Regulatory actions and internal investigations are climbing, according to the 2011 Fulbright & Jaworski Litigation Trends Survey; however, businesses faced slightly less litigation in 2011 than in 2010.
More than one-third of respondents report there has been an increase in external regulatory inquiries directed at their companies, and more than one-quarter of respondents expect the year ahead will bring more litigation and regulation.
The vast majority (92%) polled predict litigation will either rise or remain the same in the next 12 months. Of those, one-third predict an increase.
Fulbright & Jaworski L.L.P.’s 2011 survey gathered input from 405 in-house counsel, including 275 U.S. respondents. The firm is a leading full-service international law firm, with approximately 850 lawyers.
Companies polled are public and private and span all industry groups, with a wide geographic spread. Companies of all sizes participated in the survey: 50% of respondents are large-cap companies (gross revenues of $1 billion or more), 27% are mid-caps (gross revenues of $100 million to $999 million), and 22% are small-caps (gross revenues of less than $100 million).
Mixed Trending for Future Suits
Survey respondents predict an increase in the number of suits commenced for the following sectors:
- technology
- retail
- insurance
Suits commenced are expected to decrease in the following sectors:
- energy
- manufacturing
Meanwhile, suits in the financial services sector are expected to remain flat.
Despite the slight drop in litigation, corporate law departments report that their annual litigation spend (excluding cost of settlement and judgments) is increasing. U.S. companies report a median spend of $1.4 million compared to $1 million last year. Moreover, nearly one-quarter of American businesses polled report that their annual spend on disputes is $5 million or higher.
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Suits Over $20 Million
Thirty-nine percent of billion-dollar businesses in the U.S. were hit with at least one or more suits with more than $20 million at issue in the past year; while one-fifth of U.S. respondents report 50 or more suits commenced against their companies in the past 12 months.
Labor and Employment Suits Most Numerous
When asked to identify the most numerous types of litigation pending against their company in the previous 12 months, corporate counsel ranked labor and employment and contracts at the top of the list,
Regulatory Investigations
The rate of regulatory investigations is at a four-year high: 55% of U.S. companies (versus 43% last year) retained outside counsel for an investigation in the past year.
Who’s Investigating Whom? The landscape of active investigators in the U.S. is broad, with the DOJ, the state attorneys general, OSHA, and the EPA leading the way. Whereas last year’s survey indicated that the DOJ had focused on manufacturing, health care, and, to a lesser extent, energy, this year’s survey reports attention focusing on engineering, health care and technology.
Cloud Computing and Discovery
More than one-quarter of all respondents say their companies are using cloud computing (48% of the tech sector uses it). Nearly one-quarter of respondents say they expect to move software to the cloud.
Of those using cloud computing, 31% of respondents had to preserve and/or collect data from the cloud in connection with actual or threatened litigation. Meanwhile, more than one-quarter of respondents who use cloud computing report they have encountered security breaches.
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Litigating Around Social Media
Nearly one-fifth of all respondents report that in the previous year their companies had to preserve or collect data from an employee’s personal social media account. Meanwhile, 13% of all respondents have had to produce, as part of discovery, electronic information stored on a social media site in the past 12 months.
Some companies are choosing to block internal network users from accessing social media sites, such as Facebook, MySpace and Bebo (41% block); Twitter and YouTube (33% block); and LinkedIn, Plaxo, Tumblr, StumbleUpon, and Digg (23% block).
Mobile Devices
Ninety-one percent of U.S. respondents reported that they allowed their employees to conduct business on mobile devices.
Given the prevalence of mobile devices in the U.S., it is interesting to see that only 30% of respondents had to preserve or collect data from them for a litigation or investigation.
The biggest challenge reported by respondents who had to conduct discovery from mobile devices was that the devices are widely distributed and disconnected (53% of respondents).
Of those concerned about litigation arising from their employees’ use of mobile devices (34%), the majority are worried about the loss of customer or proprietary data.
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Do the regulatory investigations include employee misclassification inquries? Those are definitely on the rise under the Obama Administration. And now HHS is doing HIPAA audits, too.