Chapter 9

• Jurisdiction: United States

Chapter 9

How to Create a Litigation Budget

Rod [NFL wide receiver]: It’s something very personal, a very important thing. Hell, it’s a family motto! Show me the money! Show! Me! The! Money! Jerry, it is such a pleasure to say just that! Say it with me one time, Jerry.

Jerry [sports agent]: Show you the money.

Rod: No. No. You can do better than that! I want you to say it, brother, with meaning! Hey, I got Bob Sugar on the other line. I bet you he can say it!

Jerry: Yeah, yeah, no, no, no. Show you the money.

Rod: No! Not show you! Show me the money!

Jerry: Show me the money.

Rod: Yeah! Louder!

Jerry: Show me the money! Show me the money!

Rod: Congratulations, you’re still my agent.

—Jerry Maguire (1996)

Overview

So you’ve created a risk assessment and analyzed the risk or opportunity presented. And you’ve created a discovery plan using the methodology laid out in the previous chapter. Now it’s time to create a litigation budget. In most high-risk, complex cases, your client will insist that you prepare a litigation budget and then manage the work to that budget. If your engagement is under an alternative fee (e.g., contingent fee, blended rate, capped rate with an upside based on outcome), then accurate budgeting and managing to the budget determines profitability.

Beyond the financial aspects, a litigation budget is an important time management tool. Time is a litigator’s most important asset. For litigators, time is money. The litigation budget shows how the money will be spent. (Show me the money!) Your time on complex cases must be well spent. Inefficiency is not an option. Lawyers who are poor at estimating the legal spend and/or poor at managing to that legal spend don’t thrive.

This chapter first provides some perspectives on budgets and then provides a ten-step method for creating a litigation budget.

Perspectives on the Budgeting/Estimating Process

The previous chapter, about creating a discovery plan, emphasizes what lawyers are paid to do: either construct the case or deconstruct the opponent’s case. Let’s stick with that focus and take it one step further.

Assume you hired a contractor to remodel your kitchen. The first thing you’d ask the contractor for is an estimate based on your remodeling plans. Could the contractor give you an accurate estimate over the phone without looking at your kitchen, learning your plans, and performing some preliminary assessment work? No. The contractor would need to inspect the kitchen, consider your plans, and discuss your timeline, the scope of the work, and how much you’re willing to spend. The contractor would want to know the core constraints for the project.

Following the initial meeting, the contractor would have to do some follow-up: contact the city building department to determine the permit process, talk with subcontractors to confirm availability, check with suppliers about the price of the appliances you want installed, etc. All of this workup would be completed before the contractor created an estimate for the remodeling job.

Lawyers creating a litigation budget for high-risk, complex cases should follow a similar process. They should have a thorough understanding of the work involved and the core constraints before creating a litigation budget.

For a litigation budget, clients have the same expectation that you have about your contractor’s ability to provide an accurate estimate for your kitchen remodel. Most clients—especially those with an extensive litigation history—believe that an experienced litigator should provide an accurate estimate of the legal spend, especially for a case involving familiar subjects, issues, or venues. Clients know that accurate budgets are created to build skyscrapers and produce multi-million-dollar films, so they will not understand why an experienced litigator can’t create an accurate budget for a complex case. Sophisticated clients, those who are litigation savvy, have a keen understanding of the likely legal spend.

Lawyers are often asked to create a litigation budget as part of a selection process, where a prospective client receives proposals from law firms pitching to be chosen for a new case (the “beauty contest”). Or lawyers create budgets as part of the client’s initial case-intake process soon after the firm is engaged. Litigation budgets prepared under these circumstances can be wildly inaccurate. The budget presented during the selection process is often prepared so the firm can secure the engagement. It is typically way too low, which is no accident. It is intended to be lower than those submitted by other firms competing for the case. A low budget is great if it helps to secure the engagement, but it’s lousy if the firm is stuck with it in the actual engagement. The same goes for the budget prepared as part of the client’s initial intake procedures. If prepared without a thorough understanding of the case and a solid discovery plan, it will be inaccurate and most likely way too low.

Ten Steps to Create a Litigation Budget

1. Create the risk assessment and discovery plan before you
create the budget.

To harp more on a previous point: you can’t create a meaningful litigation budget if you haven’t assessed the risk/opportunity and prepared a discovery plan. The risk assessment determines the amount to spend on the case because the legal spend should be proportional to the risk or opportunity presented. Because discovery usually consumes most of the legal spend...