By Jack Karp for Law360.com
In a reversal from last year, the number of cases companies are litigating is growing faster than the amount of money being spent on that litigation, according to a new report published Thursday.
But spending on that litigation is expected to rise by only 5.4% next year, the report said.
“The ferocity of the suits that are coming in is just beyond reasonable, or even the most extreme expectations,” BTI President Michael B. Rynowecer told Law360 Pulse. “So spending up with that demand is very, very difficult.”
That growth in the caseloads companies are facing is mainly being driven by an “enormous backlog” of litigation, according to Rynowecer.
And the cases that make up that backlog cover a surprisingly broad array of practice areas, including employment, cybersecurity, class actions, securities and intellectual property, among others, according to the report.
That variety of litigation is unusual, Rynowecer said.
“If you go back 10, 15 years, you really haven’t seen the breadth of the need that clients have today,” he added.
But despite the amount of litigation companies are facing, what they spend on outside counsel to handle all that legal work is expected to rise by only 5.4% next year, compared to 6.3% growth in 2022, according to the report.
Spending is predicted to grow the most in eight practice areas, led by employment litigation, cybersecurity cases, commercial disputes and class actions, according to the report.
Employment is expected to see the largest increase in the amount of money spent, rising by half a billion dollars from $7.22 billion in 2022 to $7.72 billion in 2023, the report said. That increase is driven in part by an “onslaught” of cases due to more litigious workers and hybrid work rules.
Cybersecurity and data privacy cases will likely see the largest percentage growth, with spending increasing 13.4%, due mainly to states’ adoption of new data privacy laws, according to the report.
Many states are passing cybersecurity regulations that use their own definitions, and some of those rules are written specifically to reach beyond a state’s borders by applying to consumers harmed in the state rather than companies operating in the state, Rynowecer said.
“There are so many regulations, and the agencies are being especially aggressive at enforcing them,” Rynowecer said. “They want to really protect especially consumer data, so they’re coming in hard, fast and furious.”
Companies are expected to spend $2.62 billion on outside counsel to handle cybersecurity matters in 2023 as a result, according to BTI.
Even though much of the spending growth is being seen in cybersecurity and employment cases, commercial litigation remains the area where companies are laying out the most cash, according to the report.
Spending on commercial litigation is anticipated to increase to $8.06 billion next year from $7.8 billion in 2022, the report said.
Other areas where BTI expects to see growth include class actions, intellectual property, product liability and securities litigation.
Meanwhile, spending on bet-the-company litigation remains virtually flat. Companies are expected to spend $1.36 billion on such matters next year, compared to $1.34 billion in 2022, a 1.4% increase. But the market for such large matters is still smaller than it was two years ago.
Companies’ corporate counsel offices are seeing somewhat increased budgets to deal with all that litigation, Rynowecer said.
In fact, 52% of clients are planning for “serious” increases in litigation spending while only 10% anticipate cutting spending, according to the report. That means 90% of companies will have budgets higher than or equal to budgets from last year.
“But you can only ask for so much,” Rynowecer said.
In many instances, turnover in corporate counsel’s offices means the person who developed the budget may not be the person implementing it, he pointed out. And some budgets were developed earlier in the year when the pace of litigation hadn’t picked up quite as much, so they’re based on lower caseload expectations.
As a result, any increased spending is unlikely to keep pace with the increased litigation.
“You put all those things together and you’ve got caseloads expanding greater than spending,” Rynowecer said.
While the companies facing all that litigation would rather give the work to firms they already have relationships with, those firms have limited capacity and interest in taking on new matters, the report added.
Partners at many firms are already up to their ears in billable work, and some firms have also seen high turnover recently, according to Rynowecer.
“So the level of aggressiveness they have in pursuing business is surprisingly less than it might be in certain firms,” he said.
That dynamic creates opportunities for law firms that can help clients manage their caseloads, with project management, budget planning and operational strategies, according to the report.
“Experienced clients know they can save money and resolve cases with strong management systems,” the report said. “These systems are one of the few tools proven to help gain improved control over a growing caseload.”
But while case management systems and strategies will be increasingly important for firms, so will people, Rynowecer cautioned. Law firms that have invested in developing legal project managers who know how to organize clients’ caseloads and streamline the work will be at an advantage.
“Those people, we believe, will become very valuable in a client-facing role, because clients have this deluge of litigation and the law firms that can come in and help manage the actual caseload from a management standpoint as opposed to a legal standpoint — the law firms that can offer both — are offering tremendous value,” Rynowecer said.
These trends are likely to continue into the near future. Over the next two years, corporate counsel will try to manage their way through the increased caseloads, but “every indication is that there’s no letup in litigation,” according to Rynowecer.
“They’re trying to get on top of it, but we don’t expect the increases in spending to keep pace with the rise in litigation,” he said.