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«        Litigation Cost Survey of Major Companies    Statement Submitted by  Lawyers for Civil Justice  ...»

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Litigation Cost Survey of Major Companies 

 

Statement Submitted by 

Lawyers for Civil Justice 

Civil Justice Reform Group 

U.S. Chamber Institute for Legal Reform 

 

For Presentation to 

Committee on Rules of Practice and Procedure 

Judicial Conference of the United States 

 

 

2010 Conference on Civil Litigation 

Duke Law School 

May 10‐11, 2010

 

Rule 1 of the Federal Rules of Civil Procedure frames the purpose of the Rules:  “the just, speedy and  inexpensive determination of every action and proceeding.”  Every day, corporate and defense counsel  must confront the fact that although well‐intentioned, the Rules are falling far short of this goal.  The  reality is that the high transaction costs of litigation, and in particular the costs of discovery, threaten to  exceed the amount at issue in all but the largest cases.    Unfortunately, few empirical studies document the costs and utility of discovery.  Companies hesitate to  provide litigation data to researchers because of significant concerns about confidentiality coupled with  the difficulty and costs of retrieving and providing data in the formats and for the time periods sought.   The resulting lack of empirical data leaves the important question of litigation transaction costs to be  addressed primarily through anecdotes – which can be compelling but also easily dismissed.  To help inform the debate on litigation transaction costs at the 2010 Conference on Civil Litigation, the  accompanying Litigation Cost Survey of Major Companies was developed by organizations whose  member companies are concerned about the impact of litigation costs on their ability to compete in a  global economy.  The survey sought detailed information about long‐term litigation cost trends, U.S. and  non‐U.S. legal transaction costs, and legal fees and discovery costs in “major” closed cases (defined as  cases with litigation costs greater than $250,000).  A key undertaking in developing the survey was to  alleviate concerns about confidentiality and the difficulty of responding in order to encourage corporate  participation and obtain sufficient empirical data to draw reasonable conclusions for consideration by  the Committee on Rules of Practice and Procedure of the Judicial Conference of the United States. (The  survey development, design and methodology are further described at Appendix 1, pp. 2‐4.)  The survey  was mailed to all Fortune 200 companies in December 2009 and made available online in January 2010.   Almost 20 percent of the Fortune 200 companies responded to all or a portion of the survey,  representing a broad cross‐section of industries (14 of 19 industry sectors) and company size (responses  from all quartiles of the Fortune 200).  Larger companies responded at a slightly higher rate.   The survey confirms empirically what corporate counsel have long known anecdotally – the transaction  costs of litigation against large companies, especially discovery, are so high that the mandate of Rule 1  (“the just, speedy, and inexpensive determination of every action and proceeding”) is simply not being  met. 

Key Survey Findings 

Litigation costs continue to rise and are consuming an increasing percentage of corporate revenue.   Litigation transaction costs on average and as a percent of revenue have risen substantially over the past  nine years.  The amounts of judgments and settlements are not included in these figures. 

• The average outside litigation cost per respondent was nearly $115 million in 2008, up 73  percent from $66 million in 2000.  This represents an average increase of 9 percent each year.   

• For the 20 companies providing data on this issue for the full survey period, average outside  litigation costs were $140 million in 2008, an increase of 112 percent from $66 million in 2000.       2

• Between 2000 and 2008, average annual litigation costs as a percent of revenues increased 78  percent for the 14 companies providing data on average litigation costs as a percent of  revenues for the full survey period. 

• Increases in hourly rates do not appear to be driving the increase in litigation costs, as the  available data show relatively little change in outside legal fees over time.    The U.S. litigation system imposes a much greater cost burden on companies than systems outside the  United States.  As a percent of revenue, multi‐national company respondents to the survey spend a  disproportionate amount on litigation in the United States relative to their expenditures in foreign  jurisdictions.  Depending on the year, relative U.S. costs were between four and nine times higher than  non‐U.S. costs (as a percent of revenue).  This disparity will inevitably influence decisions by  corporations about where to invest their resources.  Global competition for foreign investment is  increasing, and the changing dynamics of the global economy are affecting the United States’ ability to  remain a leader in this area.1  The International Trade Administration at the U.S. Department of  Commerce has found that “many foreign investors view the U.S. legal environment as a liability when  investing in the United States.” 2   If U.S. litigation costs are significantly higher than other countries, and  the situation is left unchecked as economic differences between countries narrow, the United States will  be unable to compete effectively in the global marketplace. 3         Inefficient and expensive discovery does not aid the fact finder.  The ratio of pages discovered to pages  entered as exhibits is as high as 1000/1.  In 2008, on average, 4,980,441 pages of documents were  produced in discovery in major cases that went to trial – but only 4,772 exhibit pages actually were  marked.  Whatever marginal utility may exist in undertaking such broad discovery pales in light of the costs.   While only some of the survey respondents were able to provide data on a per case basis, for the period  2006‐2008, the average company paid average discovery costs per case of $621,880 to $2,993,567.   Companies at the high end during the same time periods reported average per‐case discovery costs  ranging from $2,354,868 to $9,759,900.  The study did not segregate just those cases in which e‐





                                                            

While the U.S. is still a leader in attracting foreign direct investment, its global share of FDI declined from 31  percent in 1980 to 13 percent in 2006.  International Trade Administration, U.S. Department of Commerce,  Assessing Trends and Policies of Foreign Direct Investment in the United States 6 (2008), available at  http://www.trade.gov/publications/abstracts/trends‐policies‐fdi‐2008.asp.    Id. at 7.   See Robert E. Litan, In Their Eyes: How Foreign Investors View and React to the U.S. Legal System 4 (2007),  available at http://www.instituteforlegalreform.com/issues/docload.cfm?docid=1059; see also International Trade  Administration, U.S. Department of Commerce, The U.S. Litigation Environment and Foreign Direct Investment  (2008), available at  http://www.commerce.gov/NewsRoom/PressReleases_FactSheets/index.htm?ssYear=2008&ssMonth=10  (considering concerns about the impact of the U.S. legal system on foreign investment and recommending steps to  address them).      3 discovery occurred, but estimates in other reports confirm the high cost of discovery in cases in which e‐ discovery is pursued. 4    Reform is clearly needed.  A discovery system that requires the production of a field full of “haystacks”  of information merely on the hope that the proverbial “needle” might exist and without any  requirement for any showing that it actually does exist, creates a suffocating burden on the producing  party.  Despite this, courts almost never allocate costs to equalize the burden of discovery.  Companies are spending billions of dollars yearly on litigation.  Litigation transaction costs,  independent of judgments awarded in disputes or settlements reached between parties, constitute a  significant economic cost of doing business in the United States. 5   Among the 36 survey participants who  responded to this question, the total aggregate spend on litigation in 2008 was $4.1 billion.    There is no doubt that a significant driver of the higher U.S. costs is the procedural and discovery costs  associated with our justice system.  Various studies find that roughly 60 percent of U.S. tort costs are  consumed in transaction costs, with only 40 percent benefiting the actual claimant. 6   These studies 

                                                            



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