Citizens Against Lawsuit Abuse of Central Texas

San Antonio Business Journal
October 23, 2009

The love affair corporations have had with arbitration may be over, according to the recently released Fulbright & Jaworski LLP 2009 litigation trends report.

In past surveys, many corporations stated a preference for arbitrating a legal dispute — versus taking the case to trial. Judging by this year’s survey results, however, that trend may be reversing itself.

While arbitration is still the preferred method of resolution by many when it comes to commercial international disputes, of the 276 U.S.-based companies that participated in this year’s survey, 55 percent stated that in cases that were not international in nature, and when given a choice, they opted for litigation. By comparison, 32 percent chose to arbitrate a case.

“Corporate counsel is not as enamored with arbitration as they have been in the past,” observes John W. Weber Jr., a partner in the San Antonio office of law firm Fulbright & Jaworski.

The 2009 report, released last week, marks Fulbright & Jaworski’s sixth edition of its litigation trends analysis. The report covers litigation practices over the prior 12-month period and offers projections about the upcoming 12 months.

Weber says that this year’s responses on the litigation-versus-arbitration question mark the first time in six years that he has seen the “swing back toward litigation.”

“Come next year’s survey, we’ll see if it’s really a trend,” he adds.

The 2009 litigation trends report is based on responses from 408 participating companies in the U.S. and the United Kingdom — including company officials who serve as general or deputy-general counsels for their firms. Of that pool, 276 respondents were U.S.-based businesses.

Runaway jury

So what were the top reasons for choosing to go to trial over arbitration?

Lower cost was the top reason provided by 21 percent of respondents. A higher comfort level with a trial setting, and efficiency were the prime motivators for 15 percent and 14 percent of participants, respectively.

“The pendulum is definitely swinging away from arbitration,” says J. Scott Rose, a partner in the San Antonio office of Jackson Walker LLP. “It’s not any more efficient or predictable.”

There was a time, for example, when arbitration enabled parties to bypass issues of discovery, explains Mark R. Murphy, an associate with Oppenheimer Blend Harrison + Tate Inc. (OBHT). That no longer being the case, arbitration can be every bit as costly, and as lengthy a process, as a trial.

Another 13 percent of corporations participating in the 2009 Fulbright & Jaworski trends report stated that a more predictable outcome was a key in the decision to go to trial over entering arbitration.

“The ‘runaway jury’ verdicts that corporations were afraid of — you don’t see that much anymore,” says Murphy, adding that, thanks to various tort reform measures, companies “don’t necessarily need to fear the jury verdict anymore.”

There’s also the issue of an appeal. A trial offers a party that option. In arbitration, the judgment is “99 percent” final, Murphy adds.

And the music stopped

When asked what type of legal dispute most concerns their firms, labor/employment and contracts took the top spots, with 40 percent and 39 percent of respondents, respectively, choosing those responses.

In fact, some 39 percent of U.S. firms participating in this year’s survey indicated they had seen an increase in labor/employment litigation. Another 34 percent reported an uptick in contractual disputes.

But it was bankruptcy/reorganization proceedings that lead the pack — with 43 percent of U.S. firms reporting a rise in such litigation.

The underlying factor in the increase: Too much debt.

“The growth in the 1990s and even in the early part of this decade, everything was driven by debt,” says Jackson Walker’s Rose, who is one of those attorneys who has been busy handling commercial bankruptcy cases.