I.
Size Does Not matter.
An understandable, but false,
assumption of some potential law firm clients is that a small case will cost
less than a big one. After all, if I buy a small coffee I expect to pay less
than I would pay for a larger size, so why do legal fees not adjust to the size
of the case?
Well, first of all, they do in some cases. Legal fees can track
the size of the deal in transactional matters; that is, where the parties are
negotiating a deal and entering into contracts re same. For example, if the
transaction involved the sale of a radio or TV station then the complexity of
the work and the downside risk compel the parties to retain experts and do work
in a number of areas, e.g. federal and state licenses, legislative and
government agency support, appraisal, etc. So, if you are buying or
selling a coffee house then you can
expect the legal fees to be much less than if you are buying or selling a
semi-conductor company. But, the cases discussed
in this article are not the transactional ones, but dispute and litigation matters.
Litigation cases can be incredibly
and aggravating “inelastic,” as to
the size of the case, i.e. what is at stake. (“inelastic” is a term from
economics price theory which means, ceteris paribas,[1]
that a change in price will not cause a significant impact on sales. For
example, automobile sales may be highly elastic
to price changes while changes in the price of sale may not be. If your local
car dealer lowered car price by 20% you might be motivated to buy – or try to –
but 20% off the cost of salt, say, from $1.00 to 80 cents may not motivate the
typical consumer.
Phoenix and Maricopa County Arizona
– in fact the entire State of Arizona have a large number of small businesses
with all types of cases, almost beyond imagination – especially the client’s
imagination because the client does not deal with these problems all day-every
day. The cases may vary from trying to get paid on an account, say, in the
amount of $5,000.00 to comparatively esoteric and complex claims for breach of
trade secrets statutes and, perhaps, even a Confidentiality and Non-CompetitionAgreement with key employees, which where enforceable (as they are in Arizona)
are extremely valuable to the company and every small business with key
employees should have one.[2]
Take a $5,000 collection case. In
Arizona cases above $2,500 are too large for the “Small Claims” division where you have the “parties only” with no lawyers
allowed (the “small claims court like the People’s Court). While, in Arizona,
cases under $10,000 are still in Justice Court, therefore heard by a Justice of
the Peace (which in Arizona may not have attended law school) upon the request
of either party the Rules of Civil procedure and the Rules of Evidence may
apply. We could write a whole article, if not a book, on the impact of these
Rules on the dispute resolution process, but the short version is that applying
the Rules of Civil Procedure means that a certain course of conduct must be
followed work must be done in preparation of trial. This can include
“disclosure statements’ deposition, etc., pre-trial memoranda, etc. etc.. and,
applying the Rules of evidence means that a non-represented part can be
“lawyered to death” due to the rules against hearsay, authentication of
documents, etc. Generally, evidentiary rules require that the person who saw or
has first-hand knowledge about the event or document must be in court and
subject to cross-examination. This means witnesses may be called, subpoenas
issued and discovery requests may be made resulting in more depositions, etc.
The point of the above hypothetical
is to show that the cost of the case to the litigants is not a function of the case,
but its forum and the Rules that apply.
One can only imagine what happens to the cost of civil action where the
case is more complex with many legal claims, parties, witnesses, and documents.
Conversely, a large case in terms of
“dollar denomination” may be relatively inexpensive compared to a smaller but
more complex action. For example, while as discussed, above a small case can
get complex and expensive, the cost of a “million dollar” collection case to recover
monies due on a promissory note (which can be difficult to defend) can be
“inconsequential” (i.e. much, much less) compared to the fees necessary to
enforce claims for “tortious interference with contract or businesses
expectancy,” breach of fiduciary duty, or misrepresentation claims, etc.
(“Claims”)[3]
, which many business owners have not even heard of prior to the action.
II. Conclusion.
As shown, the cost of litigation is
not a factor of the size of the case but of the type of case, including the kind
of Claims and the Rules that apply. So, somewhat counter-intuitively, a
$100,000 breach of fiduciary duty case may cost less than a $1,000,000
collection case.
The Law Offices of Donald W.
Hudspeth, P.C.
Business Law, Commercial Litigation & International Business Law www.AZBUSLAW.com – 866-696-2033 – TheFirm@azbuslaw.com
“The Business of Our Firm is Business”
Business Law, Commercial Litigation & International Business Law www.AZBUSLAW.com – 866-696-2033 – TheFirm@azbuslaw.com
“The Business of Our Firm is Business”
[1]
“Ceteris Paribas” is econo-speak for “all other things being equal. You get a
lot of ceteris paribas in economic studies. Of course the fact that all other
things never are equal is a problem for the real world, not the
professors.
[2] I
have written about the value of non-competition agreements in other articles,
which are available upon request.
[3]
Roughly, tortious interference with contract or expectancy is the act of
attempting to terminate an existing contract and make your own sale to the
customer. Many sales persons do not even know this can be seriously unlawfully,
with punitive damages awarded, especially where inside knowledge or special,
targeted incentives are offered, e.g.
special offer of 20% to existing customers of XYZ company only using as mailing
list a confidential customer list of the target company. Breach of fiduciary
duty I the highest duty imposed at law, for example, the duty employees and
partners owe the company and their partners to act with the highest standard of
loyalty, honesty, trustworthiness and integrity. Employees
have this duty? Yep. Who knew?
