Litigation can be expensive, and entrepreneurs should conduct certain analysis before launching a lawsuit. Emotion and ego should be set aside and settlement options and alternatives to formal litigation (read the related article, Alternatives to Litigation) should be considered. Here are a series of checklists which should help in your cost benefit analysis.

General Commercial Litigation

1. What are the costs of the litigation?

• What are the legal fees and costs?
• What are the costs in hidden downtime?
• What are the costs associated with public relations issues?
• What are the capital costs (disclosure of pending litigation)?
• What are the costs of alternatives to litigation?
• What are the costs of not litigating?

2. What public relations issues are involved in the litigation?

• What aspects of the litigation might interest the media?
• What aspects of the litigation might produce strong emotions in a jury?
• How might our shareholders, competitors, and customers react to the litigation?

3. What legal precedents are relevant to this litigation?

4. What factors affect the possibility of settlement?

• Who is the opposing attorney?
• What kind of suit is this?
• How complex are the legal issues?
• What effect will this suit have on our public relations value?
• Are there other simultaneous proceedings?
• What are the weaknesses of our opponent?
• What are the weaknesses of our position?

5. What company policies are relevant to this litigation?

6. What are the chances of getting help from other members of the trade in this litigation?

Managing Litigation Costs

• What is the hourly rate for the lawyer or lawyers involved?
• How much assistance will the lawyer(s) need, and what are the hourly rates for those who will be assisting?
• What types of expert witnesses will be needed, and how much will it cost to have them prepare and testify?
• What types of fees will be involved (e.g., filing fees, fees for the reproduction of documents, depositions and trial transcripts, and costs of travel involved in discovery)?

Collections/Litigation

• What amount of money is at issue in this dispute?
• What is the financial condition of the debtor?
• Where is the debtor located? Is the debtor in our state or in another state? (If the debtor is in a different state, costs of collecting the debt are likely to rise considerably.)
• What reputation as creditors do we wish to maintain?

Assessment of Litigation with Government Agencies and Regulators

• What publicity is this action likely to attract? What is the public’s perception of the issues likely to be?
• Would a consent decree be in our best interest in this case?
• What is our ongoing relationship with this regulator? What relationship do we wish to have? How will this action affect that relationship?
• Does this action involve a new regulation? Is the agency likely to be using it as a test case?
• Are other companies involved or likely to be involved in this action? If so, might they help us in the suit?
• What is the nature of the regulatory environment involved in this action? How is the current environment likely to affect our case?

© 2007 Andrew J. Sherman. All rights reserved.