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:
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.
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.
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.
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.