It may seem obvious that damages are important to litigation but it’s surprising how misunderstood the concept is amongst business owners and the general public. The misconception is understandable of course given the natural inclination to focus on wrong doing. Nonetheless, without damages (significant damages in most cases) the cost of litigation can be prohibitive even where the most egregious conduct exists. There are two very important practical reasons damages are a critical consideration in deciding whether or not to sue: 1) the costs of winning may exceed the value of the case; and 2) even if you win an amount greater than your costs, the chances of collection may be minimal.
If the damages are less than what it will cost to litigate the case, there is very little benefit in suing. Aside from the moral vindication, risking $50,000.00 to fight a court battle where the damages are $50,000.00 is effectively a useless exercise no matter how low the risk of losing is. Moreover, it’s difficult to place a value on the emotional cost that comes with litigation. The battle itself takes a toll. Determining whether the damages are outweighed by the costs requires careful evaluation of numerous factors including the risk of losing and whether or not attorney fees are recoverable. The risk of losing is not always clear. The first step in analyzing risk is analyzing the merits of the case, something that should be analyzed with the assistance of an experienced litigator.
Attorney fees for litigating a case through trial can easily reach $100,000.00. In more complicated cases, the fees can be far higher. Even in the most simplest cases with extraordinarily efficient litigation counsel, attorney fees through trial can exceed $50,000.00. This all of course presumes that attorney fees are recoverable in the first place either pursuant to a contract or some statute. Moreover, it’s possible that if you are awarded $5,000.00 in damages where you originally sought damages of $50,000.00, the court may not consider you a prevailing party for the purposes of awarding attorney fees. In such cases, your attorney fees will not be recoverable (you will have spent $50,000.00 in attorney fees plus costs while only recovering $5,000.00). In addition to attorney fees, actual costs are incurred. Copying fees, court filing fees, service of process fees, court reporter and transcript fees for depositions and trial and expert fees are just some of the actual costs incurred during litigation. These fees can double the cost of litigation. While most of these actual costs are recoverable to the prevailing party, the determination of who is the prevailing party is often unpredictable. In the worst case, your opponent may be determined to be the prevailing party in which case you will have to pay their costs and attorney fees along with your own (while collecting nothing in damages).
The ability to collect awarded damages is no less important. If a wrong doer is insolvent (i.e. her liabilities are greater than her assets), then prevailing in litigation, again aside from the moral victory, will have no practical value. The fact that costs and attorney fees may also be recoverable doesn’t help. Insolvent defendants cannot pay attorney fees and litigation costs any more than they can pay the actual damages. In such cases, prevailing plaintiffs who are awarded full damages are no better off than the losing plaintiff (paying costs and fees and collecting nothing). In addition, solvent parties may be skilled at hiding their assets. The law provides methods for chasing these hidden assets down and reversing fraudulent transactions designed to hide assets, but determined wrong doers find ways to make it virtually impossible to collect. Collecting against foreign nationals is even more difficult. Determining your opponent’s financial condition allows you to better evaluate your ability to collect should you prevail. Knowing, for instance, that your opponent owns several properties in San Diego free and clear, resides here in San Diego and runs a business here in San Diego provides some sense of recoverability. On the other hand, if you know he or she filed bankruptcy in the last sixty days, moved to Mexico and has no real ties in San Diego, it’s obvious that collecting will be difficult.
The above considerations are precisely the considerations any good lawyer looks to in deciding whether or not to take a case on contingency. A good lawyer needs to have confidence that the case can be won, the damages will be high enough to compensate them for their time and that the damages are collectible before agreeing to take a case on spec. Even with such confidence, they know that litigation is unpredictable and accordingly require a higher fee in the form of a percentage of the damages collected. See “Litigation Should Be Your Company’s Last Resort.”
This all doesn’t mean that there is no benefit to suing even when damages are speculative. In some cases, the mere existence of a law suit can spur settlement offers (assuming the case has merit of course). The cost of having an attorney draft, file and serve a complaint can be manageable. Once a defendant is served there is time to try and negotiate before investing significant resources in the litigation. You can always reevaluate after settlement efforts and opt to dismiss the case. Sometimes this is a mere bluff. Other times, it’s a way to better evaluate the case before making a huge investment.
To help determine whether damages warrant a lawsuit in your case, contact an experienced San Diego business litigator today.