The Financial Implications of Litigation: Weighing the Costs and Potential Benefits

How does a business begin to weigh whether the benefits of pursuing or defending a claim are outweighed by the costs of litigation? By satisfying itself that it has a reasonable estimate of the various stages of the litigation. In some cases it is not particularly difficult to estimate, within a certain range, the likely out-of-pocket costs of certain types of litigation. The costs of preparing initial pleadings, litigating provisional remedies (such as temporary restraining orders, preliminary injunctions, and attachments), and conducting discovery, motions, trial, and appeals, can all be estimated based upon benchmarks and prior experience. An estimate is more likely to be accurate when the scope of the potential claims and defenses is well-defined, the scope of likely document production can be reasonably projected, and the identity of all relevant witnesses is known.

These estimates allow a client to decide whether to pursue mediation or settlement, and enable it to budget appropriately if it does decide to litigate. Financial projections can also serve as a restraint on fees, as they can require attorneys to explain why the costs for the litigation are exceeding estimates. By accurately estimating the out-of-pocket costs of litigation, the attorney brings value to the client by allowing it to make informed decisions about the litigation.

Litigation costs other than the out-of-pocket costs for attorney’s fees and expenses can be more difficult to determine. It can be difficult to calculate, even if one were inclined to do so, the opportunity cost of having company personnel focus on the litigation rather than their normal duties. Even more difficult to calculate would be the loss of business arising from a well-publicized dispute that damages a company’s reputation. The company may never know what business it lost as a result of unfavorable publicity. These are among the hidden costs of litigation.

To Continue Reading: Click Here
----------------------------------------------
Source: Westlaw New & Insight
By: John P. McEntee