The Iceberg: the True Cost of Litigation Versus Arbitration
According to Forbe’s Case Study on cost of litigation:
Some attorneys will advance all these case expenses, while others require their clients to pay the expenses as the case goes along. Either way, the client is responsible to pay these fees eventually, so these are real costs. But since the need to hire an expert witness (and pay other incidentals like copying and postage) exists both in arbitration and court, we can ignore those items in our comparison.
In litigation (or, in court), filing and service of process fees are smaller (about $500); there are no “hearing session fees.” But, when in court, there is a different expense to be incurred–one not seen in arbitration–the cost of stenographic court reporters. In litigation, much of what happens must be transcribed for the record. Licensed court reporters, as they are known, are not public servants, and they charge about $2,000 per day to take down testimony at depositions and at trial. Extensive discovery–the hallmark of litigation–is thus very pricey. Just a few days of depositions, and the out-of-pocket expenses of litigation will quickly match or exceed those arbitration hearing session fees. Though maybe not by all that much. It depends.
Hiring attorneys on an hourly basis is incredibly expensive. Whether the attorney charges $300 per hour or $600 per hour, those hours mount fast. Put that in the context of a securities case, and few folks can afford it.
Fortunately for victims of wrongdoing, there is the “contingent fee.” A lawyer working on a contingency gets a percentage of the winnings; if there are no winnings, the lawyer earns no fee. The contingent fee arrangement thus enables alleged victims to hire a lawyer they could not otherwise afford. The lawyer takes the risk of not winning, but he’s not working for free. His fee is a percentage of the recovery (usually one third).
A lawyer’s willingness to accept a case on a contingency depends on not just the lawyer’s perception of the merit of the case, but also its size. A lawyer can make only so much from a small case; the potential fee must justify both the work that must be done and the risk of getting nothing. And that’s where the big difference between arbitration and litigation matters most.
Litigation involves so much more lawyer work than does arbitration. In court, there are motions to dismiss, interrogatories and depositions, motions for summary judgment, pre-trial briefs, post-trial briefs and the potential for appeals. Litigations can go on for five years (or more), and a contingent-fee attorney working on a litigation must “carry” that case for the entire duration. The lawyer won’t see a nickel until it is all over, including the inevitable appeal.