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July 29, 2010 |
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| August 24, 2009 |
By: Karen Sloan |
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hat happened to the wave of litigation that was supposed to swamp corporate America this year?
A year ago as the economy began its freefall, corporate law departments were preparing for an all-out assault by plaintiffs. About 34 percent of in-house counsel polled as part of Fulbright & Jaworski’s annual Litigation Trends Survey said they expected to face more suits against their companies in the coming year — a significantly higher percentage than the previous year. That result made sense: Recessions usually breed litigation.
But the early numbers are showing something quite different. Litigation isn’t really all that more active than it was before the recession, a number of recent surveys show. The Hildebrandt International Peer Monitor Economic Index, a quarterly survey of legal market conditions, reported in May that demand for litigation services among Am Law 200 firms was flat in the first quarter compared with the same period last year. A Hildebrandt study released in January found demand for litigation services in 2008 dropped 3 percent compared with 2007 — a result the authors called “surprising.”
New federal civil filings declined more than 2 percent in the last fiscal year. The number of new dockets opened with the U.S. Judicial Panel on Multidistrict Litigation, which determines whether pending civil actions in more than one federal district should be centralized under one judge, fell slightly to 96 in 2008 from 98 in 2007. Multidistrict litigation often includes big-ticket cases involving securities fraud, products liability and patent infringement.
Certainly, there have been exceptions. Bankruptcy and employment litigation are seeing strong growth, according to litigators at several firms. That said, several factors appear to be working against a major surge in suits. Tort reform and judicial scrutiny of multidistrict litigation have suppressed mass torts. And, in this recession, corporate bankruptcies have narrowed the chances of recovery from the target of a suit.
“It doesn’t work as well when you are litigating someone who is bankrupt,” said Harvard Law School professor Ashish Nanda, who studies the business of law.
Most importantly, though, general counsel appear to be doing anything they can to avoid spending money on litigation.
“Right now, general counsel are trying to operate in zero-risk mode, and this is something we have not seen in many, many years,” Rynowecer said.
A survey of general counsel by Altman Weil late last year found three-quarters of general counsel had lower budgets this year. The average decrease was 11.5 percent.
“It’s not down 2 or 3 percent. It’s double digits,” said Susan Hackett, senior vice president and general counsel for the Association of Corporate Counsel. “They can’t afford litigation. There’s a real sense of, ‘Make this go away quickly and quietly.’ ”
She has observed a greater reluctance by companies to initiate litigation or defend themselves in court. Instead, they are “looking to apply the least expensive Band-Aid” to their legal problems.
Several legal consultants predict litigation will pick up in the second half of the year as companies rebuild their capital reserves. Clients that needed time to assess the damage they sustained during the financial sector meltdown will know where they stand.
But Hackett contends litigation practices will never return to the status quo before the recession. Companies will continue to approach litigation cautiously with an eye to the associated costs, she said.
“I don’t think we’re going to see surges” in litigation, Hackett said. “We might see a slight uptick. We may see companies go forward with issues that they had set aside. But I don’t think we will see numbers that move the graph line all that much. People just aren’t going to go back to the way things were before.”
Karen Sloan reports for the National Law Journal, an Incisive Media affiliate of the Daily Business Review.
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