US companies spend record $3.5bn on class action defence in 2022, study finds

Majority of in-house teams are worried about growth in meritless claims, according to Carlton Fields

Companies are facing increased numbers of class action suits Shutterstock

US class action defence spending increased to a fresh record high last year as caseload continues to grow, according to Carlton Fields’ 2023 Class Action Survey.

Companies spent $3.5bn defending class action suits in 2022, the eighth consecutive year that class action expenses have grown, the survey found. Companies reported facing almost a full additional class action matter in 2022 compared to 2021, reversing a two-year decline in average matters per company. Class action settlements fell to the lowest level in five years, with just 47% of cases settling compared to 73% in 2021.

Labour and employment-related litigation accounted for more than a third of class action spending and matters managed by in-house departments (35% and 34% respectively). Employment class actions also accounted for half of all remaining pandemic-related class actions. 

Companies said they expect to see more consumer fraud class action, which could have a potential impact on profits (consumer fraud accounted for 22% of matters last year). Roughly a quarter of in-house teams said they expect data privacy and cybersecurity matters to dominate the next wave of class actions, even though only 10% see that as a significant risk, in part because companies believe they can better predict outcomes. Data privacy-related litigation made up fewer than 10% of class action matters last year.

Six out of 10 in-house teams also said they are concerned about a rise in baseless claims that have no merit, but companies are forced to defend them anyway. Some lawyers believe courts are becoming more lenient about allowing class actions to move forward regardless of their merits, which creates significant costs for businesses. Around a third of companies think hybrid work policies may lead to an increase in class actions, with ESG and social media also potential areas of risk.

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Despite the increase in class action matters over the past 12 months, companies have been shedding the number of in-house lawyers they have dedicated to class actions. On average, companies have 3.3 lawyers responsible for class action defence work, the lowest number since 2017.

Companies are also relying on a small number of law firms to support them with class action matters. Almost three-quarters of respondents said they use between two and nine firms, while 30% use one firm in a supervisory role. Improved cost control is one key reason why in-house teams prefer to work with a smaller number of firms, even as caseloads grow.

 Last month, the Broadridge Global Class Actions Report found that 2022 was one of the busiest years for the global securities class action litigation industry. There were more than 160 separate claim filing deadlines in 2022 – an increase of 21% compared to the year before – with total settlement value exceeding $7.4bn, representing an eye-catching 142% increase. 

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