Litigation Cost Definition: Everything You Need to Know
Litigation cost definition is an important concept to be aware of before entering litigation with another party.4 min read
Litigation cost definition is an important concept to be aware of before entering litigation with another party. Litigation is usually settled between the parties before going to court. However, if the parties can’t come to an agreement, they might need to litigate in court, which could be time consuming and costly. Litigation involves the process that occurs before, during, and after the actual lawsuit. This could include negotiation stages, alternative dispute resolution, the discovery process, and potential appeals after a determination is made as to the pending issue(s).
Pre-Suit Litigation Activities
Generally, before the legal suit begins, attorneys will be hired by both parties who will assist throughout the litigation process. During the pre-suit litigation stage, an attorney might draft a letter on the client’s behalf to the other party. This letter, usually referred to as a demand letter, will simply demand the other party to correct the issue at hand. This could be delivering a service, product, or making payment.
Other steps that might be taken during this stage will often vary depending on the circumstances involved in the legal suit.
The investigation phase is the first step in the formal litigation process. The parties, with the assistance from the attorneys, will conduct extensive investigations into the facts and issues surrounding the dispute. This phase is usually referred to as the discovery phase in an actual lawsuit, at which point the attorneys will ask various third parties for supporting documentation relating to the issue in dispute. This could be information helping or hurting the party.
This phase will involve negotiations between the parties; this is generally done in person with all parties and attorneys involved. However, this will not be done in court with a judge present. Rather, it will be done in a mutually convenient setting for all parties present. At times, it is done at one of the attorney’s offices. This phase will also include alternative dispute resolution, which is an alternate method used to discuss the issues and try to find a solution without going to court and having a judge preside over the case.
Alternative dispute resolution involves one of three methods:
Mediation and facilitation are both done with a mediator present who will simply referee the negotiations conducted between the parties and their attorneys. The mediator should not step in to interact with the parties unless absolutely necessary.
Arbitration, however involves the use of an arbitrator who oversees the arbitration proceeding. Thus, the supporting documentation obtained during the investigation phase will be given to the arbitrator who will then review the materials and make a final determination as to the outcome of the case. Essentially, the arbitrator acts similar to that of a judge. The decision made is a legally binding decision that can be appealed by the losing party.
Dispute resolution is a very cost effective way to prevent the expensive litigation costs associated with bringing the case to court.
Oftentimes, when people think of litigation, they think of the lawsuit. The lawsuit will involve a formal filing of the complaint with the appropriate court. Thereafter, the defendant will be served with the complaint and be required to answer the complaint.
At this point in time, discovery will take place, which is the formal investigative process of the lawsuit, similar to the investigation phase identified above that occurs prior to the lawsuit. While the hope is that both parties will settle before the lawsuit, sometimes the parties simply can’t come to an agreement.
During the discovery phase, the attorneys will send written requests, or interrogatories, to third parties to obtain additional information regarding the issues in dispute. This could also include depositions, which occur when an attorney will sit down with a witness or other third party and ask formal questions. The party, under oath, must answer the questions to the best of his/her ability. Such information can then be used in court when arguing the case.
After the discovery phase, assuming that no motions are made, the court will go to trial. After the trial is over, the jury will decide on the issues of fact, and the judge will decide on the issues of law. This means that the jury will find the defendant guilty or not guilty and the judge will then determine the penalties.
Overall Cost of Litigation
While the concept of litigation can be far more complex and involved than stated herein, the principal fact is that litigation can be incredibly costly. Depending on what type of issue is in dispute, the parties could see themselves litigating for years. This is why any form of alternative dispute resolution is favored and often advisable for all litigation issues. The costs become even more if the parties can’t settle their issues outside of court, thereby requiring a lawsuit to ensue.
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