" with future business from you or a desire to back another faction within the society. (It is important to recall that the United States Federal Corrupt Practices Act forbids the bribery, either direct or indirect, of a governmental official and good legal advice is critical before electing to consider this type of remedy.)
In many nations, the local courts are so inefficient or so corrupt that bringing action is completely useless, especially since the bribery necessary to have a case progress or achieve a just verdict is banned by United States law, even if not illegal in the country in question.
Litigation is a powerful tool but an expensive one and all other means of relief should be carefully analyzed prior to commencing action.
9. CONSIDERATION OF TIMING AND POSSIBLE ALTERATIONS IN THE SITUATION
Litigation normally takes well over a year and in some locales as much as five years. A case that may make sense once commenced may be useless by the time the matter comes to trial. If relief must be achieved quickly or be useless (as in much of the high technology field) then the courts may be effectively useless unless some type of injunctive relief is immediately granted by the court. Achieving injunctive relief is a difficult matter in most jurisdictions, the courts being loath to allow relief prior to a full trial. The prudent litigant will thus carefully review if alacrity is vital to achieve effective remedies and will adjust the cost benefit analysis accordingly.
10. THE DANGER OF LIKELY COUNTER CLAIMS
Once a party is sued, it is common for the party to seek any type of counter claim both to give the plaintiff "something to lose" and to possibly make the case more than a straight loss to the defendant. Quite often no claim would have been brought if the plaintiff had not brought the matter to a head by commencing its own litigation and it is not that unusual for counterclaims to succeed. Commencing action may be like opening Pandora's Box which, once opened, can lead to later problems and damages that may never have otherwise had occurred had the "box of litigation" not been opened.
11. CONSIDER THE ADVISABILITY OF DOING NOTHING
One excellent business woman advised the author that the best place to beat a competitor who had injured her business was not in the courts but in the marketplace. "Courts are for lawyers. The market is for business people. I would rather fight in the place where I am the expert, not you." (She nevertheless felt compelled to commence action in that particular situation due to the need to protect intellectual property.)
Often litigation is seen as a tool that can be used in conjunction with powerful marketing efforts, an adjunct to the renewed marketing or promotional efforts of the damaged company. Careful strategic planning must therefore be necessary to coordinate the litigation with the efforts of the business.
Need for Constant Reevaluation of the Case:
A case is a living thing. It is created not just by you and your legal counsel...but by the actions of the other side and events not foreseen by either side. A witness may disappear or become hostile, a document you relied upon may be counteracted by another document you knew nothing about. The other side may lose (or win) a vital motion that radically damages your case or their case. The types of events that may occur are as myriad as the unlimited possibilities that can effect the average business.
Factors entirely outside of the case may drastically alter the value of the case. You may be fighting your largest competitor in the market, figuring that if you win you will have nearly unfettered control of the market...only to suddenly see a new and larger competitor suddenly enter the ring and make the results of your instant case of little value indeed.
Equally common is the radical increase in value of the case. You may have sued someone hoping for a verdict of perhaps fifty thousand dollars and suddenly discover in documents that the other side was required to produce that the damage they caused you was far, far greater and suddenly you have a chance to obtain three or four times that amount.
A typical example from one of our past cases may illustrate the need for reevaluation on at least a quarterly basis. One of our clients had been grievously damaged by an ex employee who stole his customer list and various other trade secrets and obtained a job from our client's worst competitor with disastrous consequences to our client. His business dropped over fifty percent in one year with the competitor gaining most of the business using the various trade secrets from the ex employee. Suit was filed and the damages clearly exceeded one million dollars when one took the lost profits for the year and extrapolated them out three or five years in the future, which was reasonable.
The suit became a bitter one, quite expensive, fees quickly exceeding one hundred thousand dollars. Those fees, however, were well worth it as the case progressed and with evidence substantiating the wrong doing becoming increasingly clear and the judgment looking more and more likely. A year into the case, however, there was a radical change in the market place and our client, as well as his adversary, was compelled to develop new methods and technology to adjust to the very different market. (Put simply, Indian programmers were able to develop and deliver equivalent product for a third of the price so to even survive in that new market, our client and his adversary, both American companies, had to commit to developing additional features on their programs to create additional value.)
Our adversary failed in his efforts to develop the new software and soon was on the verge of bankruptcy. Our client did develop additional value added features to his programs. The odds of collecting the judgment from this financially strapped adversary company became weaker but our client was reassured by the fact that our case was also against the individuals who owned the company and his ex employee. Even this was not enough to completely allay our concerns, however, since it was likely that even the individuals we sought to recover from would be financially in trouble if their company failed.
But there was an greater new problem. Since the third party entered the market about one year after our case began and, in effect, made the stolen trade secrets of little value since new software had to be developed, then our damages were no longer three to five years worth of lost profits...but only one year since after that time the value of the stolen assets became nil.
Thus the case which was once worth millions became of much less value...one year's profits rather than three to five years worth, and with defendants who might not have any money left to pay a judgment in any case. Lastly, one of our client's goals, to eliminate this competitor who had stolen his trade secrets...was being effectively accomplished by the fact that the competitor could not create the new software needed...while our client could.
After much cost benefit analysis, our client decided he would continue with the case another six months simply to keep pressure on the adversary and waste their assets...then settle the case for anything he could get since his main goals would have been achieved. This is what happened, with his adversary finally collapsing about three months later, going out of business, and settling for fifty thousand dollars simply to eliminate the continued drain of the litigation.
Our client was pleased but the case results he actually achieved were far from the original goals. Once he realized that a large verdict was not likely to be collectable and that his adversary was on the brink of collapse, he altered his goals and his plan accordingly and better achieved his goal. That decision radically altered how our office continued to try the case...our job was to keep the case alive but not spend much more money on discovery since the odds of collecting were too small. Had we and our client not continued to review the value of the case constantly, we would have wasted much money...and the cost benefit to our client would have been out of balance.
There is a military saying that is appropriate here: "No Plan Survives Actual Contact With the Enemy." Plans and efforts must be constantly adjusted to conform to new developments and the wise client and lawyer conducts reevaluation of the case on a constant basis. And don't just look at the case and developments in the court; keep your eye on the entire market, the business climate...and any other factors that may alter the value of the litigation.
Litigation as a Useful Tool:
Litigation is a fact of life for American business. If you have not sued someone, sooner or later you will...and you will be sued. Whether you profit appropriately from the litigation depends on whether you develop the vital skill in understanding what it can do and not do...and how it may best be used. To become adept in using...and avoiding when necessary...litigation is to acquire a skill of key importance in your business and your personal life and having that skill when others do not will give you a tremendous advantage as you develop your business and career in the United States.
Objectify the case and its chances for success. Get competent and honest legal advice. Keep reevaluating the case as the months and years progress. Adjust your plans and tactics predicated on all new developments, both good and bad. Understand that the legal system is expensive, fair, and powerful and, like a gun, should only be used after good advice, good training, and with constant caution since the damage that may be caused by improper use is as extensive as the benefits that may be achieved.