Tuesday, August 12, 2008

Litigation Costs

The Wall Street Journal's Sarah Rubenstein blogs today about a new rule being proposed by the Financial Accounting Standards Board. The proposal requires companies to provide a "best estimate of the maximum possible exposure to loss" when a plaintiff sues the company for unspecified damages.

The thinking behind this rule is that stockholders are entitled to know the risk of owning, and continuing to own, stock in a company.

Many companies who have a lot of experience in large products liability defense cases have corresponded with FASB making the case that this type of litigation cost estimate is, at best, difficult. Here's a copy of the letter.

What's this have to do with dispute resolution?

A lot.

This letter outlines the reasons why litigation is so expensive. Cases may take years to get to trial. Discovery is incredibly expensive. And the ultimate risk is found in a fundamental right in our justice system: the jury. The letter points out that in one Vioxx case, the range in value had a high of $250 million (jury verdict) to a low of $0 (overturned on appeal).

Parties certainly need to conduct some level of discovery to have a grasp of the facts and exposure a particular case provides. But the uncertainties of a verdict (whether one is liable or not) and the amount awarded puts control of one's fate in the hands of twelve folks who may or may not be your "peer." And even if you hit it big at the trial level, there's always the court of appeals that you may get to deal with.

Take control of as many of the risks as you can. Seek a qualified resolution specialist to help you manage the inherent risks in litigation.

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