Managing litigation costs Featured

7:00pm EDT January 29, 2008

Many of the costs a company incurs when entering into litigation are simply not controllable. So rather than wasting time and resources trying to accomplish the impossible, a strategy to manage the costs is more prudent.

“There are strategies for managing litigation costs,” says Irena Leigh Norton, a partner in the law firm of Shulman Hodges & Bastian LLP. “But no lawyer can come in blind and give you an accurate estimate.”

Smart Business talked to Norton about effective strategies you can use to manage litigation costs.

Why should companies be prepared to go to court?

In today’s climate, every business should be prepared to be sued. It is part of the shift in our culture and the ‘litigation lottery’ mentality. However, you can plan for what kind of litigation you are leaving yourself open to, and you can alter your business practices ahead of time.

For instance, maybe some of your existing procedures or policies are no longer appropriate under new laws. Since lawyers — unlike most business managers — monitor changes in the law as it evolves over time, yours can tell you where the risks are, where the concerns should be, and then he or she can offer you preventive advice.

How can a company plan for litigation costs?

Having an ongoing relationship with an attorney who knows your business can help determine where you need to allocate resources. If you wait until you are sued and then bring in a lawyer as a ‘hired gun,’ you do not have the benefit of those insights. This ongoing investment in the relationship is a way of decreasing the eventual litigation costs when you are sued.

It is important at the beginning of a case to meet with counsel and determine what key strategic areas need to be addressed. Periodically throughout the litigation process, you should get updated estimates and discuss strategy as events transpire.

One of the things most lawyers do is to budget in phases. A settlement after the trial will add very different costs than a settlement at an early mediation session midway through the discovery process. If the suit actually goes to trial — and a maximum of 10 percent of civil matters do — you and your lawyer should have a pretty good idea what the expected costs will be.

What litigation costs can be managed?

So much of what happens in litigation depends not only on your decisions but also on your opponents’ decisions. Discovery costs, however, are something that can be managed. There are times when investment in discovery costs can pay big dividends. However, one of the strategies that does not work is postponing all discovery until just before trial because you do not have the benefit of early depositions to determine the key witnesses. Thinking strategically about discovery at the outset of the case gets you ‘more bang for the buck.’

Electronic discovery can be very expensive — not so much in retrieving your own information but in gaining access to information held by the other side, particularly if you need to involve a forensic technician. Records over a long period of time may be involved and some might need to be resurrected because they have been deleted from the server. In contrast, while reports can be different, the data in computerized accounting records are not really different from that in the old ledger books of years past, so discovery expenses typically will be a lot less in cases where this information is the focus of discovery.

How does communication enter the picture?

Communication is key. As a preliminary matter, when you are a plaintiff or a defendant, you should give your lawyer as much information as possible: key documents, access to company officers and personnel with knowledge about the dispute, and access to electronic records. Once your lawyer has the universe of information, he or she can suggest the most cost-effective strategy and how discovery can be made both strategically and cost-effectively.

One big money-waster and budget-buster is the issue of communications between client and lawyer. Many times — particularly in high-stakes litigation — a team of executives might individually call the lead attorney. Each one of those calls adds to the total cost. As an alternative, you should have regular strategy meetings involving the lawyer and your entire team.

Also, certain procedures can be more effectively handled from a financial standpoint by using the appropriate assistants, like junior lawyers and even paralegals, rather than the lead lawyer.

How important is having the proper insurance?

While there are differences between being the plaintiff and being a defendant, under the appropriate circumstances, many litigation costs can be carried by the insurer.

One of the key recommendations that your lawyer should make is to ensure that you have the right kind of insurance coverage for your type of business and potential litigation exposure — for example, directors and officers and/or errors and omissions coverages. So it is a good idea to review insurance coverage with your general counsel as soon as possible. <<

IRENA LEIGH NORTON is a partner in the law firm of Shulman Hodges & Bastian LLP. Reach her at (949) 340-3400.