Client: Since I’m cost-conscious about my lawsuit, I need to have some way of tracking how much it’s costing me as we head toward trial. I need to make sure that I have enough money set aside to cover your legal fees.
Attorney: Then I should develop a forward-looking litigation budget for the case. Let’s talk about what a litigation case budget can and can’t do, so you have the right expectations. I’ve had clients misunderstand case budgets in the past.
C: Do all attorneys prepare case budgets for their clients?
A: No, but they should. It’s not as difficult as some attorneys may think. It’s a discipline that I’ve gotten into over the years with my clients.
C: Is there a secret to doing it?
A: Just experience and planning. First, an attorney has to have enough prior experience litigating cases to know what happens in them. Second, an attorney has to be willing to take the time to think through the case from start to finish in his or her mind, and try to plan ahead.
C: What will the case budget look like?
A: There are different ways to prepare budgets. The format I like is one that breaks down the lawsuit into several parts, or phases of the case. Within each phase, I prepare a quarterly budget for the coming 3 months. Within that quarterly budget, I break down all the different tasks and events that may occur, and give a projected dollar cost estimate for each.
C: Why quarterly?
A: Because if you try to budget too far ahead, you end up with “funny” numbers. I’ve found that quarterly budgets are manageable enough for me to be able to reliably estimate the legal fees. I can usually anticipate 3 months ahead in a lawsuit.
C: Why not monthly budgets?
A: Because case budgets shouldn’t become a burden for attorneys, either. Otherwise attorneys lose their motivation to do them. In my view, monthly is too often, and unnecessary. Quarterly ends up being a good balance between the client’s needs and the demands on the attorney.
C: You used the word “estimate” a second ago. Is that what you’ll be doing in the case budget?
A: Yes. It’s important to understand that a case budget is not the same thing as a fixed fee, a flat fee, a “cap” on the legal fees, or a guarantee that the legal fees won’t exceed a certain amount. That may be another reason why some attorneys avoid doing case budgets, because they’re afraid their clients will misinterpret them, which can cause problems in the working relationship.
C: So a case budget is not set in concrete.
A: No. It’s a series of “best estimates” on my part about what the lawsuit is likely to cost, looking ahead one quarter at a time. An attorney like me can budget more easily for those parts of a lawsuit that I have control over, such as how many witness depositions our side wants to take.
C: But what about the parts that you can’t control?
A: That’s the real tricky part of case budgeting, the other half of the case that I can’t control. Your opponent and the opposing attorney always drive that other half. I can’t read their minds about what they’re going to do, or not do, on the case from quarter to quarter.
C: Any there any other factors that are out of your control?
A: Yes, there’s the judge. The overall legal fees will be affected by how much, or how little, work the judge requires the parties in a lawsuit to do in the case. Each judge is different. You can’t predict that in advance. Also, by how busy the judge is with his or her other caseload. For example, I’ve seen judges make the parties prepare legal briefs and oral argument for a court hearing, then the judge becomes unavailable on the appointed date. The parties end up have to spend more time, and legal fees, re-preparing again for the new date.
C: Anything else?
A: Yes, unforeseen circumstances. That can cover a lot of things. You often have at least one thing happen in a lawsuit that you just couldn’t anticipate beforehand.
C: It sounds to me like the attorney is not always to blame for how high the client’s legal fees end up being in a lawsuit.
A: That’s right, and I wish more clients understood that going in. For example, in your lawsuit, I might estimate about $10,000 or so to take 5 witness depositions in the case that our side will need for trial. I can put that in my case budget. I then try to predict how many witness depositions the opposing side will take, because I know I’ll have to attend each one.
C: How can you predict that?
A: It’s hard. I’d like to think your opponent will take roughly the same number of depositions for their side as we do. But maybe not. Maybe your opponent is deep-pocketed, and wants to try to hammer you into settling before trial. They might try to wear you down financially by taking many depositions. Or maybe the opposing counsel is a real jerk who enjoys running up the legal fees on an opponent. I’ve seen that happen before.
C: So how do you end up accounting for that in a case budget?
A: By remaining very flexible about the budget, and making sure the client understands that. That’s why I tell clients that a case budget is like a living, breathing document that is never static, always changing, even for a straightforward, non-complex lawsuit like yours.
C: How do explain that to the client?
A: By continually updating the case budget every quarter with the best available cost projections. That’s why it’s unrealistic for an attorney to give the client a one-time budget for the entire lawsuit at the start. You end up with “funny” numbers. A “ballpark” initial fee estimate at the beginning is fine, but that’s not the same as a full-fledged case budget.
C: I’m confused about something here. You said a case budget is a planning device for both the client and the attorney in a lawsuit. You’ll try to give me reliable numbers, because you know I’m depending on them from a financial standpoint. Yet you say the budget has to remain flexible. But what good is a case budget to a client if the attorney doesn’t stay within their budget numbers, and overruns the budget? Doesn’t that let the attorney off the hook?
A: I agree, that can become a sore point for the client. Let me explain my philosophy on case budget overruns. First, it depends on the size of the overrun. Second, it depends on whether it is fair to hold the attorney accountable for it.
C: I assume some smaller budget overruns are going to be inevitable at some point in a lawsuit.
A: That often happens. I personally believe that the attorney should automatically be forgiven any quarterly budget overrun of less than 10% of the original estimate amount. I’ve even heard of state laws that only require auto repair shops to estimate to within 10% of the final cost, so 10% is a reasonable “cushion” that consumers are used to.
C: What about bigger budget overruns?
A: If the attorney believes they’re going to exceed the quarterly budget by up to 50%, they should notify the client of the budget overrun when it occurs, preferably beforehand; and give the client the opportunity to discuss the overruns with them. The attorney should not just overrun the budget without saying anything until the legal bill arrives in the client’s mailbox. The attorney needs to speak up long before that point.
C: That’s right, because I might decide I don’t want to keep spending legal fees on the case if the budget overrun is going to be too big. I may decide to settle instead.
A: Exactly, the client needs to have input at that point.
C: And if the budget overrun is more than 50%?
A: At that point, assuming notice and discussion with the client, the attorney has to be able to show that it wasn’t due to lack of planning or professionalism on his or her part. For example, that the overrun was caused by the opposing party, the judge, or unforeseen circumstances.
C: That sounds reasonable, but let’s be honest here. If I’m the client, how will I know if the attorney is giving me a valid excuse or not for a budget overrun? I’m not an attorney myself. How will I really know?
A: To be perfectly blunt, you may not. So you’re going to have to be on the lookout for a repeat pattern of your attorney overrunning the budget by large amounts each quarter. If that keeps happening, you may have to vote with your feet, and be prepared to change attorneys.
C: Which no client wants to do after having invested a lot of time and money in their current attorney.
A: Unfortunately, you’re right. I won’t deny that. There’s no easy solution. But if a client is looking for a little extra protection, it may be useful to read other clients’ critiques of a particular attorney on a website like Avvo beforehand, to see if other clients have had that same problem themselves.
C: Okay, let’s go through the nuts-and-bolts of one of your quarterly case budgets.
A: First, any civil lawsuit can be divided into 5 phases: (i) the opening, or pleading, phase of the case; (ii) the middle phase, or pre-trial discovery; (iii) then pre-trial motions; (iv) trial preparation; and (v) trial itself. Every 3 months, I’ll tell you what phase of the case we’re in, and itemize in writing the tasks and events that I expect to occur during the next 3 months. I’ll list each of them as a separate line item in my quarterly budget, with an estimated high/low range of legal fees. I’ll send you the completed budget at the start of each new quarter. If I need to revise the budget mid-quarter, I’ll e-mail you the new amounts.
C: Will you charge me for doing that?
A: I think it’s fair that I be able to charge up to 2 hours of my time for each quarterly budget. At my $250 per hour rate, that's up to $500 per quarter. I’ll have to review the case file each time, think about where we’re going, and compose it into a useful budget. That kind of planning has benefits to you, the client, so I should be able to charge something for doing it.
[TO BE CONTINUED]
© 2008 Ken Moscaret. All rights reserved.