Financial Crisis to Fuel Rise in Litigation

Companies stocking up on lawyers

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Two occupations that for sure won’t be experiencing unemployment troubles during the financial crisis: politician and lawyer. Politicians will be busy pointing fingers and looking clueless while lawyers will be bracing for a boon in litigation stemming from the collapse of the subprime mortgage market. A survey of 360 in-house counsel in the UK and US show small businesses and major corporations alike are preparing for a busy lawsuit season expected to affect pretty much every sector.

Each industry has its own type of litigation to expect—in the tech sector, for example, they can expect an up-tick in intellectual property and patent lawsuits—but all sectors are expected to see a rise in employment-related litigation over things involving contracts, wages, discrimination, and privacy.

The fifth annual survey of corporate lawyers, entitled Litigation Trends Survey, comes from international law firm Fulbright & Jaworski. Almost half of the companies represented were publicly held, and 40 percent earned revenues of over $1 billion.

In the previous two-years the survey was conducted, litigation was actually down. From 2007 to 2008, 21 percent of companies reported no new lawsuits filed against them, an improvement from the 17 percent free of litigation the year before, and 11 percent the year before that.

As the number of lawsuits dropped for many companies, so did the dollar amounts. (Don’t tell Google that, though, thanks to a couple of billion-dollar lawsuits.) Just 26 percent of companies in the survey were hit with lawsuits seeking claims over $20 million last year, 14 percent less than the previous year. Billion-dollar companies are more likely to face big-ticket litigation with 37 percent of them reporting one or more $20 million lawsuit, but that was a 25 percent drop over the previous year.

But since the collapse of the market, companies are hiring more in-house lawyers and are expecting a sizable increase in litigation. Only eight percent of US firms expect a decrease in legal disputes. Among big-money firms, only three percent expected a decrease while 43 percent expect more litigation. Nearly 30 percent of large companies faced more than 50 lawsuits last year.

“This year’s survey appears to mark an inflection point for American business, between the end of a prolonged period of prosperity and the start of a period of economic challenge that is likely to fuel litigation over who is to blame and who should pay for the consequences,” said Stephen C. Dillard, who chairs Fulbright’s global litigation practice.  “Given that we were polling in-house counsel on the cusp of that transition, it’s no wonder that this year’s findings highlight both the evident calm before the storm, as well as the sense that disputes are on the rise.”

Again, claims seem to be dominated by employment claims. Nearly a third (32%) of survey respondents reported a jump in multi-plaintiff lawsuits involving wage claims by employees, and 29 percent reported a spike in discrimination claims.

By a five-to-one margin, respondents said they expect to increase their in-house litigation attorneys in the coming year, fueled by the struggling economy, the credit squeeze and banking crisis, bankruptcies, layoffs, and government investigations. The fear seems especially acute in the US. Only 21 percent of UK firms expect a rise in litigation.

“You have numerous actions – patent, product liability or toxic tort – that tend to strike some industries more often than others, combined with widening strains of workplace suits such as wage-and-hour and privacy that are hitting everyone, added to a growing array of enforcement agencies knocking at the door,” Dillard said. “It’s no wonder that companies are spending as much time and resources on litigation issues as ever before.”

Interestingly, there is some benefit to staying private from a litigation standpoint. Private companies saw fewer new lawsuits last year, even if two-thirds saw at least one new action against them. Fourteen percent dealt with more than 20 new lawsuits. By contrast 83 percent of publicly held companies defended themselves at least once, and a third of them faced more than 20. Public companies had 16 percent more $20 million-plus lawsuits than private firms.

Insurance companies were the number one targets of litigation in the past year, two-thirds of them facing at least one new action and 29 percent staring down 50 new actions. By industry, retailers were the next most targeted, followed by manufacturing, health care, financial services and tech-communications companies at the bottom of the litigation chart. Though financial services companies were among the least likely to be sued, the industry was most likely to file suit with 35 percent filing six or more new actions last year. 



Financial Crisis to Fuel Rise in Litigation
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  • Em

    Interesting article.  So, insurance companies are the largest target for litigation.  I wonder — what percentage of those lawsuits are insurance company vs. insurance company?  (As opposed to suits by policyholders.)

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