Survey Reports Drop in New Lawsuits, Actions Filed Against U.S. Companies

October 15, 2007

It may be too early to say that conflict has become passé, but U.S. businesses report a distinct drop in the number of lawsuits filed against them in the past year, according to the latest Litigation Trends Survey conducted by international law firm Fulbright & Jaworski L.L.P.

Based on interviews with in-house counsel at 250 major U.S. corporations, 17 percent of respondents said their companies had escaped the past year without having to defend a single new lawsuit, up sharply from only 11 percent in 2005-06.

American corporations also appear to have backed off as plaintiffs – 65 percent of respondents said their company had initiated at least one lawsuit in the past year, down from more than 70 percent a year ago and an even steeper drop from 2004, when 88 percent of U.S. companies said they had initiated litigation.

That litigation may have softened in recent months is evident on another front in the Fulbright survey: only 22 percent of in-house counsel said they expect to see the number of legal disputes their companies face increase over the next 12 months; a year ago, 33 percent said they were anticipating a rise in lawsuits involving their company.

Even the government seems to have lightened up a bit: 48 percent of companies reported some regulatory proceedings brought against them in the past 12 months, down more than 4 percent from a year ago. Internal investigations fell even more sharply. By contrast, U.K. companies have experienced significant increases in both categories.

This is the fourth year that Fulbright & Jaworski has undertaken a broad overview of the litigation climate in the U.S. and the United Kingdom, and the first time the firm has detected a decline in overall case filings. Yet even as some types of actions appear to have dipped in the past year – notably securities and bankruptcy disputes – other kinds of litigation are on the rise, particularly patent cases and lawsuits stemming from product liability.

And despite the slowdown in new filings this past year, U.S. companies continue to face large numbers of pending cases in multiple areas and jurisdictions, enough that a third of corporate law departments surveyed count more than 25 lawsuits at any one time, including 18 percent juggling at least 100 actions in U.S. courts.

Economic costs
The sheer economic stakes of litigation remain daunting. Forty percent of U.S. companies say they were hit with at least one suit in the past year with more than $20 million at issue. Among billion-dollar businesses, 62 percent were served with at least one $20 million lawsuit.

Ninety-three percent of insurers and retailers reported having to defend at least one new case this past year, and more than half from both sectors got stung with one or more $20 million disputes, the highest of 10 industry segments represented.

Insurers contended with the most $20-plus million cases – 54 percent taking on more than 20 such actions.

Other segments with above-average representation in the $20 million club included: energy (47 percent facing at least one $20 million-plus suit), technology (44 percent), and manufacturing (42 percent). Education and financial services saw the fewest new filings – 38 percent of both industries had zero actions taken against them. Not a single education or real estate firm was looking at even one $20 million case.

Could U.S. business litigation really be shrinking, even as companies face greater magnitude verdicts and settlements, and increase their budgets for disputes? Indeed, nearly 20 percent report that their annual litigation spending (apart from cost of judgments and settlements) is $5 million or higher.

“The data this year point to a pronounced drop in new case filings – both against, and by American companies, a reversal of the upward trajectory in the number of new lawsuits from our previous three surveys,” said Stephen C. Dillard, chair of Fulbright & Jaworski’s global litigation practice.

Dillard said a stable economic climate through the first half of 2007 – including a generally rising stock market – likely lessened the number of public company disputes (64 percent of firms represented in this year’s survey are publicly held). At the same time, he noted that the ebbing of the big corporate accounting scandals from earlier in the decade had brought a decline in securities class actions and other kinds of investor strike suits.

As Dillard observed: “Companies confront a host of actions – and adversaries – in so many areas impacted by credit market jolts, government regulations, media investigations of corporate misbehavior, stepped-up enforcement activity, and one-time events like a recall or environmental accident. Any and all of these occurrences tend to provoke a litigation response in many segments, including consumers, employees, investors, enforcement agencies and competitors.”

To illustrate the breadth of the litigation landscape, Fulbright & Jaworski asked corporate counsel to name three to five types of disputes that most concern them. U.S. respondents cited 15 different categories of litigation exposure, with nearly all competing for high priority attention.

“The lesson in our trends survey is that litigation can come from any direction and companies need full peripheral vision,” Dillard added.

The Fulbright survey, the largest study of its kind, takes a macro look at U.S. and U.K. litigation and arbitration issues, covering such topics as internal investigations; electronic discovery and records retention; average settlements; use of outside counsel and attorney billing (including alternative fee structures); alternative dispute resolution; compliance and regulatory matters; class actions; stock options backdating; and company attitudes toward their outside lawyers.

In looking at trends in government enforcement, the survey addressed the issue of attorney-client privilege and found that a growing number of businesses – including one-third of the billion-dollar firms responding to the survey – reported waiving privilege as a show of cooperation with regulators. “Companies facing government investigations have increasingly found themselves in a tough place. They don’t want to expose an employee, but they’re acutely aware of the penalties and fines that can accrue if they hold onto privilege at all costs,” said Robert Owen, head of Fulbright’s New York litigation group and one of the architects of the annual litigation survey.

Fulbright took a close look at intellectual property disputes this year, with particular emphasis on patent litigation.

“There is a clear sense that patent cases are trending upward, and not just among technology companies,” Dillard said. He observed that corporate counsel ranked their methods for defending against IP claims, everything from negotiating licenses to going all out to trial for final judgment.

The survey also addresses company policies on retention of employee voice messages and instant messages, which are playing an ever-growing role in discovery and disclosure during so-called litigation hold periods.

“Our goal for the survey is to provide in-house law departments – as well as management, boards and other stakeholders – a detailed situation map of the U.S. and international litigation scene,” Dillard said. “We hope the findings can help them make informed decisions and be prepared to act should they find themselves facing a similar set of circumstances.”

For a direct link to the full survey findings, go to:

Source: Fulbright & Jaworski

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