To Litigate or Not to Litigate?

By Ratliff, Alan G. | Baylor Business Review, Spring 1994 | Go to article overview

To Litigate or Not to Litigate?


Ratliff, Alan G., Baylor Business Review


As a CPA advising clients about tax and financial matters, I adhered closely to the bottom-line business principles taught in undergraduate courses in accounting, finance, and economics. Later, as a new law school graduate working for a federal judge, I relied less on economic theories and more on the legal principles to guide my reasoning in analyzing cases and drafting court decisions. Today, as a litigator advising business clients and helping them establish a sound dispute resolution strategy, I often find myself in a philosophical quandary trying to balance business and legal principles.

POTENTIAL PERILS OF LITIGATION

Since the court system is generally not an efficient, effective, or desirable way to resolve civil disputes, businesses must be aware of the possible perils of litigation.

Full dockets. In our overburdened civil court system, cases typically do not get the attention from judges that they truly deserve because there is neither enough time nor judicial resources. For example, within the Texas state civil courts in the Dallas-Fort Word metro area alone, over 65,000 new cases are filed every year-and the backlog of cases already pending in these courts exceeds the new filings! The situation is not much better in federal court. In the Southern District of Texas, it is unlikely that a civil case will go to trial in less than two years (and then only in the rare instance when pretrial matters go smoothly).

Rules. It's not as simple as just "telling your story to the judge." Instead, lawsuits are governed by rules of civil procedure, rules of evidence, rules of court, state rules, federal rules, local rules, the judge's rules, and more. Most are intended to promote fairness and an even playing field but in the making they have created legal "waves" that are very difficult to navigate.

Expenses. Defending a lawsuit can be very expensive. Add to defense attorneys' rates (ranging from $100 to $200 per hour--or more) the costs of providing documentation to other parties, depositions, travel, professional consultants on technical issues, and trial exhibits, and you can quickly spend $10,000 to $20,000 in litigation costs. What's more, the cost of the litigant's own time spent on the case and away from day-to-day business activities is usually underestimated by those considering taking action in court.

A successful defense often costs more too than the matter could have been settled for, if a reasonable offer had been made early on. Even a sizable judgment can be reduced to virtually nothing when you factor in attorneys' fees, expenses, and the time value of money. And victory or vindication may still prove illusory if the case ends in a mistrial or is tied up in appeal for a couple of years. What about a jury trial? Unpredictable. Neither the best case nor the best lawyer always wins.

RESOURCES AVAILABLE FOR DISPUTE RESOLUTION

Having considered the general perils of litigation, a business must next assess and commit resources for problem resolution. If it has in-house lawyers, the marginal cost may be much less than using outside legal counsel. At a minimum, in-house counsel should be trained to respond to formal demand letters, answer routine lawsuits, and conduct basic discovery.

If the firm does not have in-house counsel, the cost of outside representation may appear prohibitive. Most firms, however, do have at least some type of outside legal association that can set up a low-cost process for helping the firm deal with such disputes.

A SYSTEM FOR SCREENING DISPUTES

Since the types of disputes differ, businesses must set up a system to carefully screen all disputes. Poor screening can result in the premature or inaccurate determination that a dispute is meritless or insignificant.

Consider whether the dispute is with a business or an individual and whether it involves personal or economic damage claims. When the dispute is with an individual or involves personal injuries, the firm may initially find itself at a competitive advantage (due to its relative size and resources compared to the complainant) but should also be aware that such claims hold the prospect of an award of attorneys' fees or comparable sum in addition to actual damages. …

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To Litigate or Not to Litigate?
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