Cost of Litigation Haunts U.S. Corporations More Than Winning Cases

Electronic Discovery and Regulatory Compliance Become Biggest Thorns for Corporate Lawyers

Litigation has become the great equalizer of the modern corporation.

Regardless of size, industry or location, there is certain to be a sizeable number of disputes diverting the resources of American businesses. Nearly 90 percent of U.S. corporations are engaged in some type of litigation, and the average company balances a docket of 37 U.S. lawsuits.

For $1 billion-plus companies in the U.S., the average number of cases being juggled at home soars to 147.

These are some of the findings from the 2005 Litigation Trends Survey from the international law firm Fulbright & Jaworski L.L.P The company surveyed mid-sized firms in 45 states.

The ubiquity of litigation in American business goes a long way toward explaining the overriding concern corporate attorneys have with controlling litigation expenses. Indeed, respondents expressed more concern about what they perceived as the high costs of litigation than they did about winning or losing the underlying lawsuits.

The unpredictability of the pace or size of cases makes budgeting for litigation a difficult task. Just under 40 percent of U.S. corporate counsel are still unable to predetermine the costs of managing business disputes. Of the companies that did track spending (half of the respondents), 10 percent of counsel reported that their legal spending accounts for 5 percent or more of their company’s overall gross revenues, which for a $1 billion business, would translate into $50 million.

Some of the survey’s findings seem to be ripped from recent headlines, including dramatically increased concerns about the burdens stemming from electronic discovery in light of high-profile events, such as the Frank Quattrone trial and the Arthur Andersen Supreme Court decision. Electronic discovery was the number one new litigation-related burden for companies with revenues over $100 million.

Electronic discovery challenge
U.S. companies surveyed are mindful of the consequences of faulty record keeping: over 80 percent now have records retention policies and three-quarters have litigation hold policies.

“The advent of electronic discovery, coupled with more stringent record keeping requirements, has exponentially added to the burdens imposed by litigation,” said Robert D. Owen, a Fulbright litigation partner. “In light of the enormous risks involved with poor records retention, it comes as no surprise that electronic discovery is identified as the number one new concern of this year’s respondents. I don’t believe it a coincidence that in-house counsel raised these concerns while simultaneously voicing their distress over rising litigation costs–in my view, the two are inseparably linked.”

For companies with gross revenues under $100 million, there was a different new worry, also straight from the front page–regulation and compliance. As many of the comments showed, the Sarbanes-Oxley Act, and its tougher requirements for securities filings, has had a large effect on smaller companies.

As for the kinds of claims U.S. companies face most, the answers are surprising. Despite the constant buzz about class actions, tort reform and corporate fraud, the top litigation concerns of corporate counsel are much more staid: contracts and labor/employment claims. Largely ignoring size or industry differences, these two areas each account for roughly one-quarter to one-half of the litigation dockets of American corporations.