U.S. energy companies make the big bucks, and that in turn makes them a big target for lawsuits. The average U.S. energy company now has around 364 separate lawsuits pending in U.S. courts, and 59% faced at least one $20 million-plus lawsuit last year, law firm Fulbright & Jaworski reported in its third annual survey.
Fulbright pulled data from 422 in-house law departments worldwide. The 40-page report found more than half of the U.S. companies with $1 billion or more in annual gross revenue reported on average 50 new disputes emerging each year. The number of energy lawsuits ranked second only to the insurance industry.
“Perhaps even more than our two previous studies, our new survey reveals how thoroughly litigation is woven into U.S. corporate culture — the sheer number of cases and huge slice of spending taken up by lawsuits make abundantly clear that litigated disputes are a fundamental part of doing business,” said Stephen C. Dillard, chair of Fulbright’s global litigation practice.
The most frequent lawsuit targets by industry are shifting somewhat. In 2005, they were led by energy, health care/pharmaceuticals and insurance; this year they are energy, manufacturing and wholesale/retail. Arbitration activity was highest in energy and insurance in 2005; insurance took the top spot in 2006, followed by energy, engineering/construction and banking/financial services.
Of the energy company attorneys who responded to the survey, 58% cited contract disputes and environmental/toxic tort as the top litigation concerns, followed by labor/employment and regulatory matters (31% put these two in the top three), and securities litigation/enforcement and antitrust/trade (both at 17%). Forty percent said they are facing “significant” energy litigation in South America; 20% listed Canada.
The typical U.S. energy company spent an average of $13.5 million on litigation in the past year. Overall, energy litigation ranked third ($17 million) among U.S. industries with “significantly” higher mean total expenditures. Insurance litigation was the most costly ($40.7 million), followed by manufacturing ($21.8 million). And more than a third (36%) of the U.S. energy companies surveyed expect their dispute case loads to increase next year.
The survey also reported:
One of this year’s “surprises” was the large percentage of all companies surveyed — nearly two-thirds — that had undertaken internal investigations in the past year requiring outside counsel. “Partly this is an outgrowth of our modern regulatory and enforcement climate in which companies are put on fast-track notice by government agencies that an action may be forthcoming, which prompts them to conduct a full-scale investigation,” said Dillard.
The Securities and Exchange Commission and the Occupational Safety and Health Administration were cited by all sectors as the two government agencies most likely to launch investigations.
Dillard said the “surge in investigations is also an inevitable consequence of the big corporate meltdowns that have occurred in recent years. Management and corporate boards have become much more proactive at taking the lead in policing themselves for possible wrongdoing and potential liability. Whether borne from the fear of enforcement, litigation or negative publicity, internal investigations are actually a means of containing future financial or reputational damage.”
For this latest survey, Fulbright reported that 82% of U.S. participants held associate general counsel or more senior positions, including chief legal officer and chief litigation counsel. Fifty-two percent of U.S. respondents work for publicly held companies; a similar percentage represent companies with gross revenues of $1 billion or more.
The survey breaks down results into 13 different industry sectors, including energy, manufacturing, financial services, retail/wholesale, technology/communications, engineering/construction, health care and pharmaceutical, real estate, insurance and education, as well as nonprofit organizations and trade associations.
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