By Keith Turner©
Litigation is an inescapable reality of business life – Most companies, large and small, will either be sued or be compelled to file a lawsuit at least once during the course of their lifetimes. Thus, litigation should be viewed in the same logical way as any other business decision that an enterprise must make. Successful entrepreneurs and professionals already know how to assess risk in making their every day business decisions. The following five questions explain how to approach litigation so that your enterprise can make confident and well informed decisions regarding litigation matters.
There are numerous ways that a business can minimize the likelihood that it will be involved in litigation. These include, among many others, properly registering trade names, marks, and other intellectual property; having an employee manual that is prepared, or at least reviewed, by counsel; and implementing a document retention policy and ensuring that all business records are kept in accordance with it. These factors should always be in the forefront of the mind of the entrepreneur and professional to try to avoid litigation. This article focuses on the scenario where your company has engaged, or is in the process of engaging, a litigation attorney.
At the beginning of any case, your litigation attorney should provide you with a comprehensive written evaluation of the known facts involved in the case, the law that will be applied to those facts, a litigation plan for the case and a budget for the costs of implementing the litigation plan. This initial evaluation letter will set the framework for the entire case. As the matter develops over time, the evaluation, and the plans and budgets necessary to implement those plans, will necessarily change. It is crucial that you as the client have a clear understanding from the beginning of the case what can be expected in the matter. When choices need to be made regarding changes to the evaluation, plan and budget, you will then be in a position to make good decisions that positively assist in moving the case forward to a successful resolution. The initial evaluation letter should address the items set forth below. If it does not, do not hesitate to contact your attorney. Regardless of how far into a case you may have already progressed, it is never too late to discuss with your lawyer the following questions:
1. Will We Win?
Whether your business is the plaintiff or defendant in a case, one of the first questions you should ask your lawyer is if you will “win”. In order to determine the likelihood of success, a lawsuit is generally evaluated on its objective and subjective elements. Most cases have three main objective components: (1) the facts that underlie the dispute; (2) the legal claims that form the basis for the suit and the legal defenses to those claims; and (3) the damages that stem from the claims.
The subjective parts of a case include a variety of factors such as (1) witnesses’ credibility (2) jury appeal of the claims of the plaintiff and the defenses; (3) the likeability, of the various attorneys involved in the matter; and (4) the attitude of the judge toward plaintiffs, defendants, the type of litigation before him or her, and the attorneys in the case.
Naturally, it is impossible to guarantee any outcome – and any attorney who does so should be viewed with skepticism. However, experienced counsel should be able to provide you with a professional opinion of the merits and detriments of your case. Based upon his or her analysis of the objective and subjective factors involved in any matter, your counsel can provide a percentage likelihood of success, as well as a potential dollar range of verdict and settlement. As the case progresses through the litigation process, the percentage and range initially provided should become more defined. In the arena of extremely high stakes cases, professional jury consultants are available to assist your attorney in further analyzing the risk involved in your matter, as well as the chances for prevailing.
Regardless of the outcome provided to you by your attorney, obtaining a second opinion for legal matters is often money well spent. Whether for a fixed fee or for a budgeted amount, experienced counsel can provide a qualified or limited opinion and recommendations for resolution that may assist you in evaluating your case so that you can then make the best business decision regarding it. While some attorneys may feel a lack of loyalty if a client seeks or obtains a second opinion, confident counsel should welcome having another opinion on the case. Most people do not hesitate to get a second opinion when they receive a medical diagnosis that will have a significant impact on their personal lives. The same approach applies to the impact that litigation will have on your company’s operations.
2. How Much Will It Cost?
In order to properly make business decisions regarding your litigation, you need to know how much the case is going to cost. Many businesses require that a budget or estimate of legal fees and costs be approved by the business before the attorney is permitted to implement any litigation plan. The accuracy of any budget will depend on the type of fee arrangement. Most litigators prefer the traditional hourly fee arrangement. However, some business lawyers are more entrepreneurial and will be willing to consider alternative fee arrangements such as contingency, fixed-fee or some type of hybrid. Even in the defense arena, attorneys may be willing to work for something other than the traditional hourly fee arrangement, such as a reverse contingency. In any case, it is important to remember that hourly rates, contingency fees and other cost items are negotiable.
The general advantage of the traditional hourly fee arrangement (from the client’s perspective) is that it can provide a relatively accurate estimate of the overall costs of the matter from an early stage in the case. However, another approach may be for the attorney to provide estimates or budgets for defined phases or “time periods” within the litigation, creating a “menu” of legal strategy and activity options that the business can then select from for each defined phase. Because many litigation activities can be deferred or performed in any one of several of the phases of litigation, this method may provide you as the client more control over when those things occur (and thus when you will have to pay for them). Alternative fee arrangements can also be structured to create a more partner”like relationship between a business and its attorney so that their respective objectives and goals become more aligned. This can work to prevent attorneys from feeling that they are merely selling their time, and clients from feeling that their attorney is simply trying to profit from the company’s misfortune.
The accuracy of a litigation budget may be significantly affected by two main conditions your attorney cannot control: (1) the opposing party and his counsel; and (2) the court and its calendar. The opposing party and counsel can significantly increase litigation costs if they are particularly combative, uncooperative or unreasonable. If your opponent’s agenda is not to achieve a quick and efficient resolution of the matter, your counsel may need to adjust strategy to attempt to exercise better control over the case. Obviously, this change in strategy will necessitate additional work to be performed on the case, which will be reflected in an increase to the litigation budget.
Some judges and courthouses are efficient and sensitive to litigation costs. Others are not. Some courts, such as those in Los Angeles County, keep detailed statistics on case disposition factors. These statistics make it possible for your counsel to more accurately analyze the court factor in the cost equation. If no statistics are available, then the accuracy of any budget will necessarily be adversely affected. Additionally, an attorney with actual experience before the judge assigned to your case, or access to other attorneys who are familiar with the judge’s “style” will be able to tailor strategy to fit the judge’s reputation and ensure a bit more accuracy in budgeting. In any case, make sure your attorney has done his or her homework and has considered all available information regarding the judge and court when preparing a litigation budget.
By far, the most significant “line”item” in an attorney’s litigation budget will be for trial and trial preparation. However, because approximately 95% of civil cases settle before trial, the actual biggest legal expense most parties, including businesses, will incur is for activities that occur during the “discovery” phase of litigation. “Perry Mason” or “Denny Crane” moments make for great television drama, but rarely happen in civil trials due to the discovery process. The goal of the discovery phase of litigation is specifically “to prevent trial by ambush”. In order to achieve this goal, each party to a case is required to identify the known facts, documents and witnesses that support its case by taking depositions, exchanging documents and providing responses to written interrogatories. Counsel should be able to provide a cost/benefit analysis for each phase of discovery. While the discovery process is supposed to be mutually cooperative, the process will invariably cost more if opposing counsel is unnecessarily combative or uncooperative. One remedy for dealing with uncooperative counsel is to file a motion to appoint a referee to supervise discovery for the court. Of course, the appointed referee also needs to get paid, so this potential fee should be weighed against the cost of dealing traditionally with an uncooperative opponent before any such motion is brought.
Additionally, there are a number of things a business can do to control litigation fees and costs in an hourly fee arrangement. First, determine in advance exactly who will be working (billing) on your matter. To the extent possible, keeping the number of timekeepers on your matter to a minimum will increase efficiency and help to ensure cost effectiveness. Being able to consistently do so is one mark of an attorney who is able to efficiently manage his or her cases.
Second, ensure that you have a clear understanding of not only when your attorney’s “clock” starts running, but also how it runs. Most attorneys who bill hourly do so in six minute (0.1 hour) increments. However, some will bill in 0.2 or 0.25 increments. Most attorneys bill for telephone time. When attorneys and clients become friendly, phone conversations can slide into personal matters. Many clients are surprised and upset to find out that they have been billed for a telephone call that they thought concerned mostly personal matters.
Understanding how your lawyer intends to bill you for activities will allow you as the client to avoid unnecessary expenses by addressing these types of situations in advance.
Third, require your attorney to submit to you detailed bills, on at least a monthly basis, which provide the following information: each activity or action, described in sufficient detail so that you understand what it is and why it was necessary to progress the case; the timekeeper who performed the activity and his/her rate; time spent on the activity; and the total dollarvalue for each separate activity. You should carefully review your attorneys’ bills to determine which attorneys are working on your case; how the case is moving forward; whether there is any unnecessary duplication of activity; and whether the amount of time (and fees) for each activity is reasonable. You should feel free to question your attorney regarding any aspect of his or her bill.
The subject of reasonable billing practices is best left for a future article. However, one last cost control measure you may wish to consider is to require pre-authorization and time estimates before allowing your attorney to engage in research projects, take or attend any depositions, hire an expert or file any motions. You will learn a lot about your case during these discussions. An experienced litigation attorney will welcome this scrutiny.
3. How Long Will It Take???????
Making a business decision for a litigated matter requires that you understand the life cycle of the case. Experienced counsel should be able to provide you with an estimate of how long it will take to fully resolve the case, whether through mediation (i.e., a settlement conference) or by reaching a verdict after trial. Your attorney should also be able to provide “timelines” for the major events that will occur during litigation so that you have time to prepare for these events and budget your resources accordingly. Some of these events will be the scheduling of the trial date by the court, the discovery cut”off date, the deadline to designate expert witnesses, and the deadline to file any dispositive (“case ending”) motions. Some judges schedule a settlement conference date or deadline to complete mediation based on the case facts and the desire of the parties. You will find that the deadlines set by these events often form the basis for your plan lawyer’s litigation .
4. Can We Settle?
The answer to this question is almost invariably “yes”. As set forth above, approximately 95% of civil cases settle before trial. However, the terms of any potential settlement must first be acceptable to you and your company before it can be effectuated. Once you are provided an analysis of the merits and detriments of your case, as well as the costs associated with litigating it, you will have information necessary to begin make a reasonable cost/benefit analysis of whether to settle or litigate. This analysis can also provide information on how best to proceed to posture the case to maximize the potential for settlement and the amount recovered via settlement.
Effectively managing litigation expenses while being sensitive to your opponent’s legal expenses are often a duel set of keys to positioning a matter for the best possible settlement. On the defense side, many businesses will allocate a single “pot” of money for the costs of litigation as well as any potential settlement. If the plaintiff’s counsel fails to appreciate that his or her “scorched earth” litigation tactics prior to engaging in settlement discussions will erode the funds that will ultimately be available to settle the case, then the plaintiff will fail to be able to obtain a favorable result. On the plaintiff’s side, the key is often trying to figure out when the defendant tires of paying its attorney to litigate the case and becomes willing to simply pay off the plaintiff to end the financial outlay.
5. What About Insurance?
One area that is often overlooked is whether there is any potential insurance that may cover some or all of the legal expenses, settlement or judgment for a case. Both sides to a dispute should be sensitive to and plan their objectives and goals in light of what, if any, insurance may provide. Good business lawyers will have access to resources that will allow him or her to analyze and inform you of the ramifications of any insurance issues that may arise during your case.
If, as a defendant, you have any potential insurance coverage, your defense of the litigation should be tendered as early as possible to each and every insurance company that may cover the underlying claim, unless your business has a compelling reason to avoid involving your insurance company. The reason for tendering as early as possible is because most policies preclude any responsibility for defense or indemnity before the litigation is tendered. If your insurance carrier does agree to defend you in the lawsuit, it may retain its own lawyer to represent your business company in the case. If that happens, your attorney should review the terms of your carrier’s defense to determine and advise you whether there are any potential conflicts of interest. If so, your carrier may be required to also pay for counsel that your business selects.
If you are a plaintiff, you and your counsel should be sensitive to any potential insurance that your opponent may have, since insurance often fuels the best and quickest resolution of a dispute. Be mindful that the mere filing of a lawsuit will be insufficient to force a settlement from an insurance carrier. Your counsel will need to work with you and be prepared to prove your claim and understand what portion, if any, of any recovery is covered under the policy.
As a plaintiff, you may also have your own “first party” insurance that covers some or all of your damages. Before suing, your counsel should work with you to consider tendering the matter to your own carrier and ensure not to impair your carrier’s own rights against any of the parties that may be responsible for the damages.
Litigation should be handled like any business decision. This means doing the necessary analysis of the facts and the law, and working closely with your litigation counsel to ensure that you have sufficient information to make litigation decisions based on the business’ overall objectives and bottom line. Your business can maximize its likelihood of success by requiring your counsel to provide periodic budgets, evaluations and recommendations so that you can actively manage the litigation. Ultimately, the best results are obtained by a partnering relationship between your business and your attorney so that your attorney’s fees are aligned with obtaining your business’ goals.
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