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Last Rev. 10/29/16 10:50am

The Costs of the Most Expensive Litigation

Most clients I come across have no idea of the real cost of many types of major commercial litigation (including securities, antitrust, patents, copyrights, breach of substantial contracts, and criminal defense litigation, when treated similarly to the defense of a major commecial civil case. They do not realize the enormous amount of valuable legal time needed to be devoted to prosecuting or defending a major lawsuit or a major criminal prosecution.

Some recent examples from the press are: more than $25,000,000 for criminal defense of the Rigas family, who controlled Adelphia. See Cost of Rigas Criminal Defense.

$70,000,000 for defense of Kenny Lay and Jeff Skilling (the two recently-convicted Enron defendants, whose expenses are not over). A recent article stated:

The article lucidly points out that Ken Lay -- who at one time was worth about half-a-billion dollars and now is almost broke -- has paid or dedicated about $10 million to his defense team, which is on top of another $20 million that his lawyers were paid from Enron's D&O insurance policies before the proceeds of those policies were locked up in connection with the directors' settlement in the Enron class action securities litigation last year. Inasmuch as Lay's co-defendant, Jeff Skilling, has reportedly paid over twice as much out of his pocket than Lay to his defense team and presumably received about as much of the insurance proceeds as Lay, an estimate of $70 million in defense costs for the case is certainly well within the ballpark of accuracy.

Lay/Skilling Defense Costs.

$68,000,000 estimated cost of defending Barnes & Noble and Borders in a Robinson-Patman Act suit brought by the American Booksellers Association (which spent $14,000,000 as a plaintiff in the case - see report in Publishers Weekly at PW Report on ABA Litigation Expense in Robinson-Patman Act Lawsuit and by Carl E. Person as attorney for a chain of 9 bookstores, the Intimate Bookshop, Inc. (owned by Wallace Kuralt, now deceased, brother of CBS personality Charles Kuralt, also deceased).

Former Tyco CEO Dennis Kozlowski, accused of stealing $600,000,000 from Tyco, spent a reported $17,00,000 in legal fees in his first criminal trial (as revealed in court papers seeking reimbursement of such expenses from Tyco) and a reported $8,000,000 as his legal expenses in the 2nd criminal trial - for a total legal expense of $25,000,000. He was convicted in the 2nd trial and was sentenced to 8-1/3 to 25 years in prison. [NY Post, 6/2/06, p. 39]

Litigation costs can be kept down by defendants, but in doing so they run the risk of letting the plaintiff's lawyer catch up. One strategy of defendants is to do everything possible, to make prosecution of the civil case so costly that the plaintiff and its lawyer will give up. This in turn encourages the judge to call a halt to the warfare at a certain point and set the case down for trial, thereby creating an opportunity for the parties to try to resolve their differences through mediation or other settlement negotiations, to avoid the costs and agony of a trial.

In 1982, AT&T announced that its costs so far in defending the antitrust brought by the Justice Department to break up AT&T cost more than $360,000,000. A report stated: "Litigation costs alone for AT&T up to the January 8, 1982 announcement of divestiture was 360 million dollars along with an additional 15 million dollars of costs to the federal government. But the costs didn't stop there." Litigation Costs in 1980's Litigation to Break Up AT&T. The costs would be at least 3 times as much today.

In shareholder litigation, "the average cost of defending a shareholder's lawsuit is over $2 million", according to a June, 2004 article, published at Article Entitled "Indemnification of Directors and Officers".

Public company RealNetworks, Inc. estimates that its current annual antitrust litigation expense is going to be approximately $15,000,000. See RealNetworks $15,000,000 Annual Antitrust Litigation Expense.

These high costs create victims. Let me list a few. Corporation that don't have unlimited amounts of money to spend for litigation are not able to compete in important litigation, and have to settle cases for far less than they are worth. Judges are victimized by having to handle an excessive amount of litigation generated by the litigation overkill. Plaintiffs and their lawyers working on a contingent-fee basis are deprived of victories and settlements that would have been made but for the excessive litigation designed to frustrate plaintiffs from obtaining enforcement of law. Taxpayers who have to pay public officials far more money than should be necessary to have government lawyers go up against corporations that have all the money in the world to defend themselves against meritorious civil claims and criminal charges.

An alternative approach to spending huge amounts of money to defend meritorious civil litigation is to start off with an aggressive defense, but also see if the matter can't be resolved for an amount far less than the cost of defense, with the plaintiff and its lawyer signing an agreement (with sanctions for wilful violations) not to disclose the terms of the settlement. Over the years, I have seen these secrecy agreements work to minimize any publication of settlement terms, and I have seldom if ever seen anyone rush in to file a lawsuit against the same defendant on the same issue after I have settled a case.