Manufacturers Expect More Lawsuits in 2009

In November and December, more than 130 lawsuits were filed by inmates at a state prison in Beaumont, TX. The inmates claim to have suffered psychological trauma because prison officials failed to adequately prepare for Hurricane Ike, which hit the city in September. The prison buildings were largely undamaged by the storm, and neither prisoners nor staff were injured. Listed among the prison’s shortcomings: Television access was not provided after the storm, depriving inmates of news about the storm’s aftermath. The suit alleges that television is a fundamental right under the First Amendment.

News like that makes me wish for the return of chain gangs! Sadly, however, we live in a litigious society. Sadder still, at a time when manufacturers can least afford to divert resources from critical operating needs, they are bracing to combat more lawsuits than they have in the past. According to the fifth annual Litigation Trends Survey by the law firm Fulbright & Jaworski LLP, 75 percent of manufacturers faced at least one new lawsuit in 2008, and more than half (53 percent) got hit with six or more new suits. Some 25 percent of the manufacturers surveyed reported facing at least one $20 million action.

Since 2004, Fulbright & Jaworski has surveyed in-house counsel for U.S. and British businesses in the education, energy, engineering and construction, financial services, health care, technology and telecommunications, manufacturing, real estate, retail and wholesale, and insurance sectors. The survey asks lawyers to consider the types of cases they fear most, as well as their attitudes on outside counsel, litigation costs and staffing, arbitration and regulatory issues, and projections for the future. Some 358 lawyers responded to the 2008 survey, which was conducted from May 22 through July 18.

For manufacturers, the results were not good. Instead of hiring engineers, buying assembly technology and developing new products, manufacturers are writing checks to lawyers. Nearly a quarter (26%) of manufacturing respondents spent at least $5 million on litigation in 2008, excluding costs of settlements and judgments. Half spent more than $1 million annually on business disputes.

Manufacturers’ in-house law departments reported that product liability matters (57 percent) were their biggest concern, followed by contracts (51 percent), and labor and employment issues (39 percent). What’s worse, 26 percent of manufacturers expect litigation to increase in 2009, while only 9 percent expect a drop in suits.

Although the popular perception is that manufacturers are sued by greedy individuals and ambulance-chasers, the fact is, manufacturers sued each other at least as often as they are sued by individuals. According to the survey, 54 percent of manufacturing companies initiated at least one lawsuit against another business or organization last year.

“This year’s survey appears to mark an inflection point for American business, between the end of a prolonged period of prosperity and the start of a period of economic challenge that is likely to fuel litigation over who is to blame and who should pay for the consequences,” says Stephen C. Dillard, who chairs Fulbright’s global litigation practice.

Let’s hope that we can all exercise restraint, or the economy may stay in the doldrums that much longer.