Survey: Litigation bounces back while regulation investigations hit high

Companies in the United States and United Kingdom dealt with more litigation while regulatory investigations reached a five-year high, according to Fulbright’s 9th Annual Litigation Trends Survey.
After a one-year decline, litigation rose to 2010 levels as businesses on both sides of the Atlantic initiated and faced more lawsuits in 2012 than they did in 2011. In the U.S., labor and employment disputes and contract litigation led the way.

Meanwhile, Fulbright’s respondents adapted to a stricter regulatory environment, both at home and abroad, following the toughest Wall Street reform since the 1930s and the U.K.’s 2010 anti-bribery legislation.

Indeed, the Fulbright survey found that the rate of companies retaining outside counsel for assistance in a regulatory investigation jumped in the U.S. (from 55 percent in 2011 to 60 percent in 2012) and skyrocketed in the U.K. (from 27 percent to 72 percent).

“Ever since the financial crisis, our litigation trends survey has found respondents confronting increased regulatory scrutiny,” said Otway B. Denny, the head of Fulbright’s global disputes practice.
“As litigation rebounded in 2012, more companies, particularly in energy, health care, and manufacturing, experienced an increase in government and regulatory investigations. All three of these industries, along with technology, were involved in investigations that concerned at least six different U.S. regulators.”

Most companies predict that an easing in litigation during 2013 is unlikely. The majority of all respondents — 92 percent (compared with 89 percent in last year’s survey) — expect the number of legal disputes their companies will face to rise or stay the same in the next 12 months. One-quarter of U..S. respondents and 32 percent of U.K. respondents expect litigation to rise in 2013. Companies from the retail, energy, and health care industries have the highest expectations for a rise in the number of disputes.

This marks the ninth year that Fulbright has polled corporate law departments in the U.S. and U.K. on the state of disputes. The survey gathered input from 392 in-house attorneys, including 275 U.S. respondents, on litigation issues and trends.

A Retrospective
Following a slight decline in 2011, the number of lawsuits rose again in 2012. While last year’s survey found 48 percent of all companies had initiated lawsuits, this year’s survey showed 60 percent of respondents becoming plaintiffs in the last 12 months.

More offense meant more defense. In the 12 months leading up to last year’s survey, 27 percent of U.S. companies – and just 8 percent of U.K. companies – had faced more than 20 suits. In the 12 months leading up to this year’s survey, 32 percent of U.S. companies and 35 percent of U.K. companies had faced more than 20 suits.

Engineering and construction companies led in litigation, with 80 percent of them filing at least one suit last year. The engineering sector faced suits at an even greater rate than it initiated them and almost half of all Fulbright’s engineering respondents faced at least one high-dollar suit during the last year. Not surprisingly, 57 percent of engineering respondents reported an annual litigation spend of $5 million or more – the highest for all respondents to Fulbright’s survey.

Arbitration trends told a similar story. On the one hand, overall rates of arbitration remained flat from 2011 levels, with a little less than half of all companies having been involved in at least one arbitration proceeding in the last 12 months and far fewer having commenced one. On the other hand, big-dollar arbitrations grew, particularly in the U.S., where 10 percent of the companies responding faced at least one arbitration with more than $20 million at stake (compared to 4 percent in 2011).

Consistent with past surveys, labor and employment disputes and contract litigation continued to occupy legal departments in the U.S. and U.K., a trend that is true regardless of company size. Last year’s survey showed a quarter of U.S. companies reporting an increase in wage and hour disputes. This year’s survey finds that rate cut, drastically, to 12 percent.

What The Future Holds
Looking ahead, 16 percent of U.K. respondents (compared with 12 percent of U.S. respondents) expect the number of internal investigations involving their company to increase in the coming year.
Worries over whistleblower allegations continue, and for good reason: the number of allegations made remained high during the past 12 months — particularly among larger companies — and only 3 percent of respondents expect a decline in the coming year.

Litigation concerns are shifting. Personal injury disputes are on the rise, particularly in the U.S., and especially for mid-size and larger companies in real estate, retail, manufacturing, and energy. The U.K. has new worries, too — namely, regulatory investigations: more than one-third of U.K. respondents ranked those types of disputes among their top five concerns, marking a significant increase from the previous survey.