The number of US companies facing regulatory proceedings increased for the third consecutive year, according to Norton Rose Fulbright’s Annual Litigation Trends Survey.
The upward trend is the result of a stricter regulatory environment and increased scrutiny from a broad range of state and federal agencies. Close to 20 percent of survey respondents said their companies had faced a regulatory/investigation matter in 2013, up from 9 percent in 2012. The increase was consistent among all industries and companies of varying sizes, but was most pronounced among technology/communications organizations (27 percent versus 10 percent in 2012).
“We continue to see the scope and frequency of regulatory investigation matters increase in the US, as government agencies take a more proactive approach in determining compliance,” said Otway Denny, US Disputes Head, Norton Rose Fulbright. “Stricter regulations governing financial, environmental and workplace issues create a more complex environment for businesses, and these results show that a serious regulatory investigation is a reality for a growing number of companies each year.”
The survey also found that 59 percent of respondents had retained outside counsel for assistance with a government or regulatory investigation during 2013, basically unchanged from 2012. The majority of cases cited involved the Department of Justice (34 percent), the Securities and Exchange Commission (23 percent) or the Environmental Protection Agency (22 percent), in addition to investigations led by a number of other federal, state and local entities.
Not surprisingly, legal counsel concerns over regulatory/investigation matters are also up sharply in the 2013 survey, with 41 percent of respondents indicating it as a top concern, versus just 23 percent in 2012. The increase is most
pronounced among technology/communication companies (56 percent in 2013 versus 16 percent in 2012), as well as financial services (57 percent versus 24 percent) and healthcare (52 percent versus 24 percent).
pronounced among technology/communication companies (56 percent in 2013 versus 16 percent in 2012), as well as financial services (57 percent versus 24 percent) and healthcare (52 percent versus 24 percent).
The survey also found that labor and employment disputes and contract matters once again were the most common litigation issues facing U.S. companies. A total of 48 percent of respondents said that labor and employment issues topped the number of cases their organization faced in 2013, and 36 percent said contract issues were most numerous.
In general, the number of lawsuits filed against respondents’ companies in the past 12 months was stable, with no significant change since 2010.
This is Norton Rose Fulbright’s 10th annual litigation trends survey of corporate law departments in the United States. A total of 401 senior corporate counsel executives — representing a broad range of industries — responded to the survey, which was conducted in late 2013/early 2014.
Lawsuits steady but impact rises
While respondents reported little change in the total number of lawsuits against their companies, the potential financial impact of the litigation they face — and the expenditures needed to manage those cases — continue to increase.
The percentage of companies facing at least one lawsuit with more than $20 million at issue rose to 34 percent in 2013, continuing a trend in recent years that’s left fewer respondents untouched by high-value cases. In 2011, for example, just 23 percent of respondents’ companies were involved in a lawsuit with more than $20 million at issue.
Overall, 18 percent of respondents reported no lawsuits against their companies in 2013. Twenty-seven percent reported between one and five lawsuits; 25 percent reported between six and 20 lawsuits; and 12 percent reported between 21 and 50 lawsuits. Eighteen percent said their company faced more than 50 lawsuits during the year.
Healthcare industry respondents had the most litigation matters compared with other industries, with 55 percent indicating more than 20 suits versus 30 percent for the overall sample. That increased activity also led to higher spending — 49 percent of healthcare respondents reported a 2013 litigation spend of $5 million or more, closely followed by energy at 46 percent.
Large companies were most likely to have more than 20 suits filed against them (48 percent versus 30 percent among all respondents). In fact, of the companies surveyed with more than $5 billion in annual revenue, 60 percent had 20 or more lawsuits currently pending, and 43 percent had more than 50. Just 12 percent of the largest companies in the survey had no lawsuits pending.
At the same time, small companies were more likely to escape litigation throughout the year (35 percent versus 18 percent for the overall sample).
The number of arbitrations pending against companies surveyed also remained stable. As with lawsuits, healthcare companies are the most likely to have one or more arbitrations pending against them (60 percent versus 44 percent
for the overall sample), and larger companies reported a higher incidence of arbitrations against them than their smaller peers (57 percent versus 44 percent of the total sample).
One in four respondents has commenced at least one arbitration against other parties. This rate has remained steady in recent years, with no significant change in the period 2011 to 2013.
Technology Impacts on Litigation
The rise in social media and mobile connectivity is having an increasing impact on litigation and regulatory proceedings for companies across a wide range of industries. Twenty percent of respondents said their company had to preserve or collect data from an employee’s social media account in 2013 in response to a dispute or investigation. Fifteen percent of respondents said their company had been required to produce social media postings via the discovery process in the previous 12 months.
