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Eliminating Uncertainty in the Cost of a Lawsuit and Alternative Billing Options

February 22, 2018

The cost of civil litigation in the U.S. continues to increase.  If you are a business owner or officer, you can expect that your company will likely face numerous disputes that could or do result in litigation.  Often initial estimates of the legal costs are modified – heavily – as the case progresses. There can be different reasons for the modifications, but one of the primary reasons given is that no one knows how the other side will litigate the case. Will they be very aggressive?  File lots of motions?  Demand significant amounts of discovery that may or may not have anything to do with the case?  As a result, many companies go into litigation blind to the ultimate cost of the litigation.  In addition, the traditional hourly billing model places the attorney at odds with the client.  The attorney gets paid more the more she bills, but the client is interested in reducing costs as much as possible. There are ways to reduce cost uncertainty and in some cases eliminate the uncertainty entirely.

A simple internet search reveals a wide range of suggested ideas on how to control litigation costs.  One such example written as a guide for in-house counsel states that it is “easy to reduce litigation costs without sacrificing quality or compromising results” and recommends, in part, that the client:

  1. Require their attorney to periodically submit a budget;
  2. Limit the number of attorneys at hearings or depositions;
  3. Only allow the attorney to make motions with the permission of the client;
  4. Limit the number of depositions;
  5. Limit the number of intra-office conferences;
  6. Limit large (i.e., time-consuming) research without prior approval;
  7. Limit the hourly rates; and
  8. Limit the size and content of reports to the client.

There’s nothing easy about any of the above, however.  In some cases there is no doubt that hourly billing and expecting the potential of shifting fees is inherent in the type and extent of the litigation.  Some cases are unique in and of themselves, making it difficult to predict the ultimate costs.  For example, family and domestic cases are often subject to a changing litigation landscape.  Working in close concert with your attorney in those cases is a good first step to helping to control litigation expenses.

In other cases, such as intellectual property litigation, uncertainty can be significantly reduced or eliminated. It is especially useful to consider alternatives to the tradition billing model where possible because methods similar to those above can run counter to why you hired the attorney in the first place.  By using such methods, you can be limiting the ability of the attorney to use her best judgment in how to get the best result in your case.  Think of it this way - dictating how many attorneys can be used on any particular task is like telling your surgeon how many assistants she needs in the operating room.  You’re going to the attorney because you’re not one, and interference with how the case is managed can cause more harm than good.  And if you think that your attorney is putting too many resources into your case, you should probably start asking yourself if you have the right attorney, or you should be reevaluating the case itself.  It is worth noting that the end goal of litigation is determined by the client – it is, after all, the client’s case.  But the strategy for achieving that goal is the responsibility of the attorney. 

So how do you balance the competing interests?  You want the attorney to do her job, and don’t want to do anything that might hinder the case.  At the same time, you don’t want to have out of control litigation costs that are not rational in light of the case itself.  You also have better things to do than to look over detailed billing to try and figure out if the billing is rational and you’re getting what you’re paying for.  The best answer is some form of fee structure that gives you certainty with regard to the costs involved, doesn’t hamper your attorney’s ability to manage the case in a manner that protects your interests, and doesn’t require you to spend your valuable time trying to determine if the billing is reasonable. 

In considering litigation costs, you should ask your experienced attorney up front if the case can be handled using an alternative billing model.  Where good historic data is available, there are generally few reasons that you should be presented with vague cost estimates or cost estimates with a very wide range of possibilities.  True, the cost of litigation can vary widely, but the amount at risk is a common factor that can be used as a basic measuring stick in determining the scope and cost of most litigation.  While each case is different, in general an average contract dispute with a risk of damages in the amount of $500,000.00 is likely to take more time and be more complex than one with a risk of $50,000.00 in damages.  There will be more facts, more documents, more witnesses, etc. in the case that has a greater amount of money at risk.  In many cases, an experienced attorney can directly address cost concerns, and work with you to provide a reasonably concise litigation budget that still accounts for uncertainties.  Even if the attorney doesn’t have her own records showing average costs of litigation, there are innumerable resources available that provide data on the average or median costs of litigation.  Your attorney should be able to use those averages and adjust for the specifics of your case. 

But there is a second, better option than setting an estimated budget and billing hourly, and that is using an alternative fee structure that doesn’t leave you guessing as to the costs of litigating.  Average litigation costs and average times to trial should allow you and your attorney to structure a fixed fee for the representation.  This could be as simple as a fixed monthly fee for as long as the case is ongoing.  It could be a set of fixed fees for certain events, such as flat fees for certain events in the case, or flat fees tied to phases of the case.  Fee structures can also include incentives for your attorney, such as a bonus for resolving the matter early.  The bonus can be based upon the amount of litigation costs saved, the difference between your liability and an amount actually paid by you as a result of the attorney’s efforts, or some other similar metric that is agreeable to you both. 

As I noted above, there are cases where alternative billing structures might not work.  But there is no harm in asking your attorney about shifting some of the risk as well as investigating fee structures with more certainty than traditional hourly billing.  We want your business, and you want certainty in how much litigation is going to cost.  We can be rewarded for doing a good job and being efficient at the same time you have some certainty in how much the work will cost.  In modern litigation practice there is no reason not to explore alternative fee structures that don’t put the attorney at odds with the client.  And that is a good thing for you, the attorney, and civil litigation in general.

Patent and intellectual property attorney Duncan Byers helps clients with patent, intellectual property and civil litigation matters.  He speaks and writes on a wide array of topics, including managing the cost of litigation and alternative billing options.

Filed Under: Blog Category 1