Business Litigation Cost

HOW MUCH WILL MY BUSINESS CASE COST?

ANALYZING DISCOVERY IN CIVIL LITIGATION

5870 Stoneridge Mall Road, Suite 207
Pleasanton CA 94588
(925) 463-2221
Fax (925) 463-0328

A. How Much Do I Want to Know About Litigation Costs? People and businesses vary widely in their approaches to a lawsuit. Some prefer to leave management of their cases to their lawyers, and to simply do what they are told. Many businesses, particularly if the cost and aggravation of a case become large enough to sting, want more. They want to understand, if they can, how much their case will cost and (if the cost is likely to be high) why their case is so expensive. This article presents key factors involved in estimating case costs, and discusses how these factors drive costs up or down in litigation of business disputes. Nothing here is legal advice; you should consult your attorney on your particular situation.

B. Why Are There Never Exact Answers on Litigation Costs? One of the questions anyone in a business lawsuit (or contemplating one) asks is: How much will my case cost? What makes this question frustrating is that there can never be an exact answer, yet some basis for an estimate always exists. As is often the case in other aspects of business, the devil is in the details.

An exact answer on cost is always impossible because no party ever has anything like complete control of a case: the other side (or sides) and the court always have a lot to say about what will happen, and about how much it will cost. Control over the other side can be quite limited, and control over the court is almost nonexistent. Discovery can be expensive, time consuming, and difficult to control.

C. What Is "Discovery" and How Does it Affect the Cost of a Business Case? Must costs remain a complete unknown until the bills arrive? No. Looking at the legal and factual structure of a lawsuit, and at what discovery will likely be required, often gives a basis for a reasonably accurate estimate. Discovery is the legally required exchange of information between (or among) opposing sides in a case, and with any third party witnesses who have important facts about the dispute. It includes depositions (live testimony under oath in front of a court reporter), document demands and production (production of documents for the opposition, demands for documents from the opposition, and document subpoenas to third parties who have relevant documents), and written responses (to questions about facts, requests to admit facts, and requests for information about what documents exist).

Many hours of lawyer and client time, and a great deal of money, can be eaten up sending and responding to discovery. Apart from the trial itself, discovery is nearly always the single most expensive part of the case. It is necessary to understand the likely extent of discovery in order to understand what your case may cost.

D. Why is Discovery Allowed, Since it Costs so Much? The non-criminal portion of our court system is designed to move cases toward resolution at minimum cost to the taxpayers - but not necessarily to the litigants. Discovery serves this goal in three important ways:

(1) Bad News Promotes Settlements. The mandatory exchange of facts forces each side to squarely confront the holes and weaknesses in its position (including the limitations of its witnesses). This often leads to more moderate demands and more generous offers.

(2) Known Facts Mean Manageable Trials. Full factual disclosure - in advance - reduces the number of issues which must be disputed at trial and reduces the prospect of big surprises at trial, making it easier for the judge to control the length of the trial and keep out irrelevant, time-consuming material.

(3) High Cost Can Produce Settlement. Confronting the cost of discovery sometimes forces reluctant parties to consider some form of compromise. As long as the current system provides these three advantages, it is unlikely that significant changes will be adopted.

E. How Can I Estimate What Discovery Will Cost in My Business Case? Estimating the cost and scope of discovery is emphatically an art, and not a science. The major questions to consider are:

(1) Who are the parties?

(2) How many claims are there, and what are they worth?

(3) What are the factual "missing links" standing between each side and a potential victory?

(4) Can any side try to win without a trial, on "summary judgment"?

With answers to all four questions, a reasonably accurate cost estimate, not just for discovery, but for the entire case, should be within reach.

F. Who Are the Parties and How Do They Affect Costs? Apart from the particular facts of an individual lawsuit, there are four things to look for in determining how likely a party is to be a costly opponent.

First, is the party getting free or low cost litigation help of some kind. For example, is a plaintiff litigating with a contingent fee attorney? Is a defendant litigating on insurance company money? Is a litigant being helped by an attorney who is a family member or corporate employee? If not, can the party afford the case? A party with a bottomless budget or a way to litigate at very low cost may be tougher to discourage. While it is unrealistic to ask an opponent how a case is being funded, you and your attorney may know things about the other side and its lawyers which provide important clues.

Second, could the outcome of the case put the party out of business or destroy most or all of the party's finances? A party facing financial disaster will fight harder if pressed, but may be more amenable to considering settlement because of fear. A party that won't be affected much by the outcome of the case may not fight as hard, but may not consider settlement until late in the case (unless driven to settle by legal costs).

Third, is any party (or, to a lesser extent, any party's attorney) driven by ego, anger, or some other noneconomic motive? There is almost always at least one unreasonable person (party or lawyer) in any business lawsuit that has moved beyond its very early stages. In litigation, unreasonableness usually takes the form of denial of a well-established fact, refusal to disclose or produce documents relevant to the case, or bitter animosity toward an opposing party or lawyer. While business people are supposed to make decisions based on economics, experience shows that they often seem to ignore economics. Knowing whether these kinds of considerations are at work in your case is essential to estimating case costs.

Fourth, will the litigation have collateral consequences for a party (for example, alienated customers, interrupted supplies, bad publicity, pressure on a person or witness ill-suited to withstand pressure, regulatory trouble, revealed trade secrets, or damaged credit) that the party will not want to endure? While this factor is important, clients sometimes tend to overestimate its impact. Opponents can be more resilient than anticipated.

In addition, it is always necessary to consider who else might be dragged into a case as a cross-defendant. Adding even one new or unexpected litigant can significantly increase the cost of a lawsuit for the other participants, and significantly affect the chances for settlement.

Weighing these factors is an essential first step. None of the other factors can be correctly evaluated if the strengths and weaknesses of the parties in the case have not been considered first.

G. Claims: How Many, and How Much? What the claims and defenses are will determine what the disputed issues are, and that should determine what, and how much, information each side will want to obtain during discovery. One or two straightforward (even if large) claims should not produce too much discovery, or too much litigation expense. Complex claims which require significant testimony, and not just documents, are sure to generate expense, especially if they are also large claims.

Attorneys hate leaving out a claim or omitting a defense, and their malpractice insurers feel the same way. This can lead to "throw-away" claims and defenses and (for plaintiffs) to inflated damages claims in business cases. While courts (and the legislature) have tried to crack down with fines and penalties, and while some litigants have sued over having to face meritless claims or defenses, neither of these has done much at this writing to prevent "filler" claims and defenses. You and your attorney need to be clear early in a case on what the key claims and defenses are, and what your side will have to prove in order to prevail on each one.

If you are seeking money for damages, the amount of realistic damages which can be proven, and which can be actually collected from the loser if awarded by the court should determine how much it makes sense to spend on the case. Often, it may make sense to settle a small case rather than to spend more than the amount in controversy in order to win. On the other hand, settlement is not a bargain for the defendant if it costs too much or leads to a string of similar claims from new plaintiffs, and won't work for the plaintiff if the plaintiff's economic situation after settlement is untenable.

Some cases (notably employment discrimination and harassment cases, and "unfair business practice" cases) are fueled by statutes which allow for attorneys' fees or multiplied damages for successful plaintiffs. This tilts the case toward the plaintiff and raises the stakes (and usually the discovery costs) for both sides.

Also, a case seeking injunctive or equitable relief (usually an order telling someone to stop doing something, or determining who owns land, a trademark, etc.) can lead to more discovery and higher costs for both sides, and be harder to settle than a purely monetary case.

H. Who Needs to Prove What to Win: Will I Have to Go on the Offensive? At the beginning of any new case, each party should confer with its attorney to determine what needs to be proven concerning each claim or defense, what evidence the client (and the opponent) already has or can quickly obtain, and what (if any) evidence needed to win is still missing.

If you think your side already has the evidence needed to win on the key issues, your discovery will focus on forcing the other side to concede (under penalty of perjury, of course) that this is so, and that the other side has nothing which will legally block your march to victory. Naturally, your opponents won't want to cooperate, and your lawyer may have to try to get them fined or penalized for failure to admit incontrovertible facts (if your opponents are incredibly stubborn, the court might end the case in your favor). You won't have to press the opposition for evidence you do not have...you already have what you need to win. You can sit back and wait for trial, or consider requesting summary judgment, which is a hearing where the court considers whether your side has so much evidence that there are no important issues still worth a trial.

If your side is missing key evidence on one or more significant issues, you will have to spend money obtaining it from third parties and/or the other side. This will cost money, and (depending on the nature and amount of evidence needed and how much the other side interferes) it may cost a lot of money. If the evidence concerns technical issues, expert testimony will be needed, and this will substantially increase costs as well. Resisting production of evidence that your side has and that the other side has requested is against the rules. If you admit that you have it, and the other side is persistent and skillful in seeking it, the penalties for not producing it will eventually become severe. If a party destroys evidence, the judge and jury will be legally allowed to assume that the now missing evidence was unfavorable to the side that had it last.

In evaluating discovery costs, each side needs to ask: how much evidence about the key issues do I have, and how much do they have? If there is not much evidence in the universe of what is relevant, discovery will be less expensive. If the evidence held by one (or, even more, by both) sides is voluminous and extensive, costs will be significantly higher.

I. What If Unexpected, Adverse Evidence Sinks My Case? Ideally, this should never happen to the plaintiff. The plaintiff should probably have sent a "demand letter" to the other side before starting the case, outlining the case and inviting a response. On receiving the letter, the defendants should have responded with their "smoking gun" evidence and a warning not to sue. Seeing the problem evidence up front should then stops the plaintiff from filing the case, ending the litigation before it starts.

Similarly, the plaintiff's "demand letter" should tell the defendant not only what the case is about and what the plaintiff wants to receive, but also about damaging evidence which the plaintiff thinks would lead a court to find against the defendant. This gives the defendant a chance to learn about major and possibly fatal problems right away, and to consider settlement (and contact any insurers) before the case is filed. The defendant might also propose arbitration or mediation, which can shorten the case and reduce costs.

Only if one side or the other decided to "hold out" with its best evidence, or if a third party surprised everyone by producing the powerful evidence in the middle of the case, should a party be surprised by unexpected, adverse evidence. If this does happen, it should be time to look carefully at settlement.

J. Summary Judgment: Can I Win Without Trial and Without Settlement? If you (or your opponent) think that the evidence is so strong for your side that there is no important issue on which reasonable people might disagree, you can file a motion for summary judgment. This is a formal presentation to the court of the supposedly overwhelming evidence, along with a request to end the case with judgment in your favor. While these motions are expensive, often costing thousands of dollars to prepare, oppose and argue, and while the evidence needs to be truly overwhelming, summary judgment should be considered if the facts to support it are there.

Cases with one-sided facts tend to be cheaper (for the winner) because they often involve much less discovery. Your lawyer should let you know if your case is a candidate for summary judgment.

Sometimes, attorneys move for summary judgment to ask the court to throw out marginal claims or defenses, even if the summary judgment motion will not end the entire case. This can cost a lot. This is another reason to exclude truly unfounded claims and defenses from your side's papers in the first place.

K. Conclusion: How Can I Apply This to My Case?

You and your attorney need to talk regularly throughout your case. You need to agree on what the claims and defenses are, what facts are unimportant or not in dispute, and what disputed or missing facts are key for each side. You need to form a discovery plan which concentrates on critical facts, documents and witnesses, and which is appropriate for the size of the case and the nature of the opposition. The plan should specify what steps are contemplated and when, and should include some estimate of how long each step will take and what it will likely cost. The plan will need to be revised often to account for what the court and your opponents are doing. Above all, the plan should include your best thinking, and your attorney's best thinking, about what you need to do to win and how much those steps will cost. The discovery your side must expect from other sides should also be a central part of this plan.

Only if you understand what your side must do to win, and why, can you make an informed decision about whether to fight or settle, and about how hard to fight or how much to settle for. Client and attorney need to work together to guide the litigation toward a fair and cost effective resolution. Although litigation is inevitably unpleasant; managing it well makes it less so.

RETURN TO LITIGATION ARTICLES PAGE

RETURN TO HOME PAGE