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Contract and employment disputes have emerged as the most frequent kind of litigation faced by corporate legal departments, according to a recent survey commissioned for Fulbright & Jaworski. The firm’s Litigation Trends Survey of corporate counsel found that almost 90 percent of U.S. companies are engaged in litigation, averaging a docket of 37 lawsuits. But companies with sales of $1 billion or more are juggling an average of 147 lawsuits. The survey reached 354 respondents, including 50 in the United Kingdom. Of the U.S. companies included, 26 percent had gross revenues under $100 million, 46 percent between $100 million and $999 million and 28 percent of $1 billion or more. Median revenues were $523 million. Forty-six respondents worked for companies with revenues of $2 billion or more; the largest company earned $90 billion. Overall, when asked to identify the three most numerous types of pending litigation against their companies, 42 percent of the U.S. respondents cited contract disputes and 38 percent employment. The third most frequent legal issue was personal injury, followed by products liability and intellectual property actions. However, there were some significant differences based on the size of the companies surveyed ( see chart). For example, firms with more than $1 billion in sales were much more likely to face class actions and securities litigation disputes than their smaller counterparts. And some kinds of litigation were associated with particular industries. “I doubt that employment disputes will be the number one concern at companies like General Motors, Pfizer or General Electric,” said C. Evan Stewart, a partner in securities litigation at Brown Raysman in New York. “For some of the biggest pharmaceutical companies, products liability is the number one concern; for investment banks and broker-dealers, it would be securities fraud.” Robert Owen, the co-head of litigation in the New York office of Fulbright & Jaworski, said the prominence of employment disputes in the survey results is due to sheer numbers of employees. The bigger the company, the more employee-related disputes it faces, he said. Jeffrey S. Klein, head of the employment litigation group at Weil, Gotshal & Manges, said that employment litigation is a lagging indicator of the underlying business environment. “Companies have in the last couple of years been focused on reducing costs by effecting lay-offs, terminations, absence of promotion and salary freezes. These are all negatives from the perspective of employees. At the same time, the plaintiffs bar has increased the focus on labor/employment disputes. These developments have increased the employment-related litigation pressure.” Klein added, “What we see is that companies are now defending themselves more vigorously against many of the cases they consider to be without merit. In the past, companies were willing to settle cases more quickly for fear of damaging employees’ morale among the remaining workforce, but that has changed as companies do not want to be viewed as always willing to settle.” Also on the rise are employee benefits disputes under the Employee Retirement Income Security Act of 1974, a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry. ERISA filings have increased because employees or former employees are suing companies for falling earnings in their pension plans. Klein said the Sarbanes-Oxley Act’s whistleblower protection has also led to the increase in litigation. “But company in-house lawyers are looking to improve the working relationship between human resources and legal departments as a way to identify early warning signals; they want to take effective internal steps to prevent these suits in the first place,” he said. The companies keeping track of their expenditure reported an average of $8 million per year spent on litigation. Of the surveyed firms that tracked litigation costs as a percentage of overall legal spending, 25 percent said litigation dollars accounted for up to half of their legal budgets. Unsurprisingly, 16 percent of companies with over $1 billion in revenue spent over 50 percent of their legal budgets on litigation costs. Most U.S. corporations surveyed do not intend to reduce the number of outside lawyers they hire. But in-house counsel most value the attorney who is most likely to control the costs of litigation, not necessarily the lawyer who will win the case. Indeed, a third of the respondents said cost containment was more desirable than “winning cases.” Corporate in-house counsel identified electronic discovery and regulatory/compliance issues as emerging sources of litigation pressures that did not exist three years ago. Corporate counsel are finding that the cost of producing electronic records can escalate enormously; and poor management of electronic records can be even more costly. Choongo Moonga is a freelance writer.

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