When does it make sense to file or defend a lawsuit?
When does it make sense to file or defend a lawsuit? That is a deceptively simple question. Many people who aren’t attorneys—including myself before I passed the bar—thought that as long as someone has the facts and the law on their side they should just slap a lawsuit on the opposing party and proceed gung-ho to the finish. Likewise, if someone sues you, you should fight to the last gasp to defend your honor, regardless of the risks or the costs.
Or so I thought. Since starting to practice law and having represented clients in dozens of lawsuits now, I’ve gotten a different perspective on when litigation is and isn’t worth it. And I bring that perspective to bear now when I advise clients about what their options are and the pros and cons of each. In this podcast, I am going to discuss some of the factors that frequently come into play when someone is deciding whether to enter the litigation arena.
The first and foremost factor that drives this decision is, naturally, legal fees. So, I am going to spend a bit of time on that issue and discuss how Idaho law approaches the issue of attorney’s fees in lawsuits. It’s no secret that litigation is expensive. Although the vast majority of cases are resolved before trial (whether through settlement, summary judgment, or motions to dismiss), the cost of taking a case through trial these days can easily get into six figures. Those costs include not just attorney’s fees but also expert-witness fees, which are commonly required for real property lawsuits that involve issues of surveying, engineering, construction, and other matters in which qualified expert testimony is typically needed. Depositions are common in lawsuits as well and carry their own fees for court-reporting services and transcripts.
Given the substantial expenses involved in lawsuits, it is highly advisable before entering litigation to get as clear an idea as possible of what is at stake in the case. And by that I mean getting an idea of what financially is at stake. Most people like to be proven right and, under certain circumstances, go to war for principle. But when legal bills start mounting, those concerns can quickly take a back seat when the financial realities set in.
How does this look in practice? For example, say you bought a house and the seller didn’t disclose to you that certain repairs would be needed. Should you go after the seller on a claim for fraud? Maybe, maybe not. The likelihood of proving that seller defrauded you is certainly one of the main issues to evaluate. But also, you must evaluate the cost of having the necessary repairs done. Then you have to compare that cost with the anticipated cost of entering a lawsuit. If, for example, the repairs will cost $6,000, that is a substantial figure for most folks—especially if you’ve just bought a house and have a brand-new mortgage to start paying.
But compared to the likely cost of pursuing a case through the court system, $6,000 starts to look relatively minor. You could easily end up spending multiples of $6,000 fighting in court to recover that amount. And unless you have a true smoking-gun, slam-dunk case (which would more often than not settle quickly), there is a risk that a judge or jury won’t see things your way and will leave you with nothing to show for your time and expenses. On many occasions, I have had to discuss this type of thought process with clients and potential clients, and it is never easy to hear or to say—especially if someone appears to have genuinely been wronged. But it is necessary.
As far as the law is concerned, the key issue to zero in on when considering a lawsuit that may or may not cost more than the amount at stake is whether you could, if you prevail, get an automatic award of attorney’s fees and costs. There are several different ways such an award can come about. First, if you have a contract with someone—say, a contract to buy property—the contract may have language saying that if a lawsuit arises from the contract the person who wins the suit is entitled to have the other party pay their attorney’s fees and costs.
This type of language is common in contracts that I draft, because it enables a party who is the victim of a breach to seek relief in court without being dissuaded as much by the costs of doing so. Without an attorney’s-fee clause like that, parties to a contract can be left with no practical recourse if the other side breaches.
Idaho statutes also provide for attorney’s fees in certain cases. There are a number of Idaho statutes that can provide for attorney’s fees in certain types of cases. I don’t have time to discuss them all here, but I will mention some of the most commonly litigated attorney’s-fee statutes here.
First, there is Idaho Code section 12-120. That statute has certain subsections that are frequently brought up in lawsuits. Subsection 12-120(3) states, in part, that in lawsuits arising from commercial transactions or contracts for the purchase and sale of goods or services, the prevailing party is entitled to an award of its reasonable attorney’s fees and costs. Many lawsuits fall into this category, although it is often disputed in particular cases whether the case was really about a “commercial transaction” or a contract for purchasing goods and services. A “commercial transaction” for purposes of this statute is defined as any transaction except those for personal or household purposes.
A significant number of cases in Idaho have applied this definition to different sets of facts, and unfortunately we don’t have time to discuss all those cases today. But as one example, a business that contracts with a professional for goods or services (say, construction of an office building) may, if they end up having a lawsuit and winning, be able to recover attorney’s fees under Idaho Code section 12-120(3).
Idaho Code section 12-120 also has subsection (1). Under subsection (1), if someone sues for $35,000 or less and wins the case, they can recover their attorney’s fees if they prove that, at least ten days before filing the case, they made a written demand for the amount at stake in the case. If, however, the defendant proves that before the lawsuit they paid at least 95% of the amount demanded by the plaintiff, no attorney’s fees will be awarded under Idaho Code section 12-120(1). A defendant can also get fees under section 12-120(1) if they win the lawsuit.
In other words, in cases where the plaintiff (i.e., the person who files the lawsuit) sues for $35,000 or less, they can get an award of fees if they win and if they complied with the demand-letter requirement in the statute. Like contract clauses that provide attorney’s fees to the winner of a lawsuit, this statute helps people enforce their legal rights where it would otherwise be too costly to do so. Nevertheless, someone looking at 12-120(1) as the basis for attorney’s fees needs to have their attorney objectively evaluate their chances of winning the case, as losing the case could mean having to pay the other side’s attorney’s fees and costs.
Next, there is Idaho Code section 12-121. Under this statute, the court can award attorney’s fees and costs to the winner of a lawsuit if the court finds that the losing party pursued its case frivolously, unreasonably, or without foundation. Now, in my experience it is rare that someone in a lawsuit does not feel the other side is pursuing its case frivolously, unreasonably, and without foundation. But just because one believes the opposing party’s case is frivolous does not mean the court would agree—even if the court rules that you win the case. It is somewhat rare for Idaho courts to rule that a non-prevailing party pursued its case frivolously, unreasonably, or without foundation. That is because in most cases there are genuine disputes as to the facts or about how the law should apply. And sometimes, a lawsuit will present a legal issue or factual issue that the courts have not addressed before. In that type of case, even if you win you are not likely to convince the judge that the other side was frivolous or unreasonable in pursuing their case. The upshot is that it is usually not advisable for someone to assume that if they win their case they will get attorney’s fees under Idaho Code section 12-121.
There are a number of other statutes in Idaho that, depending on what type of lawsuit is involved, may provide an award of automatic attorney’s fees and costs to the winner. It is always wise to know before going into a lawsuit what, if any, statutes would provide either you or the other side with an automatic award of fees and costs.
Contract clauses and statutes about attorney’s fees usually specify that the award of fees must be “reasonable.” In other words, the court has the right to review the charges submitted by the attorney for the prevailing party to see if, in the court’s discretion, it finds the charges to be excessive. If so, the court may reduce the amount of fees awarded to what the court believes is reasonable under the circumstances.
Overall, then, while the decision to enter a lawsuit typically involves at least some emotions, it is (or ideally should be) an economic decision at the core. To that end, people embarking on litigation should, as early as possible, determine what they hope to get out of the case, what their chances are of getting that, what they would likely spend to get there, and the likelihood of recovering their legal fees if they win. By planning ahead in that way, people can minimize the chance of spending a dollar to get a quarter.
At Timely Contract, our primary legal services include: real estate contract review, real estate contract drafting, legal opinions for title insurance exceptions, and research, due diligence, and legal opinions for properties.