Survey: Businesses Face an Average of 305 Lawsuits Worldwide, Spend 70 Percent of Legal Budgets on Litigation

American business, known the world over for its entrepreneurship, innovation and competitiveness, might just as easily be recognized for another attribute – its time spent on legal disputes. That’s the conclusion of a new survey of corporate counsel from international law firm Fulbright & Jaworski L.L.P.
In its third annual survey of corporate litigation trends – pulling data from 422 in-house law departments worldwide – Fulbright found that U.S. companies face an average of 305 pending lawsuits internationally. For large U.S. companies – those with $1 billion or more in annual gross revenue – the number of lawsuits soared to 556 cases, with an average of 50 new disputes emerging each year for close to half of them.
Although the majority of those cases are in U.S. courts, the tide of international disputes is rising – more than one-third of companies said that up to 20% of their dockets originate in foreign venues, proof that U.S.-style litigation is going global.
No segment of the American economy was spared a weighty litigation docket, but the undisputed champion of disputes is the insurance industry, where companies face an average 1,696 lawsuits, spanning product liability and environmental class actions to directors and officers claims, and even coverage fights over hurricanes and terrorist attacks. Retailers and energy firms were also targeted heavily – both sectors reporting average caseloads north of 330 per company.
By contrast, U.K.-based companies surveyed by Fulbright reported an average of only 178 cases – 63 in the U.S.
Nor is the litigation all one-sided. Seventy percent of the in-house counsel surveyed by Fulbright confirmed that their companies initiated at least one new lawsuit in the past year as plaintiff.
And conventional lawsuits don’t tell the full story: half of participating U.S. counsel said their companies separately faced at least one new arbitration and one new regulatory proceeding in 2005-06, on top of their litigation caseload.
As lawsuits have multiplied – brought by shareholders, regulators, consumers, employees and competitors – so has another related event: the internal investigation. Nearly two-thirds of the U.S. companies interviewed by Fulbright reported that their companies had launched at least one such probe in the past year necessitating use of outside counsel, a certain byproduct of Sarbanes-Oxley legislation, as well as the recent mega-scandals of Enron and WorldCom.
That litigation is an everyday fact of life for American corporations is borne out by findings from companies of all sizes and industries. Ninety-four percent of U.S. counsel canvassed said that their companies had some form of legal dispute pending in a U.S. venue. For 89%, at least one new suit was filed against their company during the past year. Nor are businesses expecting any let-up. One third of all companies, and nearly 40% of $1 billion-plus firms, project the amount of litigation to increase next year.
With big litigation comes a big price tag. U.S. companies report spending 71% of their overall estimated legal budgets on disputes. Nearly 40% of Fulbright’s U.S. respondents reported at least one $20 million suit commenced against them in the past year. Two percent faced 50 new suits or more involving at least $20 million in claims, or more than $1 billion worth of new disputes on the table for some large companies.
For billion-dollar-plus corporations, the costs of litigation are especially significant. Large U.S. companies commit an average of $19.8 million to litigation, approximately 58% of total average legal spending of $34.2 million. More than two-thirds of large companies surveyed reported at least one new suit involving $20 million or more in claims; 17% faced a minimum of six suits in the $20 million-plus range.
The generally high cost of dispute resolution in the U.S. has not been lost on the rest of the world. For more than half of foreign counsel surveyed by Fulbright, “high legal costs” was cited as a top concern about litigating a dispute in the U.S.
While smaller companies are hardly litigation free, the weight is considerably less. Companies with revenues under $100 million reported only nine cases pending on average. Counsel at American small businesses say their average dispute spending totaled only $178,000.
Survey Reaches 311 U.S. Companies, Half Publicly-Held
For this latest edition of Fulbright & Jaworski’s Litigation Trends Survey, in-house counsel from 311 companies headquartered in 29 states participated in what has become one of the largest polls of corporate counsel on litigation issues. In addition to U.S. respondents, Fulbright surveyed law departments in 22 other countries, including the U.K., Canada, Mexico, Japan, Brazil and elsewhere in Asia, Europe and Latin America. Eighty-two percent of U.S. participants held associate general counsel or more senior positions, including chief legal officer and chief litigation counsel.
Fifty-two percent of U.S. respondents work for publicly-held companies; a similar percentage represent companies with gross revenues of $1 billion or more. Of the remainder, 28% were middle-market firms with sales between $100 million and $999 million and 22% had less than $100 million in revenues. The survey breaks down results into 13 different industry sectors, including energy, manufacturing, financial services, retail/wholesale, technology/communications, engineering/construction, health care and pharmaceutical, real estate, insurance and education, as well as non-profit organizations and trade associations.
As in past years, Fulbright asked law departments to identify their greatest concerns on the litigation front – a challenging task given the breadth of lawsuits faced. Despite the recent heat generated by investigations into stock options backdating, companies say their No.1 litigation fear stems from labor and employment claims, followed by old-fashioned contract disputes, and ahead of regulatory actions, patent and other intellectual property suits, and class actions.
“Fundamental Part of American Business”
“Perhaps even more than our two previous studies, our new survey reveals how thoroughly litigation is woven into U.S. corporate culture – the sheer number of cases and huge slice of spending taken up by lawsuits make abundantly clear that litigated disputes are a fundamental part of doing business,” said Stephen C. Dillard, chair of Fulbright & Jaworski’s global litigation practice.
“Of course, litigation is not always defensive,” he added. “The great majority of companies report initiating lawsuits in order to enforce contracts, safeguard intellectual property, block monopolistic behavior, and achieve other valid business objectives that require them to take assertive legal action.”
One of this year’s surprises, Mr. Dillard noted, was the large percentage of companies – nearly two-thirds – that had undertaken internal investigations in the past year requiring outside counsel. “Partly this is an outgrowth of our modern regulatory and enforcement climate in which companies are put on fast-track notice by government agencies that an action may be forthcoming, which prompts them to conduct a full-scale investigation,” he said.
“The surge in investigations is also an inevitable consequence of the big corporate meltdowns that have occurred in recent years,” Mr. Dillard suggested. “Management and corporate boards have become much more proactive at taking the lead in policing themselves for possible wrong-doing and potential liability. Whether borne from the fear of enforcement, litigation, or negative publicity, internal investigations are actually a means of containing future financial or reputational damage.”
Mr. Dillard took stock of the survey’s overriding purpose: “Our goal,” he said, “is to probe corporate counsels’ concerns on their most pressing litigation issues – not only about the costs and types of cases they confront most often, but attitudes toward class actions, electronic discovery and document retention, the value of arbitration in international disputes, economic issues, and of course, their views of outside counsel, which are always highly instructive.”



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