Planning Litigation Costs

Litigation costs are often the deciding factor in whether a business or individual can or should seek a legal remedy. Costs are also a key factor in settlement negotiations. This can be very frustrating where a client’s legal rights are clearly established and supported by the facts, but the cost of prosecuting or defending those rights are prohibitive.

The so-called “American Rule” provides that each party should pay its own legal fees. It contrasts with the “English Rule” where the losing party pays the prevailing party’s legal fees. The rationale behind the American Rule is that litigants should not be discouraged from seeking legal redress for perceived wrongs because of a fear of having to pay the prevailing party’s legal fees.

There are exceptions to the American Rule. Federal and state statutes may provide an award of attorney fees to the prevailing party. Local court rules may also provide similar mechanisms. More commonly, contracts giving rise to a dispute often contain a provision for an award of attorney fees and costs in the event of litigation. There are also some limited case law exceptions to the American Rule where a fiduciary relationship between the parties can be established.

However, these circumstances are the exception and even where there is a potential for an award of attorney fees, litigants should plan for the circumstance where the exceptions will not apply.

Your attorney should approach the dispute with an eye on the costs and the potential return on investment (“ROI”). In short, legal representation should provide a value to the client. That value must be identified from the outset of representation.

Establishing that value and understanding the associated costs is an ongoing process that occurs in three phases: Consultation & Analysis, Pre-litigation Planning and Litigation.

Consultation & Analysis begins when the client approaches the attorney with a legal problem. An initial meeting between an attorney and client is just the start of the process. In many cases, even the most detailed consult can only provide a “birds-eye” perspective of the problem. There is an initial assessment of whether the legal issue is cognizable. Importantly, there must also be an initial assessment of what damages might be awarded in a civil matter or what possible outcomes there may be in a family matter. It is the start of the ROI analysis. At this point, it may be necessary to move beyond the initial meeting and retain the attorney for a more detailed analysis. This can be a limited retainer for pre-litigation analysis only. Such analysis provides a deeper understanding of the legal problem, the facts in issue and an objective look at the parties.

The next phase is Pre-litigation Planning. The attorney and client identify what court the matter should be filed in while also beginning a settlement analysis. The decision to litigate is a big commitment and should not be entered half-heartedly. By now, there should be an understanding of the anticipated ROI and whether settlement should be entertained. In civil matters, a detailed assessment of money damages should be reduced to a methodology of proof that will be used at trial. If necessary, expert witnesses for liability and damages should be considered. In family matters, a specific detailing of how the client wants the matter to be resolved should be drafted and approved. Finally, the attorney and client should decide whether a pre-litigation settlement overture should be made.

The next and final phase is Litigation. Ideally, a client should liken the decision to litigate to pulling the trigger of a gun. Once pulled, a client should have their attorney act as if the matter will proceed to a final disposition by the court. The client should avoid litigation where the matter is initiated or progresses in a tentative manner. Such an approach diminishes settlement options and ultimately increases costs where a more aggressive posture becomes necessary later in the litigation, often on an expedited basis. The best way to maximize the chance of a favorable settlement is to litigate as if trial is a given. There is no better way to convey a client’s commitment to the matter than to proceed expeditiously with an eye toward trial. Moreover, litigating with an eye toward trial is the best way to keep legal fees within expectations. The process of discovery, while beginning with an expansive view, should always proceed to a narrowing of issues and facts. It cannot be an end but rather a means to an end – proving the case and obtaining the best possible result.

The decision to pursue a legal remedy is daunting. It must be approached methodically and with clearly identified goals. Your attorney’s first job is to help formulate those goals and to pursue them zealously in relation to the ROI. Earp Cohn P.C. can utilize this approach to help determine if litigation is the right solution to your legal problem.