The Litigation Budget

Because of fears that litigation is too costly, reduction of litigation expenses has been the touchstone of procedural reform for the past thirty years. In certain circumstances, however, the parties have incentives-both rational and irrational-to spend more on a lawsuit than the social benefits that the case provides. Present and proposed reform efforts do not adequately address these incentives, and, in some instances, exacerbate the parties' incentives to overspend. The best way to ensure that the cost of a lawsuit does not exceed the benefits that it provides to the parties and society is to control spending directly: to require the parties to file and live within litigation budgets. These "costs budgets," which are already in use in the United Kingdom, help to ensure that the costs of litigation remain less than the benefits. After describing the workings of a costs-budget system, the Article considers practical, political, and constitutional critiques. None of these concerns is disabling. American rulemakers who are serious about containing the litigation costs should grant courts the power to use costs budgets.I. INTRODUCTIONA controversial set of amendments to the Federal Rules of Civil Procedure will likely come into effect within six months.1 A principal object of the proposed changes is to limit the amount of information that parties can obtain during discovery.2 No one who is advocating discovery limitations is suggesting that party access to information is inherently bad.3 In theory, more information should lead to a better resolution of a dispute. The perceived problem is that obtaining information can be expensive, so that, in the eyes of some, the value of the information discovered is not always worth its cost.4This impulse-to prevent excessive expenditure on litigation- also underlies recent judicial efforts to raise the pleading bar. Noting that "proceeding to . . . discovery can be expensive"5 and that "the success of judicial supervision in checking discovery abuse has been on the modest side,"6 the Supreme Court has imposed a "requirement of plausibility" on complaints filed in federal court.7 If parties could obtain information at modest cost, this restrictive approach to pleadings would be unnecessary.The same story could be told over and over. The central theme in the past thirty years of American procedural reform-with its rise of case management and its emphasis on proportional discovery-has been the effort to keep litigation costs under control.8 As the frequent waves of reform suggest, the effort to date appears not to have been especially successful.9 One reason may be that rulemakers are responding to the myth of outsized litigation costs rather than to the reality of a system that functions reasonably well.10 To the extent that a "litigation cost" problem exists, however, the reason for the persistence of excessive cost is evident: rulemakers are trying to cure the symptoms rather than the disease. If the goal of heightened pleading, limited discovery, and case management is to reduce costs, then rulemakers should do so directly. They should limit the amount of money that litigants can spend on a lawsuit.The method for doing so is simple. Before the first case conference, each party should submit a budget detailing the costs that the party expects to incur in the case. After examining both budgets as well as the nature of the case, the court should determine the amount of money that each party can spend and enter an order requiring the parties to stay within their budgets.11This "litigation budget" approach may sound fanciful, but British courts implemented it in 2013.12 Because British courts typically use the English (or loser-pays) rule,13 the court has a stick with which to enforce the parties' compliance with its budget order: it will generally award a winning party no more in fees and costs than the amount approved in the budget.14 Because American courts typically employ the American rule, under which each party bears its own fees and most of its own costs,15 adapting the British approach to the American system requires practical adjustments that raise practical, political, and constitutional concerns. …