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Liable but broke: Why some legal battles aren’t worth fighting

by | Dec 19, 2013 | Firm News |

While it may sound cynical, lawsuits are really about money. Injured people initiate lawsuits because they need money to cover their medical bills, help them cope with disabilities and time off work, and replace lost or damaged property. In fact, a basic principle of the tort legal system is that almost all injuries can be converted into a dollar amount. Of course, attorneys also need to be paid in order to keep their practices open and continue serving clients, and finally the legal system itself costs money to operate. As a result, after all the legal questions have been addressed, all the evidence gathered, lawsuits come down to a collection effort. The amount due, whether from an insurance settlement or a court ordered judgment, must be paid or the entire effort will have been for nothing. Unfortunately, some defendants simply don’t have any money, or at least not enough to pay for the damages they caused. Even where money is available on paper, actually getting those dollars to the proper person can sometimes be challenging.

Because of these issues, one of the factors that significantly impacts the viability of a lawsuit is the predicted ability to collect on any positive outcome; in short, the question of whether or not the plaintiff can actually get paid at the end. There are many reasons why collecting on a judgment might be difficult. Sometimes even the best cases, those with clear liability on the part of the defendant and serious damages to the plaintiff, are just not viable in practice.

Indigent Defendants

The most common of these heartbreaking cases involve situations in which the defendant simply does not have any resources from which to satisfy their legal obligations to the injured plaintiff. It might be that the at-fault driver of the car that caused the pile-up only carried state-mandated minimum levels of car insurance (currently a mere $15,000/$30,000); nowhere near enough to cover a prolonged hospital stay or major surgery for even one person, let alone several passengers. Or perhaps the responsible party is simply low-income and has neither property nor a steady source of revenue from which to pay a judgment. Whatever the circumstance, the collectability of a suit may make even good legal situations into poor practical cases.

Bankruptcy

The threat of paying out on a judgment or settlement may drive a defendant to seek refuge in the bankruptcy system. In bankruptcy, many legal judgments can be discharged for mere pennies on the dollar, or sometimes for nothing at all. The bankruptcy process essentially gathers all of a defendant’s assets into a single pool and uses that pool to pay as much of the defendant’s debts as possible. In other words, if a defendant has 100,000 worth of debt and only 50,000 worth of assets (property, savings, etc.), the bankruptcy courts will use their authority to distribute that 50,000 evenly among the creditors; each of whom will collect approximately 50 cents for every dollar they were originally owed. At the end of this process, each of the debts that were addressed by the court will be considered settled in full, thereby wiping out any further capacity to collect on those debts. In many bankruptcies, the debtor has so few assets that almost nothing is paid to creditors. Where those creditors include an injured plaintiff, even the best of legal judgments may not earn the plaintiff any real payment.

Medical Providers and other outstretched hands…

In many personal injury cases, a plaintiff is left with substantial medical bills. Even where some portion of these bills is covered by health insurance, the policies frequently include provisions which give the insurer some right to at least a part of any eventual legal settlement. Known as subrogation rights, these provisions may mean that a successful plaintiff obtains a settlement or judgment, collects the money, and then has to turn around and give a large portion of those dollars to an insurance company to repay them for the cost of earlier care. Where there is no insurance, medical providers may seek payment from a legal settlement directly. In some situations, cautious defendants will even seek to pay such providers directly, in others insures may get a court order to directly pursue some of the settlement or judgment. Effective attorneys understand when and how these kinds of subrogation and payment demands will develop and can advise a prospective client about the repercussions of the case right at the outset.

Costs of trial

Even where eventual payment seems likely given the resources of the defendant in question, the costs of running a trial to the point of collection can be prohibitive. Sometimes to win a trial money must be spent; occasionally large amounts of money. To make matters worse, some cases take many years to work their way through the courts. In these situations, someone has to cover the ongoing costs of managing the case. These costs don’t just include lawyer’s fees but can also stem from the charges of experts, document fees, or the costs of obtaining evidence. While many personal injury attorneys work on a retainer system under which they get paid only at the end of a successful case, the risks involved might be simply too high to merit a substantial up-front investment.

What it all means

In the end, what most plaintiffs really care about is being made whole for their injuries; about collecting money to cover their expenses, pain, and other losses. Unfortunately, even where there is a clear legal case, even experienced attorneys may sometimes be unable to take it because of the low probability of obtaining payment or because of the high costs of trial. While most personal injury attorneys really do understand and appreciate the pain and suffering of their clients, some cases just do not have a sufficient likelihood of a positive collection effort to be worth taking. No matter how much an attorney wants to take a case, no matter how sympathetic a client’s plight, if there is no way to get paid at the end, no one comes out better off from a fruitless legal battle.