Litigation as Corporate Reality

Key findings in the Fulbright & Jaworski 2005 Litigation Trends Survey:

1) Litigation Dockets — Eighty-seven percent of U.S. companies are engaged in some form of litigation in the U.S. Twenty percent had one to three cases pending, nearly a quarter had four to 10 cases pending, and another quarter of respondents had up to 50 cases pending. That left a full 20 percent facing an average caseload of 50 to 100 litigation matters. Given how widespread litigation is, it seems remarkable that as much as 13 percent of U.S. companies surveyed managed to avoid business disputes. Companies most likely to be litigation-free: those with revenues under $100 million. However, 12 percent of $1 billion-plus companies also said they are free of litigation, which is one of the survey’s biggest surprises.

2) Sector Specific — The U.S. health care industry had the greatest number of pending litigation matters–an average of 64 cases. Energy companies were second with 49 pending litigation cases, followed by technology/communications (with 42 pending) and manufacturers (with 40 pending) in third and fourth. Tied for fifth were insurance providers and real estate companies (with 39 pending cases each). Filling the remainder of the field: finance (34 pending ) and retail/wholesale (22 pending). By a large margin, companies in the tech/comm sector were the most likely to escape the reality of litigation, with 41 percent reporting that they had no matters pending against them.

3) A Percentage of Overall Legal Spending — Litigation is not eating up all of the legal costs in corporate America, though it is a significant chunk. Among counsel who track litigation costs, about a quarter said that they account for 21 to 50 percent of their legal budgets; an additional 12 percent reported that litigation expenses accounted for more than 50 percent of the total legal budget. Broken out by size, counsel for 15 percent of mid-market companies and 16 percent of businesses in the $1 billion-plus range reported that litigation consumes over half of their legal budgets. For companies with revenues under $100 million, that figure dropped dramatically to only 8 percent. By industry sector, 23 percent of insurance company in-house counsel reported that litigation budgets account for over half of their total legal budgets. Over a third of manufacturing and energy companies spend between 21 percent and 50 percent of their legal budgets on litigation; the same is true for more than a quarter of retail/wholesale, health care and tech/comm companies. Only 26 percent of real estate and finance company respondents reported spending less than 20 percent of their legal budgets on litigation.

4) Litigation Cost Averaging — Respondents had difficulty averaging costs for specific types of litigation matters, with many saying that costs varied too widely to make hard estimates. However, for U.S. in-house counsel who did respond, personal injury actions are the most expensive cases on average to litigate, followed by intellectual property cases, regulatory matters, contracts claims and employment actions.

5) Is That a New Suit? — How much of corporate America’s litigation docket is new this year? Two-thirds of the companies surveyed were slapped with a summons and complaint during the past year; almost a third of them were hit with between six to 20 suits, and 18 percent were hit with more than 21. On average, small companies were hit with only three new suits, while mid-market companies were hit with 17. Businesses in the $1 billion-plus club were served with an average of 65 new suits.

6) Shifting Roles as Plaintiffs/Defendants — More than half of the companies surveyed are comfortable in the role of plaintiff, filing at least one action in the last year; the average U.S. company initiated 11 new suits and two arbitrations during the past year. Larger companies are more litigious in general: the $1 billion-plus group was two times as likely as their under-$100 million counterparts to commence lawsuits or arbitrations.

7) Who’s Minding the Docket? — There are very few U.S. companies that don’t have an in-house counsel to manage litigation. Only 8 percent of corporate law departments manage to get by without a staff lawyer managing company litigation matters, while 44 percent had at least one staff litigator.

8) Top Current Litigation Matters — The two top two slots on the in-house litigation docket are contracts claims and labor/employment matters. For mid-market and $1 billion-plus companies, these accounted for as much as half of their litigation matters. For smaller companies, contract disputes account for more than a quarter of their caseload. The third most frequent type of case is personal injury actions. Rounding out the top five–product liability and intellectual property disputes. The most frequent type of case pending against health care companies was professional services litigation and insurance litigation topped the list for insurance companies. For manufacturers, product liability cases were most common, while real estate companies face personal injury lawsuits. Common disputes for other industries were: energy/finance (contracts); tech/comm (labor/employment); and retail/wholesale (equal split between contracts and labor/employment).

9) Emerging Pressures — Asked to identify the biggest litigation-related burden that did not exist three years ago, in-house counsel pointed to electronic discovery as the number one headache, followed by “increased regulatory/compliance” issues, which is a certain legacy of the Sarbanes-Oxley Act of 2002.

10) What a Difference a Year Makes — In finance, bankruptcy was one of the top three concerns last year; this year, it was replaced by securities actions. Real estate companies are troubled by personal injury suits instead of real estate disputes, while the insurance industry sees less of a threat from class actions than from insurance coverage matters, a concern that could prove to be true in the wake of Hurricane Katrina’s large-scale devastation.

11) What’s on the Horizon? — Contract and labor/employment actions topped the list of matters U.S. counsel were most concerned about for the future. Number three was intellectual property disputes, followed by class actions. At $1 billion-plus companies, however, class actions rose to the number two spot, over concerns about contract-based litigation. Technology companies are far more focused on intellectual property/patent issues than any other industry, whereas real estate and energy companies are more concerned than other sectors about environmental/toxic tort litigation. Professional services litigation was the leading concern for health care companies, while insurance litigation was of principal concern only for those in the insurance industry. Only the financial and real estate industries had serious concerns about securities litigation/enforcement in the future.

12) Class Conscious — The bigger the company, the more likely it is to end up at the receiving end of a class action. Only 5 percent of smaller companies were targeted with class actions in the past year but nearly 40 percent of $1 billion-plus companies were targeted. Manufacturers were the most likely to be named as defendants.

13) Impact of the Class Action Fairness Act — A large percentage of U.S. corporate counsel predict little impact from the Class Action Fairness Act of 2005. Nearly half believe the Act will have no impact on U.S. litigation costs; 13 percent believe it will actually increase such expenses. Over a quarter of respondents, however, believe the Act will lead to a decrease in U.S. litigation costs.

14) Days to Resolution — Personal injury cases had the highest average (358 days), taking nearly a full year to resolve, followed by intellectual property claims, which took 225 days on average. Next in line were labor/employment claims (161), regulatory actions (146) and contract disputes (138).

15) Results Matter — For more than half of U.S. corporate counsel, a successful finish is more important than how fast they get there. More than 50 percent identified good results as the number one benchmark for success.

16) Document Retention — Eighty-one percent of U.S. corporate counsel surveyed said that their companies now have written records retention policies.

About the Survey Fulbright & Jaworski’s corporate counsel 2005 Litigation Trends Survey was conducted during in June and July 2005 by Greenwood Surveys., an independent research firm in Houston, Texas. Companies from 45 states were represented in the survey, with the heaviest concentrations from the Midwest, New York-New England, and the South. Among individual states, Texas and California were most represented. For more information, visit www.fulbright.com.

Topics Lawsuits USA Legislation Tech Property Manufacturing