Risk Management

U.S. Companies Spending a Fortune in Court

The typical U.S. company faces an average of 305 lawsuits and spends $12 million a year on litigation alone, not including settlements or judgments.
Tim ReasonOctober 12, 2006

A survey of corporate counsel finds that U.S. companies face a staggering average of 305 lawsuits at any given time. It also notes that government inquiries — particularly from the Securities and Exchange Commission and the Occupational Safety & Health Administration — and internal investigations requiring outside counsel are on the rise.

The survey of 422 in-house lawyers, conducted by the New York law firm of Fulbright and Jaworski, LLP, found that the average U.S. company faces 305 lawsuits worldwide. For the average billion-dollar company, the number is even higher, at 556 cases, with about half of those companies reporting that they received as many as 50 new lawsuits a year. A third of all companies surveyed said they expected litigation would continue to increase next year.

A strong majority of companies, 63 percent, also said they had hired outside counsel to conduct internal investigations in the past year. “Management and corporate boards have become much more proactive at taking the lead in policing themselves for possible wrong-doing and potential liability,” said Stephen C. Dillard, chair of Fulbright & Jaworski’s global litigation practice, in a statement accompanying the survey results. Internal corporate investigations have soared in recent months in response to the ongoing stock option backdating scandal. Yet when asked to name their top litigation fears, most companies cited labor and employment claims.

By industry, insurers faced the largest number of suits, an average of almost 1,700 per year, while retailers and energy firms came in second with an average of 330 per company.

The costs of all this litigation activity, which accounts for about 71 percent of U.S. company legal budgets, are significant, with the average company spending $12 million, not including settlements or judgments. For companies with revenues of more than $1 billion, the average annual amount spent on litigation was $19.8 million. For companies with revenues of $100 million — , which averaged only nine pending cases, the average spending on litigation was $178,000.

The survey’s authors were careful to note that not all of these suits are defensive. More than 70 percent of respondents had also initiated at least one lawsuit, and almost half had filed as many as five. “The great majority of companies report initiating lawsuit in order to enforce contracts, safeguard intellectual property, block monopolistic behavior, and achieve other valid business objectives that require them to take assertive legal action,” said Stephen C. Dillard, chair of Fulbright & Jaworski’s global litigation practice, in a statement accompanying the survey results.

4 Powerful Communication Strategies for Your Next Board Meeting