The Cost of Litigation for Businesses

I have struggled as a transactional lawyer and as general counsel to manage litigation for clients.

It is easy for me to see the value of transactional work since at the end of the day, the client buys something, sells something or enters into a new business relationship.  They have the prospects of a new and promising business opportunity or the chance to take their chips off the table and enjoy the rewards of their labor.  My negotiating style has been to say yes when we can and to offer a compromise when we cannot.  In the arena of commercial transactions, that approach almost always results in the deal being made.  Simply put, everyone is happy.

Litigation, now more than ever, is a completely different animal.  It is hard for me to see the value in spending time to fight.  If everyone was reasonable we should be able to efficiently reach common ground, right?

In the past when it came to litigation, I remembered the framed quote of Abraham Lincoln that hung on the wall of a senior partner I liked and respected:

Discourage litigation. Persuade your neighbors to compromise whenever you can. Point out to them how the nominal winner is often a real loser — in fees, expenses, and waste of time. As a peacemaker the lawyer has a superior opportunity of being a good man.

I have to say that that approached worked well for many years.  As we all know, litigation is a very expensive proposition.  Not only in terms of the legal fees, but also in the clients time and attention.  Business owners were generally agreeable to finding compromise rather than diverting their attention and resources from profitable ventures.

It is my perception that that changed with the economic downturn perhaps because business owners have fewer profitable ventures to pursue and employees of institutional parties in commerce, like banks and insurance companies, are more highly scrutinized.  My perception may have also changed with experience.  But people involved in litigation, almost by definition, are unreasonable.  Absent some new fact or view of the law that I can offer, if the dispute makes it to my office, the parties may just need to duke it out for a while.  Although I continue to counsel clients on the costs and risks of litigation and we can sometimes reach an early compromise, I have come to think that too much effort to settle a case too soon is a waste of time and money.

Sometimes litigation involves a matter of principal.  Certainly people have the right to litigate over their principals.  At the start they are ready to fight to the end.  I have heard more than once that “I would rather pay you than pay them.”  As general counsel to a business it is imperative to ensure that the decision maker receives monthly bills for litigation so that they see the cost as it is being incurred.  It is my experience that everyone’s principals, in terms of a business dispute, soften as the price rises.

It is important for general counsel to keep apprised of the litigation and to touch base with the client periodically to review the status and help direct the big picture.  This review can be used to gauge a client’s level of frustration and the point at which they become malleable.  General counselors, from my perspective, are also more adept than litigators at seeing the forest for the trees.

One of the tricks in leading businesses through the litigation process is bridging the gap between the different perspectives of an entrepreneurial client and a litigator.  The client would like to weigh the cost, benefit and risk of litigation, similar to how they make other business decisions.  Litigators, on the other hand, have been down the road enough to know the high level of uncertainty in litigation, including the cost of legal services, the outcome and the amount of time it will take to get there.  From my experience as general counsel, it is smart to require litigators to provide litigation budgets and a summary of the case at the onset.  That often times provides a more thoughtful overview of the case in advance and a clearer picture to the client of what to expect.  It also puts the litigator in the client’s shoes.

From a transaction attorney and business owner’s perspective litigation is much worse than watching paint dry.  It goes on and on for years and is a long grueling drain on the client’s resources.  There seems to be no way to make litigation move at a transactional attorney’s perspective of a reasonable pace.  After any event in the litigation, such as filing a motion, you have to sit with your hands folded and wait for the Court to rule.  In almost all cases, it is taboo from a litigator’s perspective to call the Court and ask when a ruling can be expected.  Litigators appreciate the decorum of giving deference to the Court.  From a practical perspective I rationalize that you would not want to pressure the Court for a quick ruling, particularly if you are pursuing a dispositive motion, since a Court may be inclined to take the easy out and deny the motion, leaving the battle for another day.

The strength of a case can change in the process as new facts are revealed in discovery that were not part of the initial assessment of the case.  This is another reason for general counsel to require a litigation budget and summary of the case in advance.  It helps the parties focus, if needed, on the assumptions that were made available when the litigation budget was prepared.

In summary, the lessons I’ve learned from experience have helped me manage clients’ expectations and hopefully arrive at better results.  I guess that is why they call it a practice.