Survey Highlights Continued Trend Toward Controlling Class Action Litigation Costs/Risks

May 13, 2013

Across industries and practice areas, class action lawsuits continue to affect companies, and corporate legal departments are devising better and more innovative matter management and cost control tools to combat them. According to the 2nd Annual Carlton Fields Class Action Survey, corporate counsel report that they are seeing more high-risk matters and fewer routine matters. Overall, they reported that although class actions are on the rise by 16 percent, spending per suit is down nearly 14 percent from 2011 to 2012.

Consistent with last year’s survey findings, corporate counsel calculating potential financial exposure based on a rigorous case assessment and modeling reap the rewards of substantial cost savings. Companies that employ this strategy spend 38 percent less per class action and 42 percent less on outside counsel than companies that do not conduct a rigorous assessment.

“This is a significant finding and it reveals an emerging trend,” said Chris Coutroulis, chair of both Carlton Fields’ Class Action team and the firm’s Litigation Council. “Corporate legal departments are being more strategic with their class action suits when they have delved into cases at the outset. Some companies do this as a part of setting a reserve, but it’s not the setting of a reserve itself that makes the difference — it’s the process of investigation to reach that number that has an impact. Corporate counsel can better manage a case when they have evaluated risk and exposure early on.”

This annual class action survey presents important opinions of more than 360 general counsel, chief legal officers, and direct reports to general counsel at major corporations (including many Fortune 100-1000) with average annual revenues of $13.1 billion.

“This survey is a call-to-action for in-house counsel to learn about successful ways their peers are managing class actions effectively and better controlling their costs,” added Coutroulis.

The 2013 survey, which discusses findings on topics ranging from risk mitigation tools, the impact of recent case law, cost control approaches, and alternative fee arrangements, presents additional key findings:

  • Corporate counsel report that “extent of exposure” is the most important variable when evaluating risk, followed closely by “probability of win/loss” and “cost of defense.”
  • Alternative Fee Arrangements continue to rise. Nearly one-third of companies rely on AFAs (a 35 percent increase from 2011). Fixed fees remain the predominant AFA type.
  • Corporate counsel managed an average of 5.1 class actions in 2012, up 16 percent from 2011. They predict the average number of class actions will dip slightly in 2013.
  • This growth (16 percent) in the number of class actions, coupled with the number of new class actions remaining relatively constant, indicates that class actions are taking longer to resolve.
  • Wal-Mart v. Dukes and AT&T v. Concepcion continue to have an impact on class action management, yet while 55 percent of companies include arbitration clauses in contracts, only 21.4 percent of those address class actions.
  • In-house counsel are consolidating law firms used for class actions from 4.6 in 2011 to 3 in 2012. This contrasts with the general trend of expanding law firm rosters.

Source: Carlton Fields

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