Managing litigation costs

Escalation in the hourly rates charged
by attorneys, experts and court
reporters has driven the cost of litigation up. This makes the need for pragmatic
decision making by CEOs vital — especially when it comes to deciding if “having
your day in court” is the best way to handle
business disputes.

Using an average cost of $400 per hour
for attorneys’ fees and the customary
charges for court reporting services, a oneday deposition taken from a single witness
in preparation for trial can cost $5,000.
While the trial itself may only last a few
days, most of the costs associated with
going to court revolve around all of the discovery and preparation needed to actually
bring the case to trial.

“It’s vital for CEOs and other executives
to really conduct a thorough cost-benefit
analysis before deciding if they want to litigate a matter, and they need to have a cost
estimate based upon winning or losing the
case,” says Richard A. Heller, partner with
Procopio, Cory, Hargreaves & Savitch LLP.

Smart Business spoke with Heller about
how CEOs can manage these costs.

What makes litigation expensive?

Clients have played a role in attorney rate
increases. While clients don’t want to be
charged above-market hourly rates, they
often correlate an attorney’s capability
with the rates he or she charges. This
assumption may not be accurate and it
could result in overpaying for attorneys’
fees. I also recommend a process that I call
reverse engineering the litigation budget.
Before deciding if you want to take a case
to trial, request a full disclosure of all
immediate and long term litigation costs.
While trials aren’t cookie cutter, you
should be able to get a fair estimate of the
total cost from your attorney, so you can
make a pragmatic business decision.

What is the client’s role in managing litigation costs?

The client needs to be engaged and maintain a proactive posture from the outset.

Inquire about the outcome of various steps
in the litigation process, such as the result
of hearings conducted on pre-trial motions.
E-mail is a cost-effective way to get
updates about the status of your case, and
staying involved keeps attorneys on their
toes. Also, while you don’t want to nit pick
invoices, you certainly want to review
them. Look at the trends and keep a running tabulation of the total costs of projects so you can continue to track actual
expense versus budget. Also, note how
many attorneys are billing on the matter.
Each time you bring in a new lawyer, he or
she needs to get up to speed on the case,
which generates billable hours.

Is mediation an effective alternative to litigation?

I have observed that clients frequently
have the notion that if they propose mediation to settle a matter that it’s a sign of
weakness. As a 32-year litigator, I don’t see
it that way. When used at the right time,
mediation can be a cost-effective solution
to disputes. The key is proposing mediation when you have conducted enough relevant discovery to begin to project an outcome for the case and to allow both sides a clear understanding of the issues, but
before the cost of conducting full discovery is incurred. It also allows diversion of
funds earmarked for trial costs to be used
toward settlement of the matter. The thing
to remember about mediation is that the
process itself doesn’t decide who was right
and who was wrong, and participation is
purely voluntary. This is where pragmatic
decision making comes into play, because
success is not always about being right —
it’s about how little you have to pay.

When should arbitration be used as an alternative to trial?

Arbitration used to be considered the
cheaper, faster alternative to trials, but
today that may be changing. Arbitrators
are independent judges who can make rulings as to who wins or loses the case, but
those rulings do not have to follow the law
and they cannot be appealed. In addition,
more discovery is allowed in arbitration
these days, which doesn’t do much to
reduce litigation costs. And arbitrators can
charge up to $1,000 per hour.

Aren’t litigation costs paid by the losing

Frequently disputes occur over issues
governed by business contracts, and unless
the contract contained a provision stipulating that the winning party can recover
attorney’s fees, you will be unable to do so
in California. Clients sometimes mistakenly think that it’s better not to settle a case
because if they prevail, they’ll recover
attorney’s fees. Knowing if it will be possible to recover attorney’s fees is all part of
doing your homework and should be part
of your cost benefit analysis before deciding if you should take a case to trial. More
facts and less emotion make for good litigation decisions and better managed costs.

RICHARD A. HELLER is a partner with Procopio, Cory,
Hargreaves & Savitch LLP. Reach him at (760)496-0774 or
[email protected].