The Costs of Litigation


Litigation: Why Companies Despair

Construction dispute. Perhaps 5-6 million at stake. Some IP issues as well. Voluminous discovery. At a discovery conference, lawyers agree that two lawyers from each side (probably thinking, partner and associate) would review each other’s documents marked as trade secrets.

So far, so good.
Have you complained about London counsel charging £500/hour? New York counsel for plaintiff is charging $1000/hour.

I kid you not.

But then...the defendant nominates an associate who happens to have an engineering degree. All hell breaks loose: in litigation, lawyers are more or less fungible (unless you’re Max Steuer, Clarence Darrow, Gerry Spence, Frank Oliver) but a lawyer with an engineering degree is dangerous and brings something to the table that wasn’t there before.

The plaintiff tries to work it out--how many hours billed?--but fails. So he files a motion to seek relief. A deposition is taken, and a protective order limiting questions. The deposition is mostly nonsense since you can’t really ask questions about what you might think about documents that you haven’t seen. The court asks for briefing. Mr. $1000/hour submits a 20 page brief; the defendant, 10 pages, and here comes a five page reply. The judge sets the matter down for a hearing. This is a bit unusual but not really, as the matter is referred to a federal magistrate judge. The magistrate issues a Report and Recommendation that the parties should be held to their agreement. The plaintiff objects to the Report and Recommendation in a ten page document. The defendant urges the district judge to adopt the Report and Recommendation. The district judge decides to hear the matter, a one-hour hearing ensues. The district judge decides to adopt the magistrate’s Report and Recommendation. After all, the judge said, “you can find an attorney/engineer if you want to do so.”
“But we’re not as interested in their documents as they are in ours,” Mr. $1000/hr. complained.
“My ruling stands,” said the judge.

This ruling is not subject to interlocutory appeal. The cost of this skirmish in the greater lawsuit war? $72,118.00.

Please pay.

And that is why corporations despair at getting involved in litigation. You cannot budget for antics like these. You are not at liberty to ignore your counterparty’s filings. You have to respond. If you think the other side will pay your fees, guess again. That doesn’t happen in the United States of Freedom.
$72,118.00 on a preliminary matter that fails to address the dispute at the heart of the lawsuit.

Could arbitration be a way out? Doubtful. Arbitration filing fees for a dispute this large are in the six figures and Mr. $1000/hr. bills the same whether he is standing before the podium in federal district court or sitting at a table in a conference room in a hotel used by the arbitral panel.

Unless and until lawyers figure out a way to reduce the costs of this squabbling, their clients will find a way to do so. These solutions will be tentative at first, then seen to be impractical, and only then widely adopted.

You read it here first.