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What happened to the wave of litigation that was supposed to swamp corporate America in 2009?

A year ago, as the economy began its freefall, corporate law departments were preparing for an all-out assault by plaintiffs. Some 34 percent of in-house counsel polled as part of Fulbright & Jaworski's annual Litigation Trends Survey said they expected to face more suits against their companies in the coming 12 months -- a significantly higher percentage than in the previous year. That result made sense: Recessions usually breed litigation.

The early numbers for this recession are showing something quite different. Litigation, a number of recent surveys show, isn't really all that more active than it was before the recession. The Hildebrandt International Peer Monitor Economic Index -- a quarterly survey of legal market conditions -- reported in May that demand for litigation services among Am Law 200 firms was flat during the first quarter of 2009 compared with the same period in 2008. A Hildebrandt study released in January found that demand for litigation services in 2008 dropped by 3 percent compared with 2007 -- a result the study's authors called "surprising." Boston-based BTI Consulting Group surveyed general counsel at Fortune 1000 companies in May and found that legal departments on average spent 1 percent less on litigation during the first half of 2009 compared with one year earlier.

Average spending on intellectual property litigation dropped even more, by nearly 8 percent, said BTI President Michael Rynowecer. BTI's findings were in line with recent data from the Stanford Law School IP Litigation Clearinghouse indicating that intellectual property litigation has dropped off. The clearinghouse reported that the total number of patent infringement filings fell by more than 8 percent in 2008 compared with 2007, and the decrease has been steeper so far in 2009.

New civil filings in U.S. district courts declined by more than 2 percent during fiscal year 2008, according to statistics from the federal court system. The number of new dockets opened with the U.S. Judicial Panel on Multidistrict Litigation -- which determines whether pending civil actions in more than one federal judicial district should be centralized under one judge -- fell slightly, from 98 in 2007 to 96 in 2008. Multidistrict litigation often includes big-ticket cases involving securities fraud, pharmaceutical and products liability, and patent infringement.

Certainly, there have been exceptions -- bankruptcy and employment litigation are seeing strong growth, according to litigators at several firms. That said, several factors appear to be working against a major surge in suits. Tort reform and judicial scrutiny of multidistrict litigation have suppressed mass torts. And, in this recession, corporate bankruptcies have narrowed the chances of recovery from the target of a suit. ("It doesn't work as well when you are litigating someone who is bankrupt," said Harvard Law School professor Ashish Nanda, who studies the business of law.)

Most importantly, though, general counsel appear to be doing anything they can to avoid spending money on litigation. "Right now, general counsel are trying to operate in zero-risk mode, and this is something we have not seen in many, many years," Rynowecer said.

'MAKE THIS GO AWAY'

A survey of general counsel by Altman Weil in late 2008 found that 75 percent of general counsel had their budgets cut in 2009. The average decrease was 11.5 percent. "It's not down 2 or 3 percent. It's double digits," said Susan Hackett, senior vice president and general counsel for the Association of Corporate Counsel. "They can't afford litigation. There's a real sense of, 'Make this go away quickly and quietly.'"

Hackett has observed a greater reluctance by companies to initiate litigation or defend themselves in court. Instead, they are "looking to apply the least expensive Band-Aid" to their legal problems. "I'm seeing a greater focus on saying, 'We will try to make you whole somehow. What can we do? What do you want?' Sometimes money isn't the ultimate goal," Hackett said.

Hackett's point was echoed by Peter Sloane, a litigation partner at Cahill Gordon & Reindel in New York: "I see clients who are much more focused on the cost-benefit analysis before starting litigation. There's a much greater emphasis on thinking outside the box in approaching legal disputes."

The rising costs of electronic discovery have made the prospect of litigation even less enticing. Several attorneys interviewed for this article said that they believe the cost of e-discovery was the primary reason the volume of litigation has not increased in the way it did after the last recession.

"It's a much more expensive process than it was even a few years ago," said Elizabeth Scully, a partner at Baker Hostetler who has extensive experience in e-discovery matters. "It makes logical sense that the cost associated with e-discovery may be one of the things changing the numbers."

E.I. du Pont de Nemours and Co. corporate counsel James Shomper said that resolving disputes without resorting to litigation is a priority because it saves not only money but relationships. Nearly half the recoveries the company made in 2008 -- which are matters in which the company received money or other assets as the result of a dispute -- came through means outside litigation, he said.

"You save a lot of the cost, and you typically save time and internal resources," he said. "If you have litigation with a distributor, that relationship is pretty much done."

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