A lawsuit is generally the last option that should be chosen in trying to resolve a dispute. This question of whether to file the lawsuit enters the mind of many people who are upset with a bad product or service, or breach of an agreement.
In order to answer this question and make a decision, one must consider the following factors:
Calculation of expected recovery, if the lawsuit is won, is based on the best case and worst-case scenarios. Expectations may not be realized. Not all damages may be recoverable. In case of breach of contract, the aggrieved party’s emotional distress is not compensated; loss of income, plus time spent, while involved with a claim or suit is not compensated; interest may or may not be recoverable.
In most instances, interest is only recoverable if provided for in a credit agreement or contract. Your attorney’s fees are probably not recoverable unless provided for in the credit application or contract. The amount of actual recovery in a lawsuit is unpredictable.
Attorney Fees and Expenses
Legal fees may be based on an hourly rate or contingency fee basis. An hourly rate depends on a lawyer’s experience, relationship with a client, desire to have repeat business or volume of client’s business being given to that lawyer. Lawyers charge for each minute of their time spent on the case.
Billable time can include, every telephone call to and from a client or any other party related to the client’s matter; meetings, legal research, writing of letters and briefs, time in court (which may be charged at a higher rate than for the office work), preparing legal documents, travel time or depositions (interrogations of parties and witnesses) are recorded and then billed to clients. Expenses connected with the case may reach such a level that further litigation may become counterproductive.
Typical file expenses may include fees paid to the court for filing a suit; the sheriff for serving a party with a complaint and summons; a private process server or private investigator for finding a defendant or ascertaining a party’s criminal or financial background; interpreters for translation of documents or interpreting the testimony of a witness or a party speaking a foreign language; experts for giving professional opinions; copying of documents and photos, cameramen and photographers for videotaping and picture taking; court reporters for their attendance time and preparation of transcripts of the proceedings; and attorneys for transportation and lodging (for out of town meetings).
Contingent Attorney Fees
On the other hand, a client does not incur such monthly charges if an attorney agrees to take the case on a contingency fee basis. The contingency fee means that an attorney is participating in the claim recovery, if any, on an agreed percentage.
As a rule, such percentage fluctuates between 20 percent and 50 percent of the amount of recovery. An attorney may advance costs and expenses of litigation to be repaid upon settlement or adjudication or a claim. However, a client remains ultimately responsible for expenses under any of the above-discussed methods of payment.
Alternative Dispute Resolution (ADR)
There are many organizations and individuals who are willing to serve as a mediator, counselor, or a judge in a private or out-of-court proceeding. Sometimes it is less costly and faster to resolve any dispute through such intermediaries than to litigate in courts. Mediation involves a semi-formal or informal process of introducing evidence by parties.
Parties may bring witnesses or documents to support their views and may hire attorneys to represent their interests at the hearings. Arbitration may be accomplished through government or private organizations, such as American Arbitration Association (AAA), JAMS, Endispute, and many others. Former judges or experienced attorneys hear the evidence and make binding decisions. The rules of the AAA or other adjudicating bodies are different and less restrictive than the rules of evidence adhered to by the courts.
Collection on Judgment
After a long and victorious litigation, a winning party secures a judgment from an adjudicating tribunal. This piece of paper may or may not materialize into actual funds being transferred to the winner. Collection on a judgment is a separate legal process.
Sometimes one may never recover the award if a judgment-debtor declares bankruptcy which would isolate that party from claims of creditors, including the judgment-winner or judgment-creditor; a judgment debtor dissolves its corporation and, adding insult to injury, opens a new company under another name; all assets of a judgment-debtor are under other parties’ names (relatives, friends, corporations, or business associates) and, therefore, that party becomes judgment-proof.
Piercing the Corporate Veil
If a business takes the protection of a corporation, LLC, in some instances the individual owners may be ultimately liable for their corporate debts, if it can be proved that the corporation or LLC is just a shell for the individual owners. This can happen where the owner uses the same checking account for personal and corporate debts, or there is no adherence to corporate formality. Most states require that corporations, LLC etc, follow certain rules such as holding annual meetings, keeping corporate minutes, resolutions, etc. This process of piercing the corporate veil is possible, and must it must be done in the courts. It can be a time consuming and expensive process.
Length of Litigation
Litigation is a slow moving process which may take months and, in most cases, years before reaching the trial stage. After filing a complaint there can be many delays caused by the judicial system and frustrating the parties.
There are many reasons for delaying the proceedings, including an attorney that continually asks for continuance of a deposition or trial because of the attorney’s family emergencies or conflict of schedule; a party which has to be deposed or answer interrogatories is out of town; an expert witness is unavailable on the scheduled deposition or trial date; the file was recently transferred to another attorney who had no chance to prepare for trial; the suit was filed in a wrong venue and, must be transferred to another court; service on the defendant was improper and, thus, must be properly repeated again; a judge assigned to handle the case has left for vacation, or is sick, or temporarily transferred to another court, or is still busy with the preceding trials; a new defendant has been added and, consequently, time is needed to conduct written and oral discovery associated with that defendant.
An opposing party’s financial, intellectual and legal wherewithal may affect a decision to initiate litigation. The opposing party’s ability to sustain a prolonged judicial process, the quality of their attorneys, and legal defenses may either encourage or stop the filing of the suit.
Often people desire to punish an opposing party or change the law and, therefore, want no recovery. There are political, moral or social causes which prompt such a decision.
Litigation is time-consuming for the participants. A party must appear at depositions and at a trial. The trial may continue for at least a few days or even weeks. Preparation for a deposition and the deposition itself can take one or more business days. Mandatory arbitration, which in some states is part of a court-based judicial system, also will take about a day.
Consultations and meetings with attorneys, as well as answering interrogatories (opposing party’s questions) and requests for production of documents, take many hours of business time. Loss of business time is translated into a loss of income.
Besides court appearances and testifying under oath at depositions, arbitration and trial, each participant is thinking and worrying about the case outcome at all times. Such incessant consumption of energy and emotional involvement may increase the daily stress of a person. Such psychological and mental drain takes a toll over the course of time.
Trust in the attorney’s abilities and rapport with that attorney are essential for cooperation, decision making and communication efforts. Experience in litigation of the matters at issue is important. One may present his own case in any court but the judges usually resent this “pro se” representation because “pro se” litigants are not familiar with the court and evidence admission rules.
In small claims courts where the amount of recovery does not exceed a statutory limit set up by the legislature, for example, $2,500 or $5,000, a plaintiff may not need an attorney.
A complaint filed in court may trigger a counterclaim by a defendant against the plaintiff for another act related to the complaint.
For example, a complaint by a company for payment for goods sold and delivered may trigger a client’s counterclaim or defense of warranty or defective goods. That is why a review of one’s own vulnerable points and the background is needed in order to ascertain the level of risk in that regard. Any past wrongdoing may come to light in the court proceedings.
Loss of Suit
In case a lawsuit is lost, the losing party will still have to pay legal fees to his own legal counsel unless there was a contingency fee agreement, plus file expenses, and the court costs of the opposing party.
If a contract provides for payment of attorney’s fees of the prevailing party, then these fees also must be paid by the losing party. Name, reputation and prestige may also be affected by that legal loss. Disclosure of trade secrets may be forced upon a party by the court.
Besides the court system, there are many other tribunals which may help an aggrieved party. In general, any problem may be addressed to the governmental agency responsible for or regulating that area of conflict.
For example: the State’s Office of the Attorney General may help victims of violent crimes, antitrust violations, consumer fraud by businesses and individuals, etc.; a state’s Department of Insurance may be asked to secure payment from insurance companies vexatiously and frivolously delaying payment; and the Department of Labor may impose sanctions on employers in their disputes with employees.
A party may appeal the trial court’s judgment to a Court of Appeals which may affirm, or remand the case back to the trial court for further proceedings, or to reverse a judgment. An appeal process may take years. In case of reversal with the remand, a trial can be repeated. Costs will be increased proportionally.
In case the trial court decision or judgment is affirmed, a losing party may try to appeal to the State or the U.S. Supreme Court but the chances of a commercial case being heard by the Supreme Court are very low. A prevailing party is accumulating interest on the trial court award. That interest is set by a state statute. In Illinois, for example, judgments earn annual interest at nine percent.
Knowing all the deficiencies and advantages of the judicial system and practical aspects of the litigation process should help any person or legal entity to make a decision to settle, arbitrate, or adjudicate any claim. Sometimes a letter from an attorney or third party mediator may bring the parties to an amicable resolution of a dispute. It is not justice, but the fair and economic compromise of the parties’ positions that is the goal of such resolution.
Information in this article is provided as a matter of information and education only. It is not intended to provide legal advice or counsel. Do not take action in specific cases without the full knowledge of the facts, and competent legal advice from your attorney.
About the Author
Don graduated in 1979 from Arizona State University with a B.S., majoring in accounting and earning a Juris Doctor in 1982 from The John Marshall Law School. Don has been admitted to the Illinois State Bar since 1982 and the District of Columbia. He has extensive experience representing the rights of creditors and insurance companies. Don treats his clients’ outstanding accounts and claims as his own and believes throwing good money after bad makes no sense. His collection methods are proven effective. He tries to resolve these matters amicably at first, so that his clients may retain important relationships with their clients.
In addition to his collection practice, Don has been in-house legal counsel for a start-up litigation loan financing company, where Don was responsible for creating and implementing policies and procedures, providing legal advice to management, handling and advising on routine legal issues, transactional, compliance and corporate governance matters, underwriting and monitoring outstanding loans, and legal collection of defaulted loans. Don has also served as in-house legal counsel for a collection agency where his responsibilities included drafting collection letters, settlement workouts, litigation, and supervised and taught employees compliance under the Fair Debt Collection Practices Act.
Don’s law practice and his positions as in-house counsel have given him exposure to a wide range of problems in large and small companies from the perspective of both lawyer and management. Don has served for many years as an arbitrator for the Circuit Court of Cook County Mandatory Arbitration program and was chair-qualified with the authority to administer oaths, rule on the admissibility of evidence, and decide questions of fact and law in order to reach an award in a case.
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