Businesses in the United States and United Kingdom initiated and faced slightly less litigation in 2011 than in 2010. But regulatory actions and internal investigations are climbing, according to the 2011 Fulbright Litigation Trends Survey.
More than one-third of corporate counsel report there has been an increase in external regulatory inquiries directed at their companies, and more than one-quarter of respondents expect the year ahead will bring more litigation and regulation as companies attempt to grow in an economy that remains volatile.
The vast majority of corporate counsel polled in the U.S. and the U.K. predict litigation will either rise or remain the same in the next 12 months: 92% of U.S. companies and 85% of U.K. companies. Of those, one-third of U.S. respondents predict an increase while 20% of U.K. respondents expect a rise in legal disputes in the coming 12 months. That compares with 31% and 16%, respectively, last year.
By size, nearly twice as many large-caps ($1 billion or more in gross revenues) as mid-caps ($100 million to $999 million in revenues) expect litigation to rise during the next 12 months. Sector-wise, more than one-third of respondents in the technology, engineering and health care industries are bracing for a jump in disputes.
Stricter regulation and company growth topped the reasons cited for the anticipated increase in litigation. Meanwhile, worries over the poor economy, the No. 1 reason cited last year for an expected rise in disputes, declined significantly to 21% from 41%.
Survey respondents have reported an upward trending of regulatory proceedings commenced against their companies each year since 2009, when 34% of all respondents said at least one regulatory proceeding had been filed against their company in the previous 12 months. In 2010, 37% reported at least one regulatory proceeding. In this year's survey, 40% reported one or more regulatory proceeding.
"Our survey respondents have a front-row seat to the increased scrutiny brought on by stricter regulatory enforcement," said Stephen C. Dillard, the head of Fulbright's global disputes practice. "This year, our survey confirmed a heightened level of governmental investigations focused on the energy and insurance industries, with the health care, manufacturing and engineering sectors not far behind."
This is the eighth year that Fulbright has polled corporate law departments in the U.S. and U.K. on the state of disputes. The 2011 survey gathered input from 405 in-house counsel, including 275 U.S. respondents. Launched by Fulbright in 2004, the survey canvasses corporate counsel on litigation issues and trends.
After reporting declining litigation filings in 2007, respondents to Fulbright's annual survey said suits began to rise again in 2008, went higher in 2009, reached a new high in 2010, and fell slightly the past year.
The number of respondents (U.S. and U.K.) reporting one or more lawsuits commenced against them in the past 12 months dropped slightly to 73% from 75% last year, and to 83% from 87% in the U.S.
By industry, the results were a mixed bag: suits commenced against the technology, retail and insurance sectors increased; energy and manufacturing reported a decrease; and financial services remained flat. Public companies reported a drop in suits filed against them (to 75% from 82% last year), but private businesses noted a slight rise (to 71% from 70%).
U.S. corporations also reported that they were less willing to become plaintiffs. The number of U.S. respondents who reported filing at least one suit in the past 12 months fell to 52% from 60% last year. In the U.K., however, the number increased to 42% from 36% last year.
Despite the slight drop in litigation, corporate law departments report that their annual litigation spend (excluding cost of settlement and judgments) is increasing. U.S. companies report a median spend of $1.4 million compared to $1 million last year. Moreover, nearly one-quarter of American businesses polled report that their annual spend on disputes is $5 million or higher.
"While the overall volume of disputes eased slightly from last year, the litigation spend actually increased and remains significant for many companies," Dillard said.
Thirty-nine percent of billion-dollar businesses in the U.S. were hit with at least one or more suits with more than $20 million at issue in the past year; while one-fifth of U.S. respondents report 50 or more suits commenced against their companies in the past 12 months.
When asked to identify the most numerous types of litigation pending against their company in the previous 12 months, corporate counsel ranked labor and employment and contracts at the top of the list, with significant portions of respondents also citing pending regulatory, personal injury, intellectual property-patents and product liability cases.
Contract litigation remains a significant concern for both U.S. (39%) and U.K. (53%) companies. However, for U.S. companies at least, labor litigation replaced contracts as the top worry, with a 42% rate of concern creeping back toward the 2008 level of 50%. Only 14% of U.K. companies rank labor cases as a top concern. What U.K. companies lack in labor worries, however, they make up for in securities litigation, which concerns them at twice the rate it concerns U.S. companies.
Notably, while environmental litigation remains a low-level concern for most sectors, 52% of energy companies cited it as a primary concern. This, in part, could be due to the continued debate and legal battles centered around hydraulic fracturing within U.S. shale plays.
Looking ahead, 91% of all respondents expect the number of internal investigations involving their companies to increase or stay the same, while 90% of those surveyed expect the number of regulatory proceedings their companies face will increase or remain the same.
Respondents in the health care industry (21%) were most likely to expect internal investigations to increase, while the energy and insurance sectors (both at 35%) led the way in anticipating a rise in regulatory proceedings.
For more than one-quarter of all respondents, regulatory concerns are high on the radar when it comes to legal disputes. That is especially the case for large-caps, one-third of which cite them as a main concern versus only one-fifth of small-caps.
Whistleblowers remain a concern going into 2012, with one-quarter of respondents anticipating an increase in the number of claims or lawsuits brought by whistleblowers within their industries in the coming year. That percentage exceeds 19% in the 2010 survey, and when broken down, it includes 31% of U.S. respondents and 12% of U.K. respondents.
More respondents this year answered yes when asked whether their organizations have been more likely to be the subject of a whistleblower allegation in the past three years. Overall, 22% of respondents compared to 19% last year said their organizations were subjected to a whistleblower allegation-including 21% in the U.K. this year compared to 12% a year ago. The percentage stayed the same in the U.S., with 22% of respondents this year and last reporting that they have been subjected to a whistleblower allegation.
The 2011 survey asked companies to consider, among other things, where they are spending their budgets, what types of alternative fee arrangements they are using most frequently, and how social media arises in the context of litigation.
What follows is a bulleted summary from the 2011 Fulbright Litigation Trends Survey. For a link to the descriptive "white paper" go to: www.fulbright.com/litigationtrends.
Fulbright's Litigation Trends Survey was conducted from May through July by Greenwood Associates, a business research firm in Houston that has produced previous editions of the report. The survey, launched by Fulbright in 2004, polls corporate counsel on litigation issues and concerns.
The Fulbright survey reflects information collected from 405 lawyers. Of the respondents, 74% identify themselves as either general counsels or heads of litigation. Companies polled are public and private-roughly, there was a 50/50 split-and span industry groups, including energy, financial services, manufacturing, technology/communications, retail/wholesale, engineering/construction, health care, insurance and real estate. There is also a wide geographic spread, 31% of all respondent-companies maintain offices and/or facilities in at least six countries.
Companies of all sizes participate in the survey: 50% of respondents are large-cap companies (with gross revenues of $1 billion or more), 27% are mid-caps (gross revenues of $100 million to $999 million), and 22% are small-caps (gross revenues of less than $100 million).