Report: Companies Brace for Litigation Upswing

After two straight years of declines in the number of new lawsuits and regulatory cases, many U.S. companies are gearing up for a rise in disputes, according to a new survey report from global law firm Fulbright and Jaworski LLP. More than one-third of U.S. respondents in the firm's poll of corporate law departments expect an increase in the number of disputes their organization will face in the coming year, compared with 22 percent last year.

The survey also polled in-house counsel in the United Kingdom. Among billion-dollar companies in the combined sample, 43 percent expect the pace of filings to increase, compared with 34 percent last year.

By a five-to-one margin, respondents said they were more likely to add in-house litigation lawyers than cut back in the year ahead. "Experience tells us that there's often more litigation during bad economic times," notes Anne Rodgers, partner and co-head of the firm's subprime and credit crisis practice group. "It seems we're at 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's likely to fuel litigation."

Only 3 percent of U.S. companies hired outside counsel to assist with a subprime-related lawsuit or investigation this past year. But the cases we've seen so far are "only the beginning of the many forms of litigation that are likely to evolve as a result of the subprime crisis," says Rodgers. "As investors assess damage to their portfolios, they will begin to assign blame, resulting in securities litigation, government investigations, professional indemnity issues, and in certain cases, bankruptcy filings."

Regulatory pressures will likely increase as a result of the crisis, adding to an already severe litigation burden. Fully 30 percent of U.S. respondents said that their company had been served with a grand jury subpoena or administrative summons in the past 12 months, and 17 percent had received two or more government calling cards.

Among other findings:

• The most common lawsuits facing U.S. companies are those related to labor and employment, contracts, and personal injury.

• British companies faced fewer new lawsuits than their American counterparts. Forty-one percent of U.K. businesses reported that they escaped new suits filed against them in the past year. Only 21 percent of U.S. organizations could claim the same.

• Privately held companies enjoyed lower litigation exposure than public organizations, but were by no means immune to getting sued. Two-thirds of private companies defended at least one new action in the last year, compared with 83 percent of public companies.

The Fulbright and Jaworski 2008 Litigation Trends Survey is available here (requires free registration).