2021 Class Action Survey
In 2020, class action defense spending reached a new high of $2.9 billion, which is expected to exceed $3 billion in 2021. By the end of April 2021, more than 1,600 COVID-19-related class actions had been filed, and a majority of companies reported that they are changing their business practices as a result. The average number of class actions per company is 9.3 in this year’s report, compared to just 4.4 matters per company in 2011. More companies reported facing class actions than in any prior year of the survey, and a substantial increase in the number of class action matters is expected in 2021.
Complexity and exposure also changed in 2020. Companies classified only 14.9 percent of their class actions as “lower exposure” matters, the lowest since 2015. By contrast, the percentage of companies reporting one or more bet-the-company class actions increased from 10.6 in 2019 to 21.9 in 2020. Those companies estimated that, on average, 8.8 percent of their class actions can be categorized as bet-the-company, almost double the percentage of such matters reported in last year’s survey.
Labor and employment and consumer fraud matters have been the leading categories of class actions for many years, and are reported as near equals as a percentage of both matters and spending this year. Consumer fraud class actions increased to 21.1 percent of matters and 20.1 percent of spending. Labor and employment cases remain the most frequent and expensive category of class/collective actions, accounting for 22.5 percent of matters and 22.7 percent of spending.
The current wave of class actions consists of a high percentage of pandemic-based claims, and 32.7 percent of companies see that trend continuing this year. Still, data privacy and security issues are top of mind, and 42.9 percent of companies see an influx of those matters on the horizon. Companies report that their highest level of concern over data privacy lawsuits is based on recently enacted or forthcoming state privacy statutes. The overwhelming majority of companies, 93.7 percent, have not faced a class action lawsuit related to an actual data breach or hack.
Companies have altered their approach to class action defense over the years as a result of changes in the law from a variety of sources, including the Supreme Court, federal and state legislatures, regulators, and the civil rules. More than 83 percent of companies reported using commonality and predominance defenses with success, and 78.4 percent have successfully invoked an arbitration clause. Similarly, 79.6 percent of companies have successfully defeated a class action for simply failing to state a valid claim for relief. Despite these successes, most cases filed as class actions are ultimately settled. Companies stated that 58.5 percent of their class actions were settled, and 78.5 percent of companies surveyed used a mix of both individual and classwide settlements to resolve those matters.
When cases are settled classwide, most companies use claims-made settlement procedures. Only one-third of companies stated that their settlements included multiple types of relief based on the varying circumstances of the class members. Charitable distributions were used by less than onequarter of the companies surveyed.
Our respondents have attempted to manage their class action defense costs both internally and externally over the years. Internal staffing for class actions declined for the second consecutive year. The number of in-house lawyers dedicated to managing class action litigation was reduced to an average of 3.6 attorneys per company.
Externally, more companies have attempted to reduce litigation expenses by including arbitration provisions and class action waivers in their contracts. As the late Justice Ginsburg observed in a 2018 citation to this report, the increased use of mandatory, individualized alternative dispute resolution is not surprising, because class action waivers in arbitration clauses have been approved by the Supreme Court in a series of arbitration-friendly opinions. In 2020, the percentage of companies that used class action waivers in contractual arbitration clauses increased nearly 20 percentage points to 74.4 percent.
The percentage of companies using alternative fee arrangements (AFAs) to control class action defense costs decreased 5 percentage points this year after reaching a high of 54.1 percent in 2019. Fixed and phased fees remain the preferred type of AFA in these complex cases. Companies also continue to employ a variety of cost-management tools to limit discovery expenses, but fewer companies than in prior years use a single e-discovery vendor for all cases and fewer chose to litigate cost-shifting motions. Insurance coverage for class litigation increased this year, with 41.9 percent of companies reporting that some portion of their class action defense costs were covered by insurance. Our respondents carrying insurance reported that matured claims with increased accumulated spending brought matters within coverage layers.
We asked companies participating in this year’s survey to rank the effectiveness of their cost reduction policies and practices. The most highly effective practices were early case assessments, partnering with trusted outside counsel, closely supervising budgets, and bundling similar actions. Moderately effective practices included accepting cost-benefit trade-offs when formulating a defense strategy, and reducing the number of outside law firms handling these matters. Internal staffing limits, AFAs, and requests for proposal were less effective than other cost reduction practices. We close this year’s report with the five keys that companies identified for achieving a successful partnership between in-house and outside counsel, and a summary of the newest initiatives for improving class action management in the future.