The Litigation Dilemma: Managing Costs When Circumstances Change
Businesses need certainty. They rely on budgets to function. And because they have to, lawyers reluctantly will provide clients some form of litigation budget to win the business.
So what’s the problem? The problem is, this is what lawyers really think of those litigation budgets:
- “Completely f***ing not accurate.”
- “Total junk.”
- “May as well be throwing darts at a big board of numbers.”
I will never reveal the sources of those statements, but I assure you they are real.
What happens when (not if) reality ends up being nowhere near budget? Too often, the answer is a blank check for the client and/or a big write-off for the firm. This happens because the budget wasn’t detailed or transparent enough, which means there is no way to manage the lawyers – or the client — to budget when the circumstances change. Once the “we didn’t anticipate X,Y,Z” statements start, the initial budget gets thrown out altogether and the client becomes frustrated with ever-growing bills that they cannot control.
Here’s an example of how this dynamic works. Client asks for a budget. Law firm says “you never know what will happen in litigation” but they expect the case will be $1MM. Lawyers may also give a number for each phase, e.g., $100,000 for initial investigation, $200,000 for pleadings/summary judgment; $400,00 for discovery; $300,000 for trial. However, the budget does not say how many depositions, gigabytes of documents, experts, court conferences, discovery motions, trial days, etc. the lawyer expects or how much each of those individual things is expected to cost. Next thing you know, something unexpected happens (which it always does) and the client receives a bill that is 2-5x their expectations. Hours upon hours will be wasted in back-and-forth over what happened, and the law firm will end up having to write off some percentage of the time.
In other words, everybody loses.
To prevent this downward spiral, start with a clearer, more detailed budget that allows everyone to see what the firm’s assumptions were and how those assumptions affect the budget. This detail creates accountability on all sides. For example, if the lawyer says “we weren’t expecting 50 depositions”, the client can see if that is true and also calculate for herself how much that extra work should cost based on the original budget. And if the client insists on scorching the earth, that additional expense associated with that strategy will be obvious as well.
In other words, everybody wins.
Catherine Krow is the founder and CEO of Digitory Legal. She is an experienced general litigator and trial lawyer and was a Partner in the San Francisco office of Orrick, Herrington & Sutcliffe from 2007-2014.