(Make Sure You DO THE MATH Before You Accept your Next Case)
Have you ever regretted accepting a case…sometimes just after you sign the retainer agreement? There could be a million reasons—maybe your client is a contract killer for the mob, is a cross-dressing crack addict or spent 15 years in Sing-Sing for defrauding the mentally handicapped (yes, these are just a few of my clients). But more often than not, you second-guess your decision to accept the case because in hindsight you reach the conclusion that it JUST WASN’T WORTH IT.
Now, c’mon, you know what I mean. We’ve all been there. You accept the case with rose-colored lenses on and dream of a big payday, but pretty soon you start seeing the blemishes in the case. A lot of times the bad news snowballs and then you wish you had never taken the case. But by that time it’s too late. You signed a retainer agreement and filed the lawsuit, so there’s no backing out now.
But here’s a tip: before you sign the retainer agreement and file the lawsuit, set aside one hour to DO THE MATH so you know whether the case is worth your time before you file the lawsuit.
There are three simple steps to determine whether you should take the case. By following these three steps, you will know whether case is worth taking before you file the lawsuit.
STEP #1: Every Case that you Should Accept Should Have a Budget
You begin by estimating the expenses for each phase of the lawsuit. I break the categories into three phases: (1) the discovery phase from commencement of the lawsuit until the filing of the note of issue; (2) the trial preparation phase from the filing of the note of issue until the first day of the trial; and (3) the trial phase that begins on day one of the trial until the conclusion of the case.
Each of the three phases will have their own budgets. In the discovery phase, the budget includes the expenses for filing fees, stenographer’s and videographer’s fees for depositions, and expert fees for reviewing the case. The budget in the discovery phase includes a list of all depositions that you intend to conduct, including the name of every witness to be deposed and the estimated cost of each deposition.
The budget for the trial preparation phase consists mostly of expert fees for reviewing deposition transcripts and meetings with experts, the costs of pretrial exhibits with great trial exhibit experts like Mark Whalen of Litigraphics, LLC in Baldwinsville, NY, and in some cases, fees for mediation.
The trial phase will include a budget for expert fees for trial testimony, and the costs of travel and hotels for the expert witnesses. If you intend to get transcripts of trial testimony, then include an estimate for this expense. You don’t have to be perfect with your estimates, but you should try to be as precise as possible and you should always err on high side of the estimate just to be safe.
Let’s say you estimate that the costs of the discovery phase are $13,445 (but be precise and as specific as you can), the costs of the trial preparation phase are $6,170 and the costs of the trial phase are $17,222. So, now you have an estimate for the total costs of the lawsuit of $36,837. Great, but you’re just getting started.
Now, I know what you’re thinking: how can I estimate the costs for the trial when I accept the case? Well, you can’t. But you can put ball-park estimates on the costs for all three phases of the lawsuit before you sign the retainer agreement if you sit down and map out a game plan for the case, i.e., estimate the number of depositions and expert witnesses.
Let’s say you will need a neurologist, neuropsychologist, life care planner and an economist for a case involving a brain injured child. Okay, now estimate the fees for the physical examination of the medical experts, the retainer for the review of the file and the fee for meeting with you and testifying at the trial. See, that wasn’t so bad. Now, you’ve got some numbers to work with.
STEP #2: Placing a Value on the Case
Are you done yet? Not quite so stay with me.
You have to put a dollar number on the value of the case…before you sign the retainer agreement or file the lawsuit. At the beginning of the case, you don’t need a figure for the settlement demand, but you will need a number for the “settlement value”. The settlement value of the case is the absolute lowest number that you will recommend for settlement, a/k/a the “bottom line”.
Let’s say you accept a wrongful death case involving the death of a 41 year old mother, who was married and had two children. You estimate the pecuniary damages under New York’s wrongful death statute for loss of earnings, loss of household services and loss of maternal guidance, nurturing and advice. Once you have an estimate for the pecuniary damages, you estimate the non-economic damages consisting of conscious pain and suffering. For argument sake, let’s say you project the total damages at $2 million.
Next, you have to face a stark reality: yes, you might lose the case (don’t kid yourself if you think you can’t lose). Let’s say that you conservatively estimate that there is a 50/50 chance of winning on liability at trial. And just to err on the side of caution, you might want to lower the estimate to a chance of 40% that you win.
With a 40% chance of success on liability, you reduce the total damages of $2 million to $800,000 to reflect the reality that you might not win the case. Now, you have a settlement value of $800,000.
STEP #3: You Must Compare the Case Expenses to Your Legal Fee to Justify Accepting the Case
Now, it’s time to do the math.
First, you must calculate the legal fee on the settlement value of $800,000. After reducing the settlement by the disbursements of $36,837, the legal fee under New York’s sliding scale for medical malpractice lawsuit is $190,132.
But you’re not done yet. If you have a referral partner, you will have to pay a referral fee that is 24.9% of the total legal fee, or $47,368. This will reduce your portion of the legal fee to $142,764. Okay, so you stand to make $142,764 based on your estimate of the cases expenses (Step #1) and the settlement value of the case (Step #2).
Now, you must compare your case budget (Step #1) to the legal fee that you expect to earn. In this example, the case expenses of $36,837 are 25.8% of your legal fee of $142,764. An investment of $36,837 will yield a return of $142,764. In this example, the settlement value exceeds the case disbursements by a ratio of 4 to 1 (and that’s not good).
Is this case worth taking? The ideal ratio of case disbursements to your legal fee is 10 to 1. If you spend 20,000 in case disbursements, you will need a legal fee (after paying your referral partners) that is at least $200,000.
How DOING THE MATH Will Help You Avoid the Cases You Wish You Never Accepted
I know, I know. It’s hard to get the numbers to add up in many cases. And there will always be a case or two where you want to make an exception based on principle (I hate taking cases on principle, but I’m guilty too). But if you do the math before you file the lawsuit and sign the retainer agreement, you just might avoid the case that you just wish you never accepted in the first place…like the contract killer for the mob who calls you every fifteen minutes.
photo credit: Budget Marketing Ideas for 2016 via photopin (license)