I’ve known some lawyers to proudly proclaim that in litigation, they leave no stone unturned. They boast that they will pursue every defense, review every document, and raise every argument. In doing so, presumably, they assure victory. They strive to win at any cost.
This approach makes sense when a well-funded client faces bet-the-company litigation. In that case, of course, a lawyer should pursue every possible path to victory, even if a particular path seems like a long shot. It may cost a lot to win, but even more to lose. In these cases, the economic interest of the attorney and the client are aligned. If the amount at stake warrants it, the lawyer can work the case to the max, and the client is happy to pay for it.
But smaller firms handling smaller matters know that many times, winning in litigation is relative to the amount at stake and the fees incurred. Every client is initially delighted to receive a favorable verdict at trial. But when the heat cools down, and only the bill remains, even the winning client may resent his lawyer when he reflects on the price he paid for his “victory”….
Most litigators are accustomed to assessing, and explaining to their clients, the likelihood of winning or losing. This obviously is more art than science, and it might at times veer into pure guesswork, but at least the exercise is familiar. “If we go to trial, we have a 75% chance of winning.” “If we refuse to turn over the documents, there is a strong chance the other side will move to compel, and we are likely to lose.” Whether quantified with precision or not, lawyers are accustomed to speaking about the odds of various outcomes.
Besides their odds of prevailing, clients naturally enough focus on how much they stand to win or lose. The media loves to report how much a plaintiff is seeking in a lawsuit. We lawyers tend to speak more in terms of actual exposure; that is, the amount our client realistically could lose. Clients span the gamut in terms of sophistication, and may focus either on the amount sought or the more refined concept of exposure. Either way, clients consider the amount at stake.
Lawyers also are accustomed to estimating their legal fees. For example, clients always want to know what it will cost to take a case to trial. Of course, lawyers are masters of the caveat; experts at equivocating and hedging. “Litigation is inherently uncertain,” “there are too many variables to accurately predict,” etc. Be that as it may, lawyers expect to be asked how much something will cost, and they know how to answer, or at least pretend to answer, as appropriate.
In other words, these three concepts — risk of loss, amount of exposure, and legal fees — are concepts that all litigators and their clients deal with on an everyday basis.
Less common is putting all these concepts together when forming a litigation strategy. Pursuing a certain strategy or bringing a certain motion will cost a certain amount of legal fees. It will have a certain chance of prevailing, and it will reap a certain benefit if it prevails. Correctly assessing these variables, and balancing them, and explaining them to a client, is not easy.
These variables also form the baseline for considering a potential settlement. Theoretically, a client should be willing to settle a case if he can settle for any amount less than his exposure times his risk of loss, plus attorney fees.
For example, suppose a client is sued in a case in which he stands to lose $1 million. The plaintiff has a 50% chance of prevailing. The client must spend $200,000 to take the case to trial. In this scenario, the client should consider settling the case for any amount less than $700,000.
I recognize the many caveats to this kind of math. For example, different clients have different tolerances of risk. My wife would not pay $10 for a 50% chance of winning $25 because, to her, the certain $10 is worth more than the uncertain $25. Also, paying $10 for a 50% chance of winning $25 might be a good risk for me, but a poor risk for someone who has only $10 to their name, and must choose between taking the gamble or buying dinner.
Besides having differing tolerances of risk, and having differing opportunity costs, many clients have an inordinately strong desire to win, to some extent regardless of the cost, because they have an emotional or other personal investment in the matter. This is perfectly valid. We’ve all known clients who spent inordinate amounts of money to win a battle based on principle.
Another nuance that can arise is the future effect of settling. Just this week, I had a client who expressed her adamant view that settling a particular case, even though economical for our litigation viewed in a vacuum, could encourage other plaintiffs to bring similar lawsuits. These hidden costs may be hard to assess, but nonetheless substantial.
Personally, I find winning a fight to be far more satisfying than achieving a settlement. So it would be nice to encourage any client who faces a greater than 50% chance of winning to fight to the end, leaving no stone unturned, because they are more likely than not to win. But that approach is disingenuous, and not fair to the client.
Instead, my firm aspires to give each client an individualized, detailed budget which we update periodically as a matter of course, and always upon demand. We try to work closely with our clients to understand their goals, their tolerance of risk, and their budget constraints. We urge our clients at all times to consider their exposure, risk of loss, and attorney fees they will incur to achieve their goals. Our case assessments necessarily consider these factors, as do our strategic recommendations.
Winning is never free, and winning without regard to cost is not really winning. One of the most difficult aspects faced by smaller firms handling smaller matters is deciding which stones to leave unturned.
Tom Wallerstein lives in San Francisco and is a partner with Colt Wallerstein LLP, a Silicon Valley litigation boutique. The firm’s practice focuses on high tech trade secret, employment, and general complex-commercial litigation. He can be reached at [email protected].