Part 3 Case Analysis: Does it make financial sense for me to file a lawsuit?
We are exploring the costs and benefits to filing a lawsuit in this seven-part series. If you have not read parts 1 or 2, start here.
Let’s say you have one or more legal claims. You have a good reason to file a lawsuit. The next question to ask is whether it makes financial sense to file your lawsuit. Money usually drives this decision. Most people have no idea how expensive lawsuits are to bring. Here’s why:
Except for legal aid lawyers and nonprofit special interest groups, lawyers in private practice, as a rule, don’t work for free. Private law firms are businesses, and while they often do (and should) take some pro bono work (“pro bono” means “for the good”), they have to make money “to keep the lights on” just like any other business. True pro bono cases where the attorney expects no compensation whatsoever from the client are not the norm.
Many lawyers bill for their services by charging an hourly rate. This rate varies, based on the practice area, the lawyer’s experience, and the size of the firm. In Colorado, an average is between $200 and $400 an hour. Legal fees paid to a lawyer to bring a lawsuit can add up quickly, as a lawsuit takes hundreds of hours of work. Taking even a very simple civil case through trial in federal court can easily run up $100,000 in legal fees. A more complex case, with maybe an expert or two, can easily be $300,000-$500,000 in legal fees. Complex commercial cases between big companies cost far more.
This can be a pretty straightforward calculation: if your damages are significantly more than this amount, it is usually worth it to pay a lawyer. Paying attorney fees as you go along is typical for business litigation.
How do individuals who are not rich ever get into court? There are several kinds of cases lawyers routinely take under different fee arrangements. For example, in a contingency fee arrangement, a client may agree to give the lawyer a percentage of her recovery if she wins, but otherwise will not owe the lawyer any fees if she loses. For this to be a good deal for the lawyer, damages must be high enough to justify the risk the lawyer is taking. If the lawyer loses, she will not get anything. If your lawyer is getting paid 30-40% of your damages, that means your damages have to be high enough for that cut of the total to pay your lawyer for possibly hundreds of hours of work. Even a loss that seems significant to you may not be great enough to make sense financially for the attorney.
Some statutes provide for “shifting” attorney fees, meaning that if you win, the other side will pay at least part of your attorney’s fees. But most cases settle, and the settlement may or may not take into account who pays the attorney fees.
Even if you don’t pay any attorney fees out of pocket (such as under a contingency or pro bono agreement), other costs may arise.
Bringing a lawsuit is expensive, even not counting attorney fees. Many costs have to be paid. In the civil system, discovery is the process by which the parties request and exchange information with the other side. The process is time consuming, takes many attorney hours, and is expensive. For example, attorneys will interview witnesses under oath in what is called a deposition. A three-hour deposition can easily cost $350 just to pay a court reporter to attend and take down everything that has been said. In the average case, we take many depositions, and many of those depositions will be longer than three hours. Experts often must be hired (which can cost several thousand dollars or more), records obtained, and fees paid to the court for filing. Litigation costs a lot. In a federal civil rights lawsuit, for example, costs can easily be $10,000-$20,000 after discovery is completed. In some types of cases, like medical malpractice, costs can be far more. Many times, clients will be expected to cover these costs or make some kind of regular payment, even if they are operating under a contingency agreement. Even if the client is not covering costs, the attorney will not take the case unless she sees a good chance of getting paid back for these expenses.
Paying if You Lose
In some cases, there is also a risk that bringing a lawsuit can expose you to having to pay the other side if you lose. Normally, parties are expected to pay their own attorney fees when they are involved in a lawsuit. This can be different because of a law or a contract. For example, in suits against state government officials for violation of constitutional rights, if you lose and the court decides that your lawsuit was frivolous and groundless (that you had no basis in law or fact to bring it), you will have to pay the government’s attorney fees at the end. This is rare, but can happen. Your attorney should analyze the case carefully and warn you of potential problems.
Thinking realistically about how much it will cost to bring a lawsuit is an important part of your decision to litigate.
Featured Image: "Money" by Pixabay.
Because of the generality of the information on this site, it may not apply to a given place, time, or set of facts. It is not intended to be legal advice, and should not be acted upon without specific legal advice based on particular situations