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Note to Clients: Talk to Your Lawyers About the Risks of Having to Pay Court Costs

Posted: October 5, 2011 Filed under: Commentary, Law-Related News

Lawyers make a good deal of money by filing, defending, and litigating lawsuits. So, it is no surprise that some attorneys downplay risks associated with litigation, especially risks attending loss. There are also a good number of litigants – both individuals and organizations – who focus only on the upside, i.e., how much they stand to gain through the lawsuit. Consciously or not, these clients see the risk of losing as minimal, and even if they acknowledge the risk of loss, they may not realize they are potentially liable for the “costs” incurred by the prevailing party. When an attorney who prefers not to talk about the risks of litigation meets a client who prefers not to hear about such risks, the ingredients for disaster are mixed.

There is a difference between “attorney’s fees” and “costs.” This post concerns only the latter. Prevailing parties are almost always entitled to a judgment for “costs,” even when they may not be entitled to recover their attorney’s fees. The definition of a “cost” depends upon the law governing the court in which the litigation is filed and is usually spelled out in a state or federal statute or procedural rule.

Historically, the risks of an adverse cost judgment have been relatively manageable. “Relatively” because the amount of costs permitted by law or rule has often been small in comparison to the amount in controversy. Costs are commonly understood to include filing fees, witness fees, court reporter and transcript fees, and so forth. In many cases, costs may be just a few hundred or few thousand dollars. Of course, costs of several hundred dollars may be a significant amount for the average person and many small businesses.

But consider the recent decision by the U.S. District Court for the Western District of Pennsylvania in the case Race Tires America, Inc. v. Hoosier Racing Tire Corp. & Dirt Motor Sports, Inc. There, the court awarded a whopping $367,359 for electronic discovery costs the defendants incurred as the result of discovery requests submitted by the unsuccessful plaintiffs. In another case working its way through the courts, a federal clerk has entered a costs award of more than $500,000. Both federal cases follow a 2008 amendment to 28 U.S.C. § 1920(4), which changed the word “papers” to “any material.” The statute now authorizes recovery of “[f]ees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case.”

With technology and e-discovery issues becoming increasingly common in all sorts of litigation, the costs associated with electronic discovery will likely become a more commonly litigated issue after the merits of a dispute have been resolved. Regardless, even absent e-discovery costs, the risk of an adverse judgment for other types of costs is still a significant issue that clients commonly do not fully understand. That is why attorneys should have candid (and ongoing) conversations with their clients about the risks of litigation from the outset and why clients should insist on hearing about the bad and the ugly in addition to the good.

Admitted: Florida, Kansas, New Mexico (inactive)