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Three Key Strategies for Reducing Class Action Costs
In-house counsel tackled an increased number of class-action lawsuits last year, but managed to tamp down legal spending by an average of $100,000 per matter, according to the 2013 Carlton Fields Class Action Survey.
The second annual survey polled 368 legal executives from 342 companies with median annual revenues of $3.8 billion. About half of the respondents said they deal with class action lawsuits.
Among those who do handle class actions, they saw their load increase from an average of 4.4 class actions in 2011 to 5.1 class actions in 2012. Accordingly, their overall spending on class actions increased by $300,000 on average, from $2.91 million to $3.19 million.
At the same time, legal departments achieved a 13.6 percent reduction in costs per suit, from $776,500 in 2011 to $671,100 in 2012. In last year's survey, respondents said they were aiming for a 17 percent reduction in class action costs for 2012.
"Per class action, they're spending lessand that is exactly in line with what they said they were hoping to do when we surveyed them last year," says Chris Coutroulis, who chairs the firm's litigation council.
So how did legal departments get proactive on their class action costs? Three key strategies can make a big difference on cost control:
1. Use alternative fee arrangements
"Nearly one-third of companies rely on these arrangements, a 35 percent increase from 2011," according to the survey. Fixed fees were the most popular form of alternative fee arrangement (AFA), the preference of 63 percent of the companies that use AFAs.
In-house counsel appear to favor AFAs for a certain category of case: "Only 15 percent of all class action spending takes place under an [AFA], indicating that AFAs tend to be used on smaller, more routine class actions than on more complex or high risk matters," the report finds.
2. Change how matters are staffed
Legal departments devoted more in-house hours to class action mattersfrom six hours per suit per week in 2011, to 10 hours per suit per week in 2012. "Corporate counsel are relying more heavily on internal resources in an effort to drive value, reduce risk and adopt an increasingly pragmatic approach," the report says.
Law departments also consolidated the number of outside firms they use to handle class action suitsfrom 4.6 firms on average in 2011, to three firms on average in 2012.
3. Conduct early, rigorous case assessments
In this year's survey, one-third of companies said they evaluated suits and calculated their potential financial exposure, compared with 23.7 percent last year. The exercise allows legal departments to better manage a case and strategize an objective from the outset, explains Coutroulis, which ends up saving them substantial sums down the line.
"Companies that employ this strategy end up spending 38 percent less per class action and 42 percent less on outside counsel than companies that do not conduct a rigorous assessment," the report says.
Catherine Dunn writes for Corporate Counsel, a Daily Report affiliate.