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Study: $2 Billion in Defense Costs for Class Action Litigation in U.S.

March 18, 2015 | Posted in : Defense Fees / Costs, Fee Agreement, Fee Data / Fee Analytics, Legal Bills / Legal Costs, Legal Spend, Study / Report

A recent study, The 2015 Carlton Fields Jorden Burt Class Action Survey: Best Practices in Reducing Cost and Managing Risk in Class Action Litigation (pdf), reports that across industries, companies spent $2 billion on class action lawsuits in 2014, slightly less than $2.1 billion they spent in 2013.  This year, spending is expected to return to 2013 levels.

Overall, the world’s largest companies spend $20.2 billion annually on litigation in the U.S.  Of this sum, approximately $2 billion (10.1 percent) goes towards class actions.  As such, class actions comprise the fourth largest segment of the $20 billion market for litigation services in the U.S., following commercial litigation, employment litigation, and IP litigation.

The study classifies class actions as: Routine, Complex, High-Risk, and Bet-The-Company.  As the risk levels increase from routine to bet-the-company, outside counsel fees jump dramatically.  At the high end of their respective ranges, complex matters can be nearly seven times more expense than routine class actions, and bet-the-company matters can be nearly eight times costlier than even high-risk matters.  In 25 percent of bet-the-company class actions, companies spend more than $13 million a year per case on outside counsel.  In 75 percent of such actions, the cost of outside counsel exceeds $5 million per year per case.

Other findings of the class action survey include:

Higher Risk and More Matters Funnel More Dollars into Class Actions in 2015

Percentage of Companies with Class Action Suits Grows

Exposure Can Be Severe Even in Routine Class Actions

More Class Actions Are High-Risk or Bet-The-Company Matters

Defense Costs Remain a Secondary Concern for Corporate Counsel

Companies Increase Role of Outside Counsel in Early Case Assessment

Alternative Fee Arrangements More Than Doubles Between 2011 and 2015