Business-killing cuts to state court systems

Short-term and long-term losses in productivity

All the time and energy that a business owner has to devote to a legal case is time and energy not spent on running that business. And the increased delays have made the problem worse.

Daniel Bean, a business litigator in Jacksonville, Florida, who has been practicing for almost 20 years, sees this a lot. “When we tell people what the value of a case is or how much you’re going to spend on us, I say, ‘Well you also have to figure out how much time loss you’re going to have for your clients,’” he explained. “And so the longer the case takes, the more of a distraction it is,” he said.

Roy Weinstein, the managing director of Micronomics, said that the economic impact of court delays on businesses is substantial. According to his analysis, lawsuits in Los Angeles that used to take twelve months can now take over five years. “Doesn’t it cost you something over that extra five-and-a-half years if you don’t have use of that [contested] money?” Weinstein asked. “You couldn’t expand your business, you couldn’t pay your bills, you couldn’t hire new employees, you couldn’t do your marketing, your advertising.”

When a business is caught up in a lawsuit, it may well be harder for it to secure a line of credit or additional capital investment, Weinstein said.

The degree to which such losses are material to a particular business, of course, depends on the depth of a firm’s resources and the size of the dispute in relation to those resources. Large corporations typically have ample cash reserves, in-house counsel, and the ability to hire and deploy large numbers of outside lawyers. Smaller companies, on the other hand, are more at risk of suffering financial distress as a lawsuit stretches out, especially if the matter at issue is central to the company’s revenues.

Michael Freed, a commercial litigation attorney in Florida, had a client victimized by this very problem. His client won the case — but not before going out of business. “They became insolvent,” Freed explained. “The length of time it took to get [to trial] was too much.” Once the trial was finally held, it took the judge nine months to issue the ruling. “You never can point to just one thing,” Freed said about the causes of the company’s demise. But, he said, “The consequences of delays in a business case are severe.”

Jose Rojas, another Florida business lawyer, said business people themselves are often shortsighted. “It’s an irony,” he said. “I think most business owners tend to be conservative fiscally and are in favor of the concept of ‘cut-don’t-spend, less taxes,’ that it’s good for business because you don’t spend money. On one level, there’s certainly appeal to that. But on the other level, where those cuts affect some of the very mechanisms that help facilitate business, then those cuts are really not helpful to business. They’re really counterproductive to the whole business process.”

Increased attorneys’ fees

As a case drags on longer because of a slower-functioning judicial system, attorneys’ fees go up, too. “The longer a lawsuit goes on, the more expensive it becomes. There’s no question of that,” said Bean, the Jacksonville, Florida, attorney.

This is primarily because too many hearings and trials are now often scheduled at the same time. These overbooked dockets invariably result in some litigants making a court appearance only to have their matters put off (“continued”) to a later date. The hurry-up-and-wait problem can repeat itself multiple times, and is an increasingly common phenomenon according to all the judges and lawyers with whom Remapping Debate spoke.

John Whitcombe, the managing partner of a Los Angeles law firm in practice for almost 15 years, frequently sees the effects of these forces on his clients. He told Remapping Debate about a case he’d just concluded. “It should have been a one-day trial with seven hours of testimony. Instead it stretched out over two weeks,” he said. “We have a business client that’s in the court every single day for those two weeks, out of his business. We’ve got lawyers there billing for ten-hour days when they have really only effectively done anything for three or four hours a day, but their presence has been required for ten hours a day. So the whole system runs up costs at a rate of 200 to 300 percent over what they ought to be,” he explained.

Meritorious cases not getting filed

To what extent do businesses that have genuine grievances throw up their hands and accept their losses because of the prospect of increased delays and higher costs?

Dunn, the California State Bar Association executive director, said this chilling effect is real, but difficult to quantify. “It occurs more than we [in the legal system] care to admit,” he said.

This phenomenon stays relatively hidden save for anecdotal accounts. As Dunn pointed out, companies that avoid litigation because it’s too expensive don’t like to draw attention to that fact. Using an intellectual property case as an example, Dunn said, “If you can’t afford to defend the intellectual property that you’ve built your startup company around, as an investor I’m not so sure I have a comfort level that you’ve got the ability to operate at all. It just sends a signal to the investor community that you are very, very weak.”