In 2018, class action spending rose to its highest level since the recession, reaching $2.46 billion. While the number of companies that reported facing class actions in 2018 dropped slightly to 54 percent, the average number of matters per company increased from 6.3 in 2017 to 7.8 in 2018. Spending and matters are expected to increase again in 2019.
Labor and employment, consumer fraud, product liability, and antitrust matters account for 75 percent of class action spending. Labor and employment cases remain the most common type of action, accounting for 28.7 percent of matters and 26.1 percent of spending. In the past five years, nearly two-thirds of companies have faced at least one labor and employment class action, and, overwhelmingly, companies report that wage and hour matters are their top concern in this category. Companies identified the most important factors they consider in selecting counsel to defend labor and employment class actions, and the top three considerations are the law firm’s class action experience, understanding of the business, and subject matter expertise.
The percentage of companies predicting data privacy and security as the next wave of class actions nearly doubled from last year’s survey, increasing from 28.9 percent to 54.3 percent. Most companies, however, have not faced a data privacy and security class action, and express moderate concern about facing one in the future. A large majority report that their company has an action plan in place to handle a data breach. Although 8.7 percent of companies identified collective actions under the European Union’s new privacy regulation (the “GDPR”) as the next wave, most are not concerned about GDPR exposure. Approximately two-thirds of companies, however, reported concern stateside about the California Consumer Privacy Act, a data privacy law that goes into effect in 2020.
The percentage of companies facing class actions that they consider complex, high-risk, or bet-the-company increased in 2018, while fewer companies report facing lower exposure cases. Each year since 2016, companies have categorized more than one fourth of their class actions as either “bet-the-company” or “high-risk” matters. In line with the increased risk, companies are expanding internal staffing dedicated to the defense of class actions. On average, four to five in-house lawyers per company are managing class action matters now, an increase from three lawyers in 2017, and the first increase of in-house class action attorney headcount in four years.
In weighing the variables they consider most important in evaluating class action risk, companies ranked exposure as 8.9 on a 1-10 scale of importance. Win probability, relevant case law and facts, and reputational impact also were ranked as important risk variables. Increasingly, companies facing class actions employ a case-by-case approach to class action management. Only 10.6 percent say they prefer to settle such matters early, while 21.3 percent take an aggressive stance and 14.9 percent employ a “defend at all costs” strategy. Still, cases filed as class actions are most often resolved by settlement, with 53.1 percent of companies reporting that settlements typically occur pre-certification. Thirty-nine percent of matters filed as class actions are settled on an individual basis.
As expected, the use of arbitration clauses increased in 2018, and the percentage of companies that included class action waivers in their arbitration clauses increased to near 50 percent. More companies now use arbitration clauses that bar class actions than in any prior year of the survey. Companies report that their decision about whether to use arbitration clauses in their contracts is based on a variety of factors, with the containment of litigation costs cited most often. Many companies continue to monitor the political environment in Washington for its impact on the regulatory climate and changes at the Supreme Court.
As companies work to contain costs and manage class action risk, nearly 90 percent now conduct early case assessments, and most use their outside law firms for this purpose. While many companies have routinely used outside counsel to assess case facts and exposure and develop strategy, in this year’s survey more companies report relying on outside counsel for an early assessment of win-loss probability. More than 95 percent of responding companies reported that they now rely on a small group of outside counsel to handle class actions, rather than a single firm or a large group of firms. The use of alternative fee arrangements (AFAs) in class actions declined slightly in 2018. More companies identified fixed fees as a successful type of AFA for class actions than any other category.
Finally, while most companies have not seen a reduction in class action discovery costs as a result of the federal proportionality standard, there are a host of strategies companies use to control electronic discovery costs in class litigation, including, among others, the aggressive negotiation of reasonable search terms, the use of a single e-discovery vendor, and the filing of motions to stay or for cost-shifting.