Across industries, corporate counsel reported they spent $2.1 billion annually on class action lawsuits in 2012. This reflects a modest decline from $2.2 billion in 2011. On average, companies managed 5.1 class actions in 2012, representing a 16 percent increase from 2011, when that number was 4.4. In both years, just 1.6 of the matters managed were new, indicating that ongoing matters are taking longer to resolve.
The nature and type of class actions is evolving. Since 2011, there has been an increase of more than 50 percent in spending on high risk/bet-the-company class actions relative to other types. In 2012, these matters represented 10 percent of annual class action spending, up from 6 percent in 2011. During the same time period, spending on the middle rung of risk classifications (“complex class actions”) also increased, from 51 percent to 55 percent. Correspondingly, annual spending on routine class actions dropped from 43 percent in 2011 to 35 percent in 2012.
Consumer fraud and labor and employment matters account for more than 50 percent of all class actions, making them the most prevalent. Securities matters dropped from 13 percent of all class actions in 2011, to 10 percent in 2012. In 2013, corporate counsel expect an onslaught of new consumer fraud class actions related to data security, wireless and other untested technologies, and food safety and labeling. Additionally, 9 percent of companies are newly on the watch for health care class actions, and 6 percent are concerned with class actions related to environmental issues.
On average, companies dedicate three in-house attorneys and three non-attorneys to class actions. In 2012, in-house legal departments added, on average, one full time employee to their class action management teams. This is consistent with the trend toward building more sophisticated, targeted internal legal resources.
Still, outside law firm spending makes up 90 percent of class action costs. Corporate counsel are consolidating the firms they use to defend class actions. On average, they decreased the number of law firms used for these matters from 4.6 in 2011, to 3 in 2012. Consolidation in the class action realm is driven by the opportunity to realize added value, the prevalence of related lawsuits, and the benefits of concentrated knowledge and insights.
The use of alternative fee arrangements continues to rise. Nearly one-third of companies rely on these arrangements, a 35 percent increase from 2011. Another 17 percent plan to adopt them in 2013, representing a more than 50 percent increase from 2012. Fixed fees are the predominant type of AFA used, as they were in 2011, and are chosen by nearly two-thirds, or 63 percent, of companies that use AFAs.
Early case assessment, new settlement strategies, and in-sourcing are driving per class action savings. Companies spent $671,100 annually per class action during 2012, a 14 percent decline from 2011, when they spent $776,500. Substantial cost savings are generated by using rigorous case assessment and modeling to calculate financial exposure. Companies that employ this strategy spend 38 percent less per class action and 42 percent less on outside counsel than companies that do not rigorously assess financial exposure.