Lawsuit Increase Forecasted Due to Economic Recession

Whenever there is economic turmoil, tempers flair and lawsuits fly.

Stephen C. Dillard, chair of Fulbright’s global litigation practice says that the U.S. is coping with an “inflection point between the end of a prolonged period of prosperity and the start of a period of economic challenge that is likely to fuel litigation over who is to blame and who should pay for the consequences.”

The fifth annual Litigation Trends Survey, issued by the law firm Fulbright & Jaworski, reveals that though new case filings and enforcement actions were down in the past two years—17 percent stayed litigation free in 2006-07 and 21 percent stayed litigation free in 2007-08—this trend will turn around in the coming year, due to the nation’s faltering economy.

The ever popular saying from the 90s “mo money mo problems”, remains true today. Between 2007 and 2008, 29 percent of billion-dollar firms were served with more than 50 new lawsuits. Forty-three percent of those in the same bracket anticipate that in the coming year, there will be a rise in litigation.

Only 8 percent of U.S. in-house counsel anticipate a decrease in legal disputes involving their companies next year, but they’re outnumbered four to one.

Money Spent on Litigation

In the past year alone, suits with claims above $20 million dropped from 2007. Yet, the obviously sputtering U.S. economy has darkened the mood of many, resulting in banking crisis, corporate bankruptcies, layoffs and government investigation—all of which can lead to lawsuits. Of the almost 360 U.S. and U.K. in-house counsel members who took the survey, 251 were from the U.S. In contrast to the U.K.’s in-house counsel, of whom 21 percent predict a rise in new lawsuits against their companies, 34 percent predict that their U.S.-based companies will face new lawsuits.

Forty-five percent of U.S. companies spend $1 million or more on litigation, not including judgments or settlements, each year, while only 34 percent of U.K.-based firms spend this amount. The survey found that insurers were the biggest spenders. Over half of the insurance companies that took the survey, 53 percent, budgeted at least $1 million for litigation. Between 51 percent and 52 percent of energy providers, manufacturers and financial services firms budgeted for the same amount.

Common Ways Companies Get Hit

Why are companies spending upwards of $1 million on litigation per year? Lawsuits can come from any angle. The most common lawsuits that face U.S. companies are labor/employment, contracts and personal injury. Nearly one third of respondents said that there was a rise in multi-plaintiff suits to do with wage-and-hour claims within the past year. Twenty-nine percent noticed an increase in discrimination cases, including age related claims—although, with all the discussion about the generation gap, is this really that surprising? Many companies also noted a rise in privacy suits.

In addition, each industry and region of the U.S. has their own common types of lawsuits as well. On average, technology-communications companies deal with more IP disputes than companies in other industries; financial services firms have highest number of security incidents and energy firms deal with the most energy matters. More surprisingly, however, is how significantly different problems arise throughout different regions of the U.S. Companies located in the Northeast deal with the most environmental cases, while those in the Southern U.S. deal with the most class actions and products liability, and companies based in California worry most about employment actions.

Tech Litigation

Technology of course plays a role in today’s litigation process. Both e-discovery and electronically stored information remain important to pending cases. Yet, of those surveyed, 12 percent said that they haven’t been well equipped to deal with seemingly complicated electronic data findings during a litigation process. Eighteen percent of financial services firms and 19 percent of technology firms said they aren’t. Even though these numbers might seem low, both the financial and technology industries have an abundance of e-files and other electronically stored data, meaning they’re the ones that need the best practices in this area.

Offshoring

One option to help diffuse the expected rise in lawsuits is offshoring. The number of legal firms offering offshore help has been on the rise in recent years, yet many U.S. companies don’t use this option. Technology firms are among the highest users, with 12 percent comfortable to get help from an offshore law firm. However, many are afraid of outside counsel, especially from another country, finding out about company matters they hope to keep quiet.

Survey respondents span 10 industry groups, including financial services, technology-telecom, retail, energy and manufacturing.