At the beginning of litigation and selection of the law firm that will handle the case, the in-house lawyer must assess the case—the strengths, weaknesses, costs, etc., involved. Case evaluation is very important. Evaluation can be made through an early evaluation by outside counsel, knowledge of potential costs, use of employee interviews, and formulation of a plan/budget. When a company has a good idea of the chances of winning, as well as the potential costs, it is in a better position to determine whether to proceed to trial. Therefore, at the beginning of litigation, the company or organization should obtain a thorough evaluation of the case and use internal risk management tools to assess the cost of a trial. Is the cost of litigation worth it?
Risk analysis of litigation can be a useful tool in evaluating a case. One such tool that is often utilized is the decision tree. A decision tree analysis can be used to evaluate the probability of outcome of certain events during trial. Each event can then be analyzed in the context of the probability of the entire outcome. A decision tree risk analysis provides a systematic method of analyzing cases from the beginning
Besides the use of a decision tree, a properly formatted litigation budget should address the fees and costs of going to trial. Using a budget helps to establish a realistic framework for litigation as it should cover expected fees and costs. Remember however, a law firm’s fees at trial could skyrocket for a number of reasons, including:
-The number of lawyers involved.
-Time: Most trial lawyers will work long hours during a trial, so fees will add up.
This especially true if the trial is a complex one involving patent disputes or
Competition/ Anti-trust claims.
-The cost of expert witnesses.
One of the major issues facing in-house counsel is justification of the legal function. In-house lawyers in fact are like a small to medium size law firm depending on the size of the company and therefore are not cheap. On the other hand, in-house lawyers play a vital function within an organization as they manage legal issues and risks on behalf of the company. Litigation management as well as legal risk management are very important functions of a company's law department. However, most organizations are profit driven. Investors look at the bottom line. Hence, management for the most part normally looks at its divisions in one of two ways- is it a profit center or is it a cost center? Profit centers get resources of course. Cost centers may not. Therefore, in order to obtain the resources needed to function in a corporate setting- Legal must justify itself. One way to justify the existence of the Law Department, is for Legal to quantify the company’s legal exposure. Once quantified, Legal can then justify its existence to Management.
Quantifying potential legal exposure is fairly easy. One can look at historical legal costs, expenses, and related jury verdicts, fines, etc., to determine a base line for future legal costs and expenses. If an historical record of legal costs does not exist, numerous reports and surveys exist on how to average legal costs and expenses via a particular industry. Your insurance broker may have summaries of legal costs for your industry. At least it should have a historical summary of insurance related claims.
Once one has enough empirical data to show potential exposure, it is easy to show potential legal costs. In fact, a number of companies in the legal industry have issues benchmarking reports breaking down the average legal costs and expenses in particular industries. This can be a great tool to use when showing management what costs and expenses are normally incurred by companies of a similar size and in a similar industry.
The CFO of any organization is numbers driven. If you can provide, in effect, “the bottom line” to the CFO, he will be inclined to approve a budget for Legal. Be prepared to have all the facts and figures ready.
Effective litigation management during a trial depends on the company’s attitude toward litigation as well as its controls over the law firm that handles the litigation on behalf of the company. Trials, especially in the United States are quite expensive and could involve the future existence of the companies involved. In the US and elsewhere, trials by their very nature are costly. Especially in the US. Normally, lawsuits settle prior to trial, as both sides know that juries can be fickle. Some companies will, therefore, never want to go to trial (or try to settle during trial), and some will decide to fight and go to trial anyway depending on their risk appetite. Many times, it is more advantageous for parties in litigation to settle prior to trial, as trials have become extremely expensive.
Disadvantages of trials include:
• High transaction costs
• Length of proceedings
• Negative publicity
• Business interruption
• Unpredictability of juries
• Lack of finality—the loser will always appeal
If a company decides to go to trial, it must control the outside law firm, manage the litigation process, and understand the potential dangers (including costs and expenses) it faces. Prior to trial, a company’s in-house lawyer should ask trial counsel a number of questions, including:
• What is the true evaluation of the case?
• What is the approximate cost of trial?
• What are the chances of settlement before trial?
• What are the main strategies of litigating the case?
• What witnesses and experts will be needed?
• How long will the trial last?
• What are the chances of winning?
If a company knows it only has a 30 to 40 percent chance of winning at trial, is the dispute worth going to trial for, or is settlement a better option? Remember, when managing litigation you should ask yourself if it is worth it. Consider the costs.
Management of litigation, like management of most business processes, begins with a business plan and a budget. In this case, prior to trial, when a company seeks an appropriate law firm to represent it, it needs a realistic litigation plan and budget. Of course, some law firms may try to push back on the request of a budget, claiming legal costs are hard to predict. This, usually is not the case. Experienced lawyers, whether in the United States, Europe, or Asia, are very familiar with the legal costs in their own geographic region as well as costs and expenses associated with the particular issue, such as patent litigation or class actions.
Certain costs may be hard to quantify, such as defense litigation costs (which may depend on how aggressive a plaintiff is in trial), but for the most part, law firms can provide a litigation plan and budget using approximate or ballpark figures. Many of the larger law firms are experienced in providing budgets upon request. Don't be afraid to ask.
Effective management of litigation will depend on a well-prepared litigation plan and budget. This, in turn, depends on the proper identification of potential litigation issues and a plan for potentially adversarial proceedings.
Questions that should be asked when discussing the plan and budget with outside counsel include:
• Is this matter an actual or potentially adversarial proceeding?
• Will this matter result in potential commercial litigation?
• Will this matter result in potential regulatory litigation?
• Will this matter lead to governmental litigation?
Asking the right questions will help in preparing a realistic and effective litigation plan and budget.