So You Want to Litigate?
I get a steady stream of calls from people that have been aggrieved one way or another telling me they want to sue someone and get their day in court. I started thinking about the litigation process and the toll it takes on those involved and asked myself does this person know what they are getting themselves in to? Below I will explain some reasons why the litigation process may not be able to help you and some of the impediments to trying to assert your rights in court.
One of the first problem about litigation is the time involved. In most courts, the process is very slow and subject to very detailed rules called the rules of civil procedure. Because of all the formality in order to get most cases to trial, it can take a minimum of 12-18 months where I am located here in California and I have heard up to 5 years in other states. So if you think that litigation will get your matter resolved quickly, that is usually not the case.
The next issue is the expense. Any competent attorney in most states will charge a minimum of $200 an hour. And the hours start to add up quickly in litigation. There is written discovery to send and respond to along with motions to file if the other side does not play by the rules. Depositions are very expensive. You have to pay $200 or more an hour for your attorney to prepare for the deposition and then ask questions of the witness. Add in court reporter fees and you can be paying $2000 or $3000 a day easily. In any case I have handled it typically costs at least $10,000 to $20,000 to get anywhere near where the case is ready to have any meaningful settlement discussions or is prepared to go to trial. And I have had clients spend $500,000 to get to that point.
With both side spending that kind of money litigating small case is nearly impossible to justify from a strictly business perspective. My rule of thumb is if there is less than $100,000 st issue, then the case likely is what I call “economically unviable” to litigate. By that what I mean is given the amount of money you are going to spend, the chances for success, the mental and physical toll of litigation that, it just makes no sense to go through all that to litigate the case given the potential return on investment. I constantly get calls from smaller sales agents that tell me their residuals have been wrongfully terminated. The story usually starts that the sales agent has been sending business to a certain ISO, the sales agent built up a residual stream of less than $3000 and the residuals were terminated without cause. The total amount the agent could get even if he won in this scenario, say $3000 a month for example, valued at a multiple of 20 times the monthly residuals turns out to be a $60,000 maximum exposure to the ISO. The ISO knows it is hard to find an attorney to take a case where the maximum upside is $60,000 and the ISO often has just cut off the only source of funding the sales agent had to fund the lawsuit in the first place. The ISO rightfully believes it is not viable for the agent to bring such a suit.
Another issue can be geographic in nature. Most agent agreements have what is called a “venue provision” that states the sales agent has to go to the ISO’s home state in order to sue the ISO. So again, I have people calling me that work in say New Mexico and the ISO in question is in New York. So if the sales agent was not at enough of a disadvantage already, the sale agent faces the daunting task of having to find an attorney across the country in the state of New York, explain our business (which is very confusing), convince an attorney to take the case and pay the attorney a retainer which typically is a minimum of $5,000 to $10,000.
A sales agent that believes that because of the unfairness of having their residuals terminated a court or jury will surely have to rule in its favor. The problem with that thought is that most cases never get to a jury or the court. Statistics vary but I think I can safely say well over 90% of all cases are settled before any judge or jury sees them. In my own personal experience, in another life I was a litigation attorney mainly handling business disputes. In 10 years or so of handing hundreds of cases, exactly 3 of my cases went to trial or less than 1% of all those I handled, and I do not think my experience is that out of the ordinary.
So what that means is that even if you have a very strong case, other factors may come into play in determining how the case is ultimately resolved. As stated above, it is very expensive to litigate a case and sometimes people run out of money. So it becomes a question or who can force the other side to spend more than it is about who is right and wrong.
Another thing often discussed is that litigation is an incredibly stressful process. You are spending tons of money, the whole process can be very daunting as well as time consuming and also very tedious at the same time. I can’t tell you how many times a client has come to me fully committed to filing a case, insisting they would never settle for less than a certain amount and then in 6 months is begging me to settle the case for half of what they said was the lowest amount they would accept. That is just indicative of the difficult nature of the litigation process.
I know I don’t paint a very pretty picture of how this whole process works. The fact is that the best advice I can give is choose your partners very carefully. By picking reputable, honest people to work with who honor their contracts, hopefully you will never get anywhere close to court.
The information contained herein is for informational purposes only and should not be relied upon in reaching a conclusion in a particular area. The legal principles discussed herein were accurate at the time this article was authored but are subject to change. Please consult an attorney before making a decision using only the information provided in this article.
