Understanding the In Terrorem Effect of Litigation

Snarf Zagyg

Notorious Liquefactionist
So this part of my ongoing and series of law-splainer threads tangentially discussing legal issues and related to nuTSR and the OGL kerfuffle. For prior threads, see the end of the post.

Disclaimer: This is about litigation in the United States of America. Not other common law countries (the UK, made-up countries like "Canadia" or "New Zealandia") and certainly not countries that still are all about that ol' Roman law. I'm looking at you, @Bolares. That's right. One of these days, you're going to have to pick yourself up out of your caipirinhas and rejoin us. The World Cup is over. Argentina won. I'm as shocked as you are.

Anyway, I've seen people on other threads saying things like, "Eh. Who cares about litigation, right? We could just crowdfund it or something. I mean, litigation is no big deal. Guys at my high school used to do it all the time."

That's ... well, it's certainly a thought! But litigation in America doesn't work like most people think it does. Litigation, because of the cost of attorneys, the ability to use procedure to extend litigation, the nature of discovery, the so-called "American Rule," and the use of juries in most civil matters is wildly different than most other counties. In addition, just like anything else, the actual experience of litigation is completely different than what you see in the media- which almost always focuses on a trial, because trials are compelling, when, in fact, trials almost never happen in civil litigation, and when they do, it's usually the culmination of years of prior litigation.

So this will be a not-so-brief explainer as to why THE RENT THER COST OF LITIGATION IS TOO DA** HIGH.

A. The Sun Will Rise, the Sun Will Set, and The Attorney Will Get Paid.
The first thing to understand, when understanding the cost of litigation, is to know the primary driver of the cost- attorneys getting paid. So, first we will discuss the customary and usual billing practices of attorneys.

Wake up. No, really. Now, gentle reader, you might be asking yourself, “Self, when is this guy going to give me some actual, useful information about the in terrorem effect of litigation? Why is he Peter Jackson-ing me?”

And the answer is simple. I’m writing, you’re not paying me, and I’ll get to the point whenever I darn well feel like it. Also? Peter Jackson is awesome, and he should have made at least five more endings for Lord of the Rings and four more Hobbit movies. And, uh, you have to know how the enemy attorney operates before you can begin to understand the difference between a “not-terrible” attorney and a soul-crushing lawyer who will never return your calls, overbill you, and transform your life into a discarded painting from Hieronymous Bosch. And once you understand that, then you understand why litigation costs so much.

The first category of legal service is free advice. And, as I always say, free is my second favorite four-letter “f” word. But, with all things, you must be careful that you are not the one getting effed. Free legal services can come in a number of ways-

  • You killed someone. Yeah, don’t do that. Maybe it looked funny, what with Brick, and Anchorman, um ... that was a movie. But if you are charged with a crime that could result in imprisonment, you can get a free lawyer (usually, a public defender) if you’re indigent. Please note that this is indigent (without money) and not indignant. Do not act indignant to get a free lawyer. Judges frown on the indignant, and by “frown,” I mean, “Order the Bailiff to throw your sorry butt in the pokey.”
  • Insurance. While not technically “free,” if someone is suing you, but really going after your insurance policy, the insurance company will have an attorney represent you. And by you, I mean the insurance company.
  • Pro bono. Attorneys are known for their generosity of spirit, and their goodwill toward mankind, and... uh, okay. Sometimes, an attorney will take on a case absolutely free of charge- this can be for a number of reasons, such as a young attorney at a large firm that wants to gain experience, a desire to advance the law in a specific area, or an interest in the subject matter. Pro bono, by the way, is Latin for “Giving the poor a bone, or boning the poor, whichever comes first.”
  • Public Interest. There are various groups (ACLU, Institute for Justice, Ma & Pa’s Rib Shack and Home of Tree Lovin') that exist to promote various causes. If your case would advance their cause, they might help you out.
  • Clinics. I use this term loosely, as it encompasses a number of different programs. It could be the local law school letting their students try to practice “real law” on the unsuspecting populace. It could be a specialized clinic to help poor people through the court system. It could be any of the legal services that exist to help provide the lumpenproletariat with legal representation and advice. Do not confuse the term “clinic” here with the place you went to ask questions about the oozing sores on your genitalia.
  • Your second cousin Jake (“SCJ”). SCJ encompasses the free advice you will attempt to get from family members or from lawyers-friends (assuming lawyers have friends) at cocktail parties and/or funerals. The usual response you will receive is something non-committal, followed by, “Um, something about mens rea? Yeah, you should probably hire an attorney. And stop killing people. What is that- five this month?”
Despite the long delineation of various ways to get free attorney advice, the only way you are guaranteed to get free representation is to commit a crime, get caught, and have no money. Which, if you really need to talk to an attorney ... it will work, but is not highly recommended. “Let’s go eat sushi and not pay,” is not an effective philosophy of life nor a way to get representation in a civil matter.

Assuming you have resigned yourself to helping some poor soul pay off their law school debt, then you should be aware that there are three primary ways to bill a client, with each having advantages and drawbacks.

1. Contingency. This is a variation on the “free lawyer” standard; what it means is that the lawyer only gets paid, if you get paid. The payment to the attorney is ... wait for it... contingent on your recovery. This is usually expressed in a percentage (say, 25% - 40%) of the total recovery (which is usually a settlement). This arrangement is common in personal injury cases and other cases favored by Plaintiff’s attorneys.

Now, you might say to yourself, what could possibly be wrong with Free Lawyer? For certain cases, absolutely nothing. If you have little money, and a valid claim, this is the absolute best arrangement to have. Because if you don’t have the money to otherwise pay an attorney, you’re not getting one without a contingent fee arrangement. The major caveats are the following-
a. Many things don’t lend themselves to contingency fee arrangements. Criminal cases, drafting a trust, getting a divorce, getting your neighbor, Seamus, to stop his dog from pooping in your yard, and so on. Contingency cases almost always entail you (almost always an individual, not a corporation) asking an attorney to sue someone for lots of money for some real harm done to you- you know, like running you over (three times), or that company that sold you a lawnmower with the randomly detachable blade.

b. On the one hand, the attorney has a professional and ethical responsibility to represent your best interests, and any settlement has to be approved by you. On the other hand, money. Reall,y, money. More bluntly- the attorney’s time is the attorney’s money. Let’s say (hypothetically) that the settlement offer is $200,000 after minimal work. Now, the attorney knows that an additional 600 hours of his work will likely result in a settlement offer of $300,000. You see the dilemma, here. If the attorney’s time is valued at $300/hour, then continuing to pursue the case is kind of crazy for him, even if it benefits you. In fairness, no one knows the future. But because it’s the attorney’s skin in the game, and not just yours, these arrangements tend to favor either quick settlements, or accurate valuation, depending on whose doin’ the ‘splainin’.

c. Recovery values. I know what you were thinking - there’d be no math. But bear with me; imagine you have a great local attorney who charges $350/hour. It takes him 50 hours to file a complaint, do limited discovery, and receive a settlement in a slam-dunk case of $125,000. He charges you $17,500 for that. On the other hand, a 40% contingent fee would take out $50,000 for the exact same work.

Within the contingency area is a slight sub-set of cases; certain claims (such as wage claims and civil rights claims) are allowed a recovery of an award of attorney’s fee separate from the monetary recovery, and an attorney will happily take this case “for free” (as in, their fees will eventually be paid by the defendant, if you prevail). Now, despite the caveats, let me stress this- for certain types of claims, contingency fees are the way for most individual litigants to go. Period. Litigation is expensive, and why should you pay for it?

2. Flat fee. At first blush, this sounds like the most appealing, like going to the Sizzler for the All U Can Eat Special. But, much like the Sizzler - know what you’re doing, or the next day you’ll be regretting that decision. The best thing about flat fee billing is cost-certainty; people like certainty, even if it’s something bad. “What, the world is going to end next week? Well, I guess I’ll have to move up my Great British Baking Show marathon.” But flat fees can be a very good thing in certain situations- for example, transactional work (buying and selling real estate, drafting wills, helping with LLCs and other corporate documents) and limited litigation work, usually in criminal law ($X amount to help you with that DUI, brah!). The key with any flat fee arrangement (we are ignoring large retainers and other hybrid arrangements) is that the scope of work for the lawyer is limited. Because if it isn’t- well, either the lawyer is going to start skimping on the work when he realizes it was far more complex that the flat rate he charged, or the lawyer is going to need to sit you down for a conversation about how this work isn’t covered by the six-page agreement that you signed and didn’t read. And this isn’t because the lawyer is an inherently bad person (even though he is, that’s just not the reason), but because a lot of legal work is unpredictable. Complex cases may fall apart or settle quickly. Seemingly simple cases can get bogged down in discovery disputes (“Yer honor, I’m objecting to that interrogatory because he didn’t define the term, ‘is.’”).

3. The Billable Hour. The Billable Hour is the single thing most despised by both attorneys and clients. It is the worst form of billing, except all the others. Attorneys hate it because it commoditizes their time completely. Every second of every day you aren’t working on a case, you are losing money. And clients hate it because they see, every month, in quite graphic terms, that the phone call they had with their attorney that lasted two minutes ... cost them $60 (at a billing rate of $600/hour, billed at 6 minute intervals, rounded up).

Done right, the billable hour provides the client with a regular report on what the attorney is working on, how much time the attorney is spending on that work, and the cost associated with it. It allows the client to be informed about his own case. But, much like Dr. Jekyll, the Moon, and fluffernutter, there is a dark side:

a. Churning. Not just for butter any more! Churning refers to the practice of some attorneys to regularly “touch” files in order to bill on them. Churning is busy work that doesn’t advance the case.

b. Uneducated clients. Some clients don’t understand that lawyerin’ really is hard work. A motion to dismiss doesn’t write itself; research doesn’t fall from the research tree; a 30 minute hearing might require several hours of preparation time, and so on. Assuming your lawyer isn’t churning (see above), your attorney should be billing you whenever he is working on your case ... because that’s time he’s not working on something else. That said, if you see “Margaritas” listed- be suspicious.

So, why go through all of this? When we get to the wrap up, and Frodo sails away, and you learn that litigation in America is super expensive, part of the process is understanding what type of fees are charged. For most people, it will be either the billable hour or the flat fee. If you’re suing MegaCorp for chopping off you leg, it will be contingency.

Most importantly, when people talk about Corporations (even large ones) suing other Corporations (even small ones), we are discussing the Billable Hour. Both sides paying their attorneys, every month, for every 6 minutes (rounded up) of work that the attorneys do. And this matters, because of a certain rule that is followed ...


B. The "American Rule."
One thing that differentiates America from many other countries is that we love our giant sodas. That, and the "American Rule." 'Murika, right, we even name our legal rules after ourselves! The American Rule, briefly, is that (absent a statute, rule, or contractual provision stating otherwise) each side in the litigation has to pay for their own attorney's fees and their own costs. In many other countries, this isn't the default- the default, instead, is the so-called, "Winner Winner Chicken Dinner Rule," which is that the prevailing party in litigation has their fees and costs paid by the loser. #Winner #IsCharlieSheenStillAlive?

There is .... a LOT OF DEBATE about the American Rule, and it's not worth going over here. Suffice to say that people in favor of it say that litigation is uncertain, and getting rid of it would punish people who have meritorious but difficult claims. On the other hand, people who are against it argue that it allows a flood of frivolous claims. Regardless, it's the rule. And because of the American Rule, attorney's fees are often the engine of litigation. If there is an applicable statute or contract that provides for prevailing party's attorney's fees, you can be sure it will be used in the litigation to increase leverage.

In litigation that falls under the American Rule, which is a large amount of civil litigation, it quickly becomes a "heads you win, tails I lose" proposition. You will never get back the money you spend on your attorneys, which can often dwarf any recovery on a legal claim. So there eventually becomes pressure to settle given that you spending money, every day, that you will never see any (or minimal) return on.

Put another way- if both sides are spending thousands, or tens of thousands, or hundreds of thousands, or more money each month on litigation, and that is money that they will never get back ... then they quickly get to the point where any "principle" that they might be arguing over isn't worth it.

And if you think tens of thousands of dollars is an exaggeration, if you have two large firms engaged in so-called "Bet the Company" litigation, and employing BigLaw firms and doing everything they can, litigation expenses can reach seven or even eight figures in a month.


C. Basic Litigation is Expensive.
Now if you're just an individual looking to sue a megacorp, you can get your attorney on contingency, and that's great. But if you're a company defending a claim, or a company pursuing a claim, or an individual defending a claim, or no attorney is going to take your case on contingency, and you have to pay for your own attorneys, you quickly see how the litigation costs can quickly add up.

The reason litigation is basic litigation can be so expensive boils down to three basic factors- procedure, discovery, and jury trials. Looking at each factor-

1. Procedure. Procedure is incredibly important in American courts, hence the saying, "The true superpower of a great attorney is the ability to change any question of law or fact into one of procedure." What this means is that there are all these "choke points" of litigation where, through procedural elements like motion practice (throwing papers at your opponent's face in the hope that you land a cut) or interlocutory appeals (I don't like the judge's face, so Ima try and get a different ruling for now), experienced litigators can not just have a second bite at the apple, but have a third , fourth, and fifth bite at the apple before coming back to the Court and arguing, "Uh, really, this is about biting oranges." While I am making light of this (and it might seem nefarious), it's just a way of saying that there are numerous ways to use the numerous procedural mechanisms in American courts, but all of this procedure can take time. And time (and billable hours) is money- so when there is a disparity in resources between litigants, procedure tends to favor litigants with more resources simply because they can afford to use all of that procedure.

2. Discovery. This is the catch-all name for producing documents, answering written questions, depositions, and otherwise providing evidence to the other side. This is really the backbone of litigation, because evidence is what matters (or should matter). So when you think to yourself, "Why is discovery such a big deal?" I will just illustrate two examples-
a. Depositions. You probably know what these are. It's when you get to sit someone down, and question them under oath. So... why is this expensive? Well, imagine the simplest case possible. You are deposing someone important, about documents, and it will take seven hours (a "full day" depo). The attorney taking the deposition is charging $500/hr. There is no travel involved. The general rule of thumb is that it takes 2x as long to prepare to take a deposition (involving documents) than the deposition takes. And let's ignore the cost of the court reporter, ordering a transcript, and any additional research of additional attorneys that might attend the deposition. In this simplified example, this single deposition will cost $10,500. For one deposition. You can play with the numbers, but remember that both sides will likely depose lots of people.
b. ESI. "Electronically stored information." Back in the day, when everything was on paper, there were horror stories of large companies literally dumping thousands of boxes of documents on opposing counsel .... um, maybe not ON them necessarily, but you get the idea. Well, things are arguably worse now. Emails. Slack messages. Text messages. Phone call records. Word and excel documents. Every. Single. Possibly. Relevant. Document. And, more often than not, there are multiple electronic versions of these multiple documents. And both sides will be paying- one to review the documents on the way out, and the other to review them on the way in.

3. Jury trials. This can be a difficult one to wrap your head around, because you've probably heard people (some of whom are gorgeous, smart, and named Snarf Zagyg) repeatedly say that civil cases never get all the way to trial. Which is true! On average, less than 1% of all civil cases make it to trial, and the numbers continue to fall. And yet, the presence of a jury trial is a factor in American litigation. The reason for this is two-fold; first, and most obviously, a jury trial is expensive. Did you think all of that stuff ... all of that motion practice and all of that discovery ... did you think that was expensive? Well, now you've got to pay for multiple attorneys, for a week or two weeks, for vast amounts of time every day, plus all of the prep time. Whatever eye-poppin' numbers you saw before, we're now talkin' Scrooge McDuck swimming in a bank vault type of money. It's expensive.

The second factor is that jury trials are unpredictable. This isn't to say that jurors are bad, or dumb. But imagine dealing with a complex issue between two megacorps that involves expert testimony and numerous complicated financial instruments that attorneys have been exploring and dissecting for years- well, those issues have to be presented in simple, easy-to-understand format to people with little-to-know financial training over the course of a few weeks. Good luck!

The combination of the expense and unpredictability is what causes many cases to settle prior to trial.


D. Let me tell you about the very rich. They are different from you and me. They have more money.
Finally, there is the factor of unequal resources. I am not a total cynic- justice (for various values of that term) in America isn't based on money. But as they say- if you can't buy justice, you might have to rent it. The thing is, money can buy you more. More of everything. More attorneys. More research. More motions. More discovery. More experts. More appeals. More, more, more. It ensures that not only will you not leave any stone unturned, but that fresh-faced associates will be sent out every day looking for new stones to turn.

To give you an example- imagine a civil litigation trial. One side has money- so they can do the following ...
  • Hire a jury consulting firm to help them identify which jurors to remove, and to craft narratives and themes that will appeal to the remaining jurors.
  • Run multiple mock trials in order to test various approaches.
  • Have daily transcripts created for the trial that are pored over every evening by a team of associates in preparation for the next day.
  • Have well-researched motions prepared to start the trial to exclude certain things, and well researched motions prepared on certain issues that might arise during the trial.
  • Have an experienced appellate attorney available to ensure that all possible issues are preserved for appeal.
...and so on. Each of these factors, alone, is just a small edge, and a lot of these small edges come at a great cost. But combined, these small edges add up. Money doesn't win a case, but it can help.


E. Understanding the In Terrorem Effect of Litigation.
Looking at the above, two things should be apparent. The first is that litigation can be particularly troublesome when there is a disparity in resources. But not always in the way you think. For example, Chad with an attorney on contingency suing MegaCorp has a structural advantage- the cost to MegaCorp to deploy its team of Winged Howler Monkey BigLaw Attorneys is high, the cost to MegaCorp of producing discovery is high, and the cost of litigation is high- while it will never recover jack squat from Chad. So there is a strong incentive for MegaCorp to settle claims by David, as the cost to settle will usually be less than the cost of litigation.

On the other hand, when MegaCorp sues LittleCorp, MegaCorp has the structural advantage. Both corporations have to pay their attorneys, but MegaCorp can afford to pay more, longer, and keep at it (even through appeals) than LittleCorp. So there is a strong incentive for LittleCorp to settle claims.

If you've read this far, through my half-hearted attempts at explaining things and occasional jokes, you are probably asking about the nature of justice. Where is it? It does exist- and while I am (jokingly) cynical, most attorneys have ethical obligations and are presenting legally cognizable claims that are well-researched for the benefit of their client. Moreover, the attorneys on both sides are usually discussing (and posturing) about the case the entire time, seeking to get to a point where settlement is possible. And settlement is not a bad thing- after all, in civil litigation it is always better for the two sides to mutually agree upon an acceptable outcome than it is for a third party (a judge or jury) to decide for you. Instead, this is an overly-long attempt to get people to understand that in civil litigation, money is often a driving factor, and understanding why that it helps explain a lot of what happens in most litigation.

Remember- when they say it's not about the money, it's always about the money.



















Prior Threads

How to Do Your Own Legal Research: Worried about the OGL?

Law is Hard: Worried About the OGL (Part 2)

Explainers: Background on the TSR/WoTC Litigation (Part 1- State or Federal)

Explainers: Part 2- Stages of Litigation (TSR/WoTC Litigation)
 

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Bolares

Hero
One of these days, you're going to have to pick yourself up out of your caipirinhas and rejoin us.
One day... but today is NOT that day.

200.gif
 

Snarf Zagyg

Notorious Liquefactionist
One day... but today is NOT that day.

200.gif

We should do a Cocktail World Cup.

Caipirinhas. (Brazil)
Pisco Sour. (Peru)
Fernet con Coca (Argentina)
Haibōru (Japan)
Caesar (Canada)
Gin & Tonic (England)
LONG ISLAND ICED TEA ('Murika) That's right. We put it all together, and add COKE!

etc.
 

Bolares

Hero
Being a bit more serious now, I've always felt it was really strange how little (as far as I know) there is a care for accessibility to the judicial system in the US. Not acessing the system because you would not be able to afford it to me is a HUGE problem, one that puts in check the whole concept off justice in a country.
I don't know how much of it is true and how much of it is urban legend about the costs in the U.S, but in our poor "ol' roman law" country, acessibility to justice is a governing principle. You have the right for a process free of cost if you are able to prove you don't have sufficient income. There are public deffendants in most big cities, and where tere are not, there is a system where a lawyer can sign up to work for low income clients free of charge and the judcial system will pay their fees. This is a great tool for young lawyers looking to form a clientelle, and the judicial system is firm in regulating and checking for any irregularities made by those lawyers.

About the American rule thing, I can give an example from Brazil. Until 2017 our labor litigation worked very similarly to that rule. There was no succumbence fees (that's how we call it) to be paid by the loosing side to the winner's lawyer. So there were A LOT of temerary suits, where the worker would make any possible claim to see what would they win, it was litterally a case of throwing everything at the wall and seeing what sticks. With a labor law reform both sides were due succumbent fees, proportional on how much they "won". With that making temerary claims became much more dangerous, as you could end up costing your already finnacially at risk client a lot in fees.
 
Last edited:

Bolares

Hero
We should do a Cocktail World Cup.

Caipirinhas. (Brazil)
Pisco Sour. (Peru)
Fernet con Coca (Argentina)
Haibōru (Japan)
Caesar (Canada)
Gin & Tonic (England)
LONG ISLAND ICED TEA ('Murika) That's right. We put it all together, and add COKE!

etc.
Every time you do these, I wan't it less to go to the US :ROFLMAO:
 

Snarf Zagyg

Notorious Liquefactionist
Every time you do these, I wan't it less to go to the US :ROFLMAO:

Long Island Iced Tea Recipe


Ingredients
Bottle of vodka
Bottle of white rum
Bottle of silver tequila
Bottle of gin
Bottle of triple sec
3/4 ounce simple syrup
3/4 ounce lemon juice, freshly squeezed
Cola, to top
Garnish: lemon wedge

Steps
1. Get a Collins glass and fill it with ice.
2. Take a long pull from the vodka bottle.
3. Add 3/4 ounce vodka to the Collins glass.
4. Take a long pull from the rum bottle.
5. Add 3/4 ounce white rum to the Collins glass.
6. Take a long pull from the tequila bottle.
7. Add 3/4 ounce silver tequila to the Collins glass.
8. Take a long pull from the gin bottle.
9. Add 3/4 ounce gin to the Collins glass
10. Look at the triple sec bottle. Oh no..... triple sec.
11. Take a long pull from the triple sec bottle.
12 . Add 3/4 ounce triple sec to the Collins glass
13. Suck on a few lemons while trying to get your bearings.
14. Is that tequila? WHY YES IT IS! Mmm.... take another pull off of that tequila bottle.
15. Add simple syrup and lemon juice to the collins glass.
16. Put a splash of cola all over your clothes. Maybe some goes in the Collins glass?
17. Eat the lemon wedge garnish while drinking what is in the Collins Glass.
18-28. You don't remember 18-28.
29. Why did I wake up in Long Island?
 





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