Corporate Spend on Class Action Defense Litigation Is Expected to Keep Rising

For the sixth year in a row, in-house legal departments increased their spending in defending against class action lawsuits last year, according to results from a new survey. And the spending is expected to rise more this year, amid a wave of pandemic disputes and data breach litigation.

The 10th annual Class Action Survey by the Carlton Fields law firm estimates that U.S. companies spent a total of $2.9 billion in 2020 defending class action lawsuits, based on all costs associated with defending such litigation, including outside counsel fees and e-discovery. This is in contrast to what the law firm had projected for 2020; it reported last year that companies would likely spend about $2.73 billion on class action lawsuits.

Finding savings will become important as class actions are only expected to increase in the coming years. The report predicts that spending on class action defense will exceed $3 billion in 2021, partly because of new litigation filed during the pandemic.

In addition, organizations face the threat of data privacy class action suits as states pass legislation that allows for a private right of action for a data breach or misuse of data. Approximately 42 percent of companies believe that data privacy suits will be the next wave of class action litigation.

“As focus shifts away from the pandemic, those matters are going to increase. The companies that we surveyed are extremely concerned about that kind of litigation,” said Julianna McCabe, a shareholder at Carlton Fields in Miami and director of the firm’s class action survey,

The results for the survey were compiled from interviews with 415 general counsel, chief legal officers, and direct reports to general counsel in the United States. The companies that were surveyed had an average annual revenue of $23.4 billion and a median revenue of $7.1 billion.

Overall, the pandemic led to an increasing number of class action suits in 2020, she said. The top three kinds of pandemic-related litigation involved business interruption insurance (21 percent); education refunds (19 percent); and entertainment, ticket, and travel refunds (11 percent), according to the report.

A change in business practices and keeping in touch, both stemming from the pandemic, are largely responsible for the increasing costs of defending class action suits. In particular, costs were driven by difficulties in keeping in touch with attorneys who were working remotely and the cost and time it took to complete tasks such as e-discovery remotely, she said.

With a continued explosion of class actions, there was also an increase of in-house counsel using arbitration agreements with class action waivers. In 2019, 55 percent of companies included arbitration clauses in their agreements. In 2020, 74.4 percent of companies included those clauses in their agreements.

“If you have a class action waiver employed, there will be no class action,” McCabe said. “It allows companies and individuals to resolve issues quickly.”

In-house counsel survey respondents indicated that it is important for outside counsel to understand the business as it relates to litigation risks. The report notes that early case assessment, supervision of budgets, and bundling similar cases have been effective ways for in-house counsel to save on class action defense.

As pandemic litigation rose, some in-house counsel began handling more responsibilities. For instance, there has been a decrease in the number of in-house counsel assigned to at least partially manage class action litigation. In 2019, an average of 4.2 in-house attorneys were assigned per company to at least partially handle class actions. That was reduced to 3.6 in-house attorneys in 2020.

McCabe said there is no direct reason for the overall dip in in-house counsel managing class actions, but it may have to do with the increased responsibilities of in-house counsel.

Additionally, the use of alternative fee arrangements dropped from 54 percent of respondents using them in 2019 to only 49 percent using them for class action litigation in 2020.

Among the respondents who did use alternative fee arrangements, only 34.8 percent used fixed-fee arrangements and 26.1 percent used phased-fee arrangements in 2020. Thirteen percent of respondents used capped-fee arrangements, and 8.7 percent used success fees and blended rates. The remaining respondents (8.6 percent) indicated they used other kinds of alternative fee arrangements (AFAs) that were not listed.

“AFA usage among surveyed companies fluctuates annually, and while it was down this year, it may well go up next year. It may simply be lagging behind the influx of new litigation,” McCabe said.

From: Corporate Counsel