Part II: Who Me? Litigation Budgets, Irrational Overspending

Part II: Who Me? Litigation Budgets, Irrational Overspending

We continue where we left off in the previous post, discussing familiar litigation concerns — rising eDiscovery costs, failure to preserve and increased spend — and highlighting Jay Tidmarsh’s “The Litigation Budget.” In addition to focusing on understanding decision-making and risk assessment, Tidmarsh also explores evaluating the cost of a case, too.

What should be included in budgeting from a party perspective and a court perspective? Companies looking to provide more rigor to their own cost-benefit and total cost of dispute analysis should certainly read the section on how courts might go about evaluating a budget.

“Statistical analyses of the federal docket, should determine the mean and median values at settlement (and after trial) for basic categories of cases …as well as the success rates of the cases that go to trial.”

With the emergence of alternative fee arrangements, industry discussion centers on identifying their success (or not) in curtailing costs. Equally important is the consideration of their overall effect on value of service provided. A concern of litigation budgets implementing fixed or capped fees often boils down to how the quality of work (or the experience level of the resources used by outside counsel) is affected as spend approaches budget thresholds.

Tidmarsh discusses the sticky area of what happens to attorney fees when budgets restrict costs in the section “Objections Two: Practical Problems in Implementing Litigation Budgets, 1. Budgets and Fees.”  In one example, “The size of the fee is never the judge’s business. The judge’s only obligation is to ensure that the client pays no more than $100,000 for the case.”

Further stating that “After determining that $50,000 is a proper fee … limiting the budget to $50,000 means that these lawyers will be able to work fewer hours than their lower-rate opponent (thus limiting their effectiveness in serving their clients), or that they will need to cut their fees.”

At reduced rates, there is also nothing to prevent the firm from using less-experienced associates on the matter at the potential cost of quality of work.  These are the same concerns, however, facing corporations today when creating value-based fee arrangement and are increasingly addressed by improved monitoring and project management on the part of both client and firm.

From the societal-benefit perspective:

“For those cases in which fees drive up costs to the point that the costs exceed the social value of the lawsuit … the lawyer’s desire to work an unrestricted number of hours while charging an unrestricted rate must give way to society’s needs to use precious judicial resources in a cost-effective way.”

Tidmarsh wraps up his work with further discussion on whether such reform fits within the realm of judicial authority and constitutionality of the U.S. court system.  Even the author states that people may fall on either side of court-enforced litigation budgets reform for a variety of reasons. Overall, however, the article reads a bit like Game Theory, and how parties make decisions. But that’s why it’s interesting, and that’s why everyone should pay attention.

Author: Lindsay Stevens, Vice President of Technology, LLM, Inc.




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