Managing Legal Risk vs. Avoiding A Trial

For corporations, it is common to hear phrases like “risk management” and “acceptable business risk.”   These phrases are often code phrases for internal decisions about how perfectly the business complies with all laws and how it has planned to deal with problems.

Internal audits provide some means to manage risk of non-compliance because the company is actively inspecting itself.   Insurance is another means to address claims – everything from injuries on the corporate premises (slip and fall cases), errors and omissions, and EPLI are just a few of the areas where corporations will seek coverage.  Of course, there then are the “required” insurance programs – workers compensation and unemployment compensation.

These techniques are helpful to managing legal risks, but beyond proactive litigation planning, they do not directly address litigation and – importantly – going to trial itself.   Many articles describe ways that businesses can attempt to avoid litigation and trials, and most include mediation and arbitration clauses as a tried and true means.  They must be on to something.

Studies have shown that mediation and arbitration clauses can reduce the costs of the “dispute,” by narrowing the scope of legal fees.  The rub for “proving” that mediation and arbitration are indeed more cost effective and faster than litigation is that it cannot be proven because the dispute will follow only one of the two paths.  Thus, no perfect comparison can be made.

However, the costs of trial can be estimated.  Often, business disputes involve two attorneys and one paralegal “per party” and at least one day of  trial that has involved at least one full day of preparation.  So, let’s do some math for a Acme v. XYZ, Co.’s trial (which excludes all of the litigation/discovery that occurred before the trial):

Four Attorneys X 8 Hours/Day = 32 Hours

Attorney’s Hourly Rate ($250) x Two Days = $500.00

So, just for the attorneys: $500 x 32 = $16,000.00

Paralegals often are billed at an hourly rate of $60-160.   ($60 x 16 hours x 2 Paralegals = $1,920)

Total:  $17,920 (truly, minimal here).


Now, contrast this minimal trial preparation and trial time costing both parties $17,920 with a “bill” for a full-day of mediation:  8 Hours of Mediation x $250/hour = $2,000.00.

And, that $2,000 is split between the parties.

The math is pretty persuasive for favoring the use of arbitration or mediation.  And, it can start with including a mediation clause in business contracts.  Contact One Mediation for sample language today!


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: