In response to skyrocketing risk, corporate counsel are developing smarter strategies, increasing levels of individual accountability, and focusing on early case assessment
Tampa, Fla. – Corporate counsel have seen a precipitate increase in both ‘bet-the-company’ and ‘high-risk’ class actions, according to the fourth edition of the annual Carlton Fields Jorden Burt Class Action Survey. Just three years ago, only 4.5 percent of class actions qualified for either category. This year’s survey reveals that this percentage has more than tripled to 16.4 percent.
Companies have responded by increasing class action spending as they confront the exposure these cases present. However, it is not just in the higher-risk areas that class actions can result in substantial financial exposure. That exposure has mounted across all risk areas, as survey respondents reported that even routine class actions often put tens of millions of dollars at risk. With each increase in risk level (from routine to complex to high-risk to bet-the-company), the potential exposure jumps into the billions and the cost of defense increases accordingly.
Class actions comprise the fourth largest segment of the $20 billion market for litigation services in the United States, following commercial litigation, employment litigation, and IP litigation. Across industries, companies spent $2 billion on class action lawsuits in 2014. While slightly less than the $2.1 billion they spent in 2013, spending this year is expected to return to 2013 levels.
“The data provided by this year’s Class Action Survey certainly underscores the dramatically intensified challenges that companies now face,” said Chris S. Coutroulis, co-chair of Carlton Fields Jorden Burt’s National Class Action practice.
“The survey also provides ample data to confirm that companies are meeting those challenges head-on,” added Coutroulis. “Corporate counsel are increasingly adopting specific case strategies and expanding the use of proven tools and resources to manage risk effectively and minimize the impact on their businesses.”
Among the effective strategies deployed to meet the growing threat of class actions, companies are increasingly making a single individual responsible and accountable for the outcomes of their class action lawsuits. In 2014, more than half of surveyed companies took this step, up from 38 percent in 2011.
“Enhanced accountability has a positive impact on both results and cost,” said Coutroulis. “We found that companies that employ this approach spend more than 12 percent less overall than companies that do not, and 15 percent less per lawsuit on outside counsel.” Savings from having a single individual accountable have been reported in three of the four annual Carlton Fields Jorden Burt Class Action Surveys.
Another effective strategy companies employ is early case assessment, which in-house counsel report, is critical to class action management. More than 86 percent of companies conduct early assessments and nearly 49 percent deem outside counsel essential to that process, up from 32.6 percent the previous year.
Carlton Fields Jorden Burt Shareholder Jim Jorden added, “The active use of early case assessment and the use of centralized supervision are consistent with what we have observed in representing companies in class actions. These are best practices that have been shown to benefit companies greatly in multiple industries.”
Legal departments that conduct early case assessments and involve outside counsel in an essential or substantial manner report savings of 25.5 percent per case, up from 22.3 percent in 2013. The rise in early case assessment reflects the level of scrutiny courts now give each class action to analyze rigorously whether the plaintiff has met stringent requirements for certification.
“Defense counsel today focus more on challenging class certification, encouraged in this approach by recent class action rulings,” said Coutroulis. The 2011 Supreme Court case, Wal-Mart v. Dukes, which was cited by nearly 32 percent of in-house counsel, still has the greatest influence on class action management.
Consumer fraud and labor and employment remain the most prevalent class action matters, accounting for more than 50 percent of all cases. Looking ahead, corporate counsel are bracing for more data privacy class actions. In fact, 29 percent predict these matters will soon pose the greatest class action threat. Last year, data privacy matters represented 4.2 percent of class actions handled, while insurance emerged as another significant area, representing 6 percent of class actions handled.
Other survey findings include:
- Class actions are more frequent. More than one in three companies, up significantly from one in four last year, report managing multiple class actions on a regular basis. Thirty-five percent of companies are currently managing one or more class actions.
- Alternative fee arrangements (AFAs) more than doubled between 2011 and 2015. Today, 54 percent of corporate counsel rely on AFAs for at least some portion of their class actions, up from 44 percent last year and 24 percent just three years ago. Use of AFAs decreases as risk levels increase.
- More corporate counsel leverage arbitration clauses. In the wake of the Supreme Court’s 2011 AT&Tdecision, the percentage of companies that address class actions in their arbitration clauses has more than doubled (from 21.4 to 45.8 percent), with most of those clauses explicitly precluding class actions. The vast majority (88.6 percent) of companies using arbitration clauses do so in their contracts. A rising number of companies make them available elsewhere, with 34 percent posting arbitration clauses online.
“All told, the findings of our survey are reassuring,” said Coutroulis. “When comparing these results to data from our past surveys, we can see how more companies are seizing on demonstrably effective strategies and tools. It’s all about progress, about developing best practices based on the experience of other companies across multiple industries.
“We’re hopeful this year’s survey results will further encourage businesses in their resolve to manage these cases strategically and efficiently,” Coutroulis added.