Thanks at least partly to a stable economy, U.S. companies faced fewer lawsuits in the past year and filed slightly fewer themselves, a recent survey shows.
In fact, 17 percent of domestic companies said they sailed through the past 12 months with no new lawsuits filed against them, up from 11 percent in 2005-06, according to the latest “Litigation Trends Survey” from the law firm Fulbright & Jaworski.
This year marks the first time in four years that overall case filings have declined, according to the report. The findings are based on a survey of 253 U.S. companies and 50 British ones. More than half the U.S. participants were from publicly traded companies.
“The headline message this year is the drop in new case filings,” says Stephen Dillard, head of Fulbright & Jaworski’s litigation practice. He says the reason is most likely the robust economy. “Inflation remains basically in check, and while there are threats to that with the rising price of oil, nonetheless, the equity markets are humming along. That means companies are much more apt to work things out and keep moving.”
Dillard also cites a greater tendency to resolve disputes without litigation, through alternative mechanisms such as third-party arbitration. Also, notorious plaintiff law firm Milberg Weiss has been indicted on corruption charges, greatly slowing its usually steady stream of class-action securities lawsuits. And companies are still sensitive to the current climate of brisk regulatory enforcement actions, avoiding behavior that could get them on the wrong end of a lawsuit in the first place.
In-house counsel appear optimistic in their litigation outlook for this year as well. Only 22 percent of in-house counsel expect their companies’ litigation loads to rise in the next 12 months, down from 33 percent one year ago.
Dillard
That said, Dillard cautions against assuming the downward trend in litigation will hold. Several issues percolating now might lead to more lawsuits next year, he says. “We may see some up-tick in litigation surrounding the credit-crunch issues that we’ve gone through.” Dillard also notes that the survey was done in May and June, “before the full extent of the credit crunch became apparent.”
Regardless, the vast majority of U.S. businesses still have significant exposure to litigation. Eighty-three percent of in-house counsel reported at least one fresh case commenced against their company in 2006-07; 25 percent reported more than 20 new suits.
Larger companies are targeted far more often. Only 3 percent of billion-dollar companies got through the past year without being named a defendant; half were served with at least 20 new actions, and one-third were hit with more than 50. By contrast, 44 percent of companies with less than $100 million in revenue enjoyed the last year without a single new suit, and only 2 percent had more than 20 new cases.
As in previous surveys, corporate counsels cited labor and employment matters as the chief cause of lawsuits filed against them; in second place were contract disputes and personal injury cases. Those disputes were also what U.S. companies cited as posing the greatest concern to them in the future.
Good Behavior
American corporations have also slightly scaled back their activity as plaintiffs. While 65 percent initiated at least one lawsuit in the past year, that’s down from more than 70 percent a year ago and from 88 percent in 2004.
Larger companies are more active litigators. Nearly 40 percent of billion-dollar firms commenced more than five cases, including 7 percent who brought 20-plus suits in the past year. Engineering and real estate firms led the way, followed by insurers, manufacturers, and energy concerns.
Companies also appear eager to settle their disputes out of court. Fifty-six percent said they settled the majority or all of their new plaintiff’s litigation in the past year before going to trial. Only one-third of smaller companies said they resolve the majority of cases, compared to two-thirds of large companies. The energy industry saw the highest overall settlement rates (80 percent), followed by engineering, health care, and insurers.
Class actions continue to be a driving force in U.S. litigation: 60 percent of companies report having to defend at least one case. Among smaller companies, 45 percent face class actions, including 13 percent that face more than six. Among billion-dollar firms, 69 percent face class actions, with 19 percent of those juggling more than 20 class-based suits. Retailers are fending off the most class actions, followed by manufacturers, engineering firms, insurers, and financial service providers. Real estate firms had the fewest class actions, according to the report.
Securities litigation is one bright spot on the class-action front. Respondents said a leading factor behind the decline in such lawsuits was greater corporate care and more internal controls in the wake of Sarbanes-Oxley, followed closely by an increase in government enforcement. The strength of the U.S. equity markets was also cited as a factor. One-third of corporate counsels attributed the indictment of leading class-action plaintiffs’ firm Milberg Weiss as a key check on new securities filings.
Even with a reported drop in new cases, litigation remains a significant part of many corporate budgets. Forty-four percent of U.S. companies said their annual litigation spending is $1 million or higher, compared with only 28 percent for British firms. Spending varied greatly by company size, with most smaller companies reporting total annual litigation expenditures of less than $500,000, while 75 percent of billion-dollar enterprises said their yearly litigation tab was at least $1 million. About one-fifth of that group spend more than $10 million.
Spending also varied by industry, with many manufacturers, insurers, and energy firms spending at least $5 million, while few technology companies and no education or real estate companies report reaching the $5 million threshold.
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