Economic downturn expected to fuel litigation, study predicts
San Antonio Business Journal – by Tricia Lynn Silva
The current economic slump will likely lead to an increase in lawsuits, according to a new litigation trends survey released Tuesday by law firm Fulbright & Jaworski LLP. The blame game will prompt many of these suits.
Of the U.S.-based companies participating in this yearâ€™s survey, 34 percent expect to see what the study calls a â€œrun-upâ€? in litigation involving their firms over the next 12 months.
By comparison, 22 percent of respondents to the 2007 survey expected to see an increase in litigation.
â€œThis yearâ€™s survey appears to mark an inflection point for American business â€” 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,â€? says Stephen C. Dillard, chair of Fulbrightâ€™s global litigation practice.
The latest litigation trends report is based on responses from 358 participating companies â€” including company officials who serve as general or deputy-general counsels for their firms. Of that pool, 251 respondents were U.S.-based firms.
The survey was performed from May 22 through July 18 of this year â€” during what Dillard calls â€œthe cusp of that transitionâ€? from economic prosperity to the current economic slump. The report covers litigation practices over the prior 12-month period.
Houston business research firm Greenwood Associates conducted the survey on behalf of Fulbright & Jaworski.
The litigation trends report provides businesses with a snapshot of the current legal landscape, notes John W. Weber Jr., who is a partner in the litigation practice of the San Antonio office of Houston-based Fulbright & Jaworski.
Given the timeframe in which the survey was conducted, Dillard says that the 2008 report highlights â€œboth the evident calm before the storm, as well as the sense that disputes are on the rise.â€?
The calm: The overall pace of activity in the U.S. declined during the 2007-2008 survey period â€” with 21 percent of U.S. companies stating that no new lawsuits had been filed against them. By comparison, 17 percent of the firms surveyed claimed there was no pending litigation against them during the 2006-2007 survey period.
But this period is not expected to last for long â€” especially as the country sees a rise in lawsuits tied to the collapse of the subprime mortgage market.
Such concerns have companies ramping up their legal arsenal. Of the U.S. companies responding to the 2008 litigation trends survey, 45 percent reported spending at least $1 million annually on litigation. In line with that finding, 19 percent of the U.S.-based firms stated that they were more likely to increase their in-house litigation staff.
Over the last 12 months, 12 percent of the insurance companies surveyed had already engaged outside counsel regarding subprime lawsuits or investigations. Eleven percent of the financial services firms surveyed had done this over the past year.
Looking ahead to the next 12 months, 15 percent of the insurance firms, and 22 percent of the financial services respondents are, as the report states, â€œbracing themselves for a subprime action or investigation.â€?
Whoâ€™s at risk
As part of this yearâ€™s survey, Fulbright & Jaworski also broke down which industries are most vulnerable to litigation.
Insurance companies were the prime target â€” with at least 66 percent of these firms facing six or more new lawsuits. Next was the retail industry, with 55 percent of this sector facing at least six new lawsuits. These top targets were followed by manufacturing, with 54 percent of the companies facing six or more new lawsuits; and health care providers, with 52 percent of its businesses facing at least six new lawsuits.
As for the areas most ripe for lawsuits, the top three were labor and employment matters, contract disputes and personal injury cases. These areas also took the top three spots in the 2006-07 and the 2005-06 surveys, Weber says.
Product liability, intellectual property/patents, insurance, environmental-toxic tort, regulatory, class actions and professional services rounded out the top 10 categories of lawsuits.