There is probably no other part of the litigation process where the cold hard reality of hindsight has less in common with the lofty expectations of planning than the much demanded, but universally dreaded litigation budget. Budgeting is a foundational brick in virtually every sound business process. While it always poses its difficulties – too low for the department head, too high for executives- and usually imperfectly matches expectations, it serves a legitimate purpose and, with some planning, can usually serve that purpose well.
In litigation, that all goes by the wayside. It would state the obvious to say litigation is unpredictable and thus, difficult to budget for. It goes beyond that. Were it the case that litigation budgets were typically off by 20, 30 or even 50%, they would still largely serve the financial function of helping corporate law departments set their overall annual budgets. However, even the most carefully prepared litigation budget can be off by 100%, 1000%, or more.
To illustrate, a given budget for a litigation that reflects thoughtful consideration of the costs of discovery, motion, trial preparation and appeal may anticipate total costs of, e.g., $1.5 million. If the case is dismissed at an early stage on dispositive motion, however, actual costs may be as little as $75,000. In that event, the budget, although carefully prepared, will prove to have been completely detached from reality. That can happen in the best of circumstances. Small, but critical mistakes can lead to the opposite result as well. For instance, where a plaintiff brings what appears to be a small matter, but fails to anticipate complex counterclaims, a $75,000 budget may quickly give way to $1.5 million in actual legal fees. In between, unanticipated depositions or motions, related litigations, and the like, can easily put the most thoughtful budget to shame.
The reality, however, is that corporate law departments are parts of corporations and corporations require budgets. Moreover, as litigation becomes a more regular part of the business process, stricter budget requirements are being imposed on law departments. Thus, as difficult as the budget process can be, budgets are a reality to be dealt with.
Eric E. Bensen and Rebecca K. Myers are co-authors of Bensen & Myers on Litigation Management, a groundbreaking new book that fully describes and illustrates a comprehensive, but easy to implement methodology for managing litigations that in-house counsel can use to ensure that their litigations are managed in a highly effective and cost efficient manner. Litigation Management grew out of their long running collaborative effort during years of work as outside counsel on far reaching, complex litigations to develop and improve litigation techniques that foster a professional environment, enhance attorney development and, most importantly, provide greater value to clients. Eric E. Bensen is a coauthor of Milgrim on Trade Secrets and Milgrim on Licensing and advises clients on complex intellectual property and litigation management issues. Rebecca K. Myers is an attorney with Paul, Hastings, Janofsky and Walker LLP where she focuses her practice on litigation and counseling clients with respect to a wide range of intellectual property and commercial litigation matters. They can be reached at email@example.com.