In my blog, Lawsuits:A Practical Guide, I offered a practical guide when faced with the prospect of a law suit. Now, in part 2, I offer some thoughts if you decide to pursue your case further.
Making the Decision
Even if you have rights to protect, you still have to decide if it is worth the effort to protect them in court. The decision is not always clear-cut. One company I know of developed a valuable product using advanced technology. An employee stole the plans for the product and took them to a competitor. The competitor built a prototype, but was still working on making it functional when the company found out about the theft. The company faced a decision: (1) seek a court order to prevent the competitor from using the stolen technology; or (2) ignore the competitor and continue refinement and marketing of a product that was already working. The company decided to go to court, and successfully kept the competitor out of the market for a number of years. The effort was costly, however, and in the end, it appeared that the competitor had never been able to make a working prototype anyway. The company decided that, in retrospect, it would have spent less money and achieved a greater market share by simply continuing to refine and market its product. The company had important rights, but protecting them in court was not a cost-effective solution.
So how do we determine if a court fight is worth it? We first ask if the person you want to sue can give you what you want. You win a lawsuit by getting a judgment. A judgment does not get you paid, however. It is just a piece of paper saying your opponent owes you something. But if he has nothing to pay with, you still end up with nothing. In that case, going to court may well cost more than it is worth.
Calculating the Money Cost
Even if your opponent can give you what you want, you still have to consider how much it will cost to win. At a minimum, that cost includes the fees you have to pay your lawyer, the time you must invest, and the emotional strain you must endure. Fees are difficult to estimate before you start a lawsuit because they depend so much on factors beyond your control: Will your opponent put up a big fight or settle early? Will new facts come to light that require much more investigation? Will witnesses be cooperative, or will you have to pursue them and take depositions? Will the court make rulings before trial that make your case harder to prove? Will the trial be short or long? These are only a few of the things that can make a case much more costly than you (or your lawyer) may have planned.
At this point, you may be thinking about those advertisements where the lawyer says he does not get paid unless you do. Those advertisements are typically for accident cases where your opponent has insurance), or cases where your opponent has a lot of money, and the stakes are very high. If you do not have one of those cases, you should expect to pay your lawyer on an hourly basis. Why? It’s a matter of simple economics. Just like you, your lawyer needs to pay his business and living expenses every month. He cannot hold off paying his bills for a year or two (or more) while he waits for your case to be resolved. There is also the problem of the outcome — clients who lose their cases are much less inclined (or in some cases, even able) to pay their lawyers.
So why are accident and high-stakes cases different? Most car accident cases are covered by insurance. The lawyer knows he will get paid from the insurance fund, he just does not know exactly how much or when. To cover those “contingencies,” he agrees to take a portion of the amount you receive at the end of the case. That amount is frequently more than what he would earn on an hourly basis, but it is fair because of the risk the lawyer takes. He does not know at the outset how much you will get (and how much he will receive), and he may have to wait a fair amount of time to receive it. In high-stakes cases with a wealthy defendant, the lawyers are willing to take large risks because of the large potential rewards. In the tobacco settlement cases, for example, one firm earned a fee of at least one billion dollars. For payouts like that, lawyers are willing to risk investing a lot of time and expense, and that is why they do not charge anything up front. They are betting that their efforts will pay off big, even though they know that if the lawsuit fails, they will get nothing. Unsurprisingly, arrangements like these are known as “contingency fees,” and they are not always so favorable to the client. They do relieve the pressure of paying costs out of pocket, but they frequently end up being more costly for the client, and are only available in certain situations.
In all other cases, you must expect to pay the lawyer on an hourly basis. In these arrangements, most lawyers require an advance deposit, sometimes called a retainer account, before they start work. At the end of the month, they send you a statement showing the number of hours they worked. They then deduct the amount of fees they have earned from your deposit, and you are expected to pay enough money to bring the deposit back up to its original level. The amount of an advance deposit varies with the size of the case, or the amount of work the lawyer expects to do each month. But you should expect to make a deposit of at least a few thousand dollars.
Given the financial cost of a lawsuit, it is natural to wonder if you can collect your legal costs from your opponent if you win. In some cases you can, in others you cannot. In Arizona, the loser usually has to pay much or most of the winner’s attorney’s fees in cases where a contract is in dispute. In most other cases, both sides have to pay their own fees. There are exceptions, of course, and you should ask your lawyer before you start if your case qualifies for the “loser pays” principle. Bear in mind that a “loser pays” lawsuit cuts both ways: if you lose, you will be responsible not only for paying your own fees, but also those of your opponent. That can be a very bitter pill to swallow, and one that can potentially wreak financial havoc.
Going to court is unavoidably risky from a financial standpoint. It requires a sizable investment up front, with no way of knowing what the outcome will be down the road, and the possibility that you will have to pay your own costs and those of your opponent as well.
Money is one thing, time is another (although they often are closely related). In the next installment, we will look at the time commitment you must make if you decide to go to court. Stay tuned.
This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice, please feel free to contact us at 480.461.5300, log on to udallshumway.com, or contact an attorney in your area.