In recent years, litigation costs have been spiraling upward at a blistering rate. Since the 2008 financial crisis, billing rates at top law firms have increased 3-4% per year, greatly outpacing the rate of inflation in the broader U.S. economy. In 2015, law firm revenue increased 4%, despite a demand increase of just 0.5%. The average rate for top partners now sits at $875/hr, over 25% higher than it was just 5 years ago.
In addition to rapidly increasing attorney billing rates, other litigation costs are also drifting higher. The smartphone revolution and advancements in cloud storage over the past decade have only expanded the volume of digital data subject to e-discovery. Much of the increased e-discovery is cross-border, which adds significant expenses. Additionally, the costs of travel, experts, trial consultants, and other related litigation components continue on an upward trend that shows no signs of slowing. With this backdrop of relentlessly increasing litigation costs, the advantages of a well-financed plaintiff are clearer than ever.
During my career as a large law firm litigator (primarily on the defense side), I saw firsthand the immense costs associated with large commercial litigation. I represented numerous multinational corporations in various matters ranging from antitrust to securities cases. In most of them, large corporations were willing and able to commit vast resources to high-stakes litigation. In addition to the billing rates charged by some of the nation's top litigators, other elements of the litigation process carried significant costs. Witness interviews frequently involved transcontinental travel for teams of multiple partners and associates. Electronic discovery involved the review of over a million documents in some cases, and thousands of hours from junior associates. Case strategy usually required numerous internal memos and countless hours of attention from top partners. In this context, a well-capitalized plaintiff using litigation financing can level the playing field significantly, and improve his or her chances of eventual recovery, through the use of litigation finance.
For example, take the first stage of most civil litigations, the case assessment. The initial fact investigation to determine the merits of a potential claim requires time-consuming client interviews and document analysis. In addition, it may require significant legal research on the merits of any potential claims. Furthermore, a damages analysis may be required at this early stage to assess the proper amount to claim in damages. Often, outside damages consultants are employed. The attorneys may also conduct an overall cost estimate for the case, which itself is expensive and requires detailed attention and analysis by the attorneys.
After the initial assessment, should the claim be deemed worthwhile by the plaintiff's attorneys, the next stage will be filing a complaint, and subsequently, additional pre-trial motions. Complaints may sometimes contain over a hundred pages, plus extensive exhibits, and require significant time from attorneys. With sufficient funds, a plaintiff can file a thorough and well-constructed complaint to ensure he or she states each relevant cause of action and enumerates all of the relevant facts. In addition, the plaintiff may amend the complaint to name additional parties or include new causes of action. Following the complaint, a plaintiff will frequently need to defend a motion to dismiss, and this process will also take weeks or months of expensive attorney attention.
During the pre-trial pleading phase, counsel will frequently be required to attend hearings, which often involve substantial time and associated travel costs, especially for cross-border cases. A well-financed Plaintiff can ensure his attorney attends these hearings and files each of the requisite motions, and will thereby be much better positioned to continue to pursue the claim. Without adequate financial resources, a plaintiff may be forced to settle on unfavorable terms, or even worse, to withdraw the claim entirely or face a default judgement.
Depending on the case, the most costly stage of litigation may be the discovery phase. Depositions, expert discovery, and document productions can be massive undertakings, requiring months or even years-long processes to receive and produce relevant information, and require expensive outside vendors to synthesize the data. In addition, corporate defendants often have vast troves of potentially relevant electronic data and documents. A detailed review of these emails, phone records, and other electronic and hardcopy data may require the plaintiff’s attorneys to commit large teams of associates for many months. With average associate billing rates exceeding $500/hr at many firms, this leaves an undercapitalized plaintiff in a bind. The risk is that critical data may remain undiscovered by the plaintiff, and the prospects for the case may be adversely affected as a result. Without sufficient capital, a plaintiff would be under immense pressure to settle prematurely in light of these insurmountable document management barriers.
Depositions, which are examinations of witnesses under oath, involve another major category of expense, given the hours of preparation required. Depositions may also require extensive travel, court reporters, video equipment, and frequently translators, all of which only a well-financed plaintiff can provide. Again, without the resources to conduct costly depositions of each of the relevant individuals, a plaintiff could be forced to settle meritorious claims too early.
Following discovery, the trial stage of the case involves intense cost pressure for plaintiffs. In fact, the vast majority of civil claims settle before this phase, often because the plaintiff has exhausted his or her resources and cannot afford to take the case to trial (and knowing this, a defendant may insist on favorable settlement terms at this point). But should the case go to trial, a plaintiff can expect weeks or months of intense attorney time and cost pressure. The use of experts and trial exhibits adds even more expenses – based on our research, the cost of expert witnesses exceeds $1,000/hr in many cases, not including the initial consultation fee and upfront retainer. Similar to the attorney costs, paying experts can be exorbitantly expensive, as they are frequently esteemed professionals in their fields and expect to be compensated accordingly.
The ability to match the defendant's expenditures at every stage of the litigation process is therefore critical. Accordingly, the judicious use of litigation finance, which can provide strategic capital to plaintiffs as they pursue meritorious claims, can greatly increase the likelihood of a successful outcome.