US class action spending up for eighth consecutive year to $3.5bn

Class action spending in the US has increased for eight consecutive years, and it is expected to be one of the fastest-growing areas of legal spending in 2023. This is according to US law firm Carlton Fields’ 2023 Class Action Survey, which reveals that companies spent a record $3.5bn on class action defence in 2022.

But at the same time, companies continue to decrease the number of in-house attorneys dedicated to class actions, according to the survey, which is based on interviews with general counsel or senior legal officers at more than 400 Fortune 1000 and other large companies across a variety of industries.

The survey reveals that corporate legal spending on defending class actions is expected to grow 6.8% in 2023, one of the highest growth rates in legal spending. Spending on class actions grew 8% in 2022, an increase second only to 2021. According to Carlton Fields, companies report that increased spending on class actions has two major drivers: claims are getting larger, and more companies are facing class actions. Indeed, the number of companies facing class actions increased from last year, to the third highest number on record.

Labour and employment class actions rose substantially again this year, as a share of overall class action matters, with labour litigation accounting for nearly 35% of class actions, and employment litigation accounting for nearly 34% of matters managed by in-house legal departments. The law firm says that companies perceive both regulatory agencies and employees (through their counsel) as being more aggressive than in years past.

“Last year, companies expected labour and employment class actions to be the biggest contributor to the next wave of class actions, and this year’s survey results prove that assessment correct as labour and employment dominates as a share of companies’ class action dockets. For labour and employment, the wave is here. This year, data privacy and consumer fraud top concerns of in-house counsel for growth in filings,” the survey states.

It goes on: “Consumer fraud class actions are again top of mind for companies, and in-house attorneys cite concerns over claims from social media postings and product labelling. Anticipation of class actions regarding investment products has doubled from last year to become the third largest area predicted for the next wave of class actions. This is likely impacted by an aggressive SEC enforcement staff and a substantial drop in the value of many cryptocurrencies at the time of the survey. This is litigation to watch, as it has substantial defence costs and risk of damages associated with it.”

Carlton Fields says that the plaintiff’s bar in the US remains “vigilant” in challenging corporate statements regarding environmental, social, and governance (ESG) issues. It notes that while a quarter of companies predict data privacy as the next wave of class actions, only 10% saw those claims actualise as posing a significant risk. “Perceived risk of data privacy actions has dropped because companies believe they can better predict outcomes,” it explains.

The survey shows that baseless claims bring a substantial risk for class actions according to six out of ten in-house attorneys, by far the most common risk in the survey. These are class actions described as those that have no merit, but where the companies are forced to defend them nonetheless. Carlton Fields points out that legal decision-makers believe courts are becoming more lenient in allowing class actions to move forward, which creates a significant cost that is disproportionate to the merits of the claim.

The number of settlements dropped significantly in almost all areas of litigation, including class actions, while settlements of putative class actions on an individual basis rose to nearly half of settlements, the survey says.

As for successful defences, absences of commonality and predominance, and lack of actual injury, topped the list this year. The survey also shows that the number of companies with a portion of their class action defence costs covered by insurance increased significantly from 32.1% to 45.8% in 2022. But of those covered class actions, the percentage of costs paid by insurance decreased by almost 12%, with companies reporting that they had excess liability coverage or large coinsurance.