Pandemic boosts class action cases to new high

Pandemic boosts class action cases to new high

With more than one-third of US corporates facing class action claims, the defence costs rise to $2.9bn

One of the after-effects of the COVID-19 pandemic is the huge surge in class action cases with companies in the US forced to spend $2.9 billion last year in defending related cases.

New research carried out indicates a record surge representing as much as 13 per cent of the litigation spending market.

Investopedia.com defines class action as "a legal proceeding in which one or several plaintiffs bring a lawsuit on behalf of a larger group, known as the class. The judgment or settlement agreed to arise from the suit covers all members of the group or class, where penalties paid by the defendant are divvied up among class members."

The Carlton Fields Class Action Survey has revealed that the pandemic has played a leading role in driving class actions, witnessing a steady year-on-year increase, with the average annual number of cases per company being 9.3 compared to just 4.4 in 2011.

Out of the 400 American companies surveyed, more than a quarter of them faced at least one Coronavirus-related claim in 2020. About 1,600 COVID-19-related class actions cases were filed by the end of April 2021.

Class action spending has been witnessing a constant rise for the last six years. Industry estimates suggest that spending levels might hit another new record of nearly $3.3 billion in 2021.

Several companies have adopted various strategies to cut down on spending with about 50 per cent of the companies surveyed looking to forge relations with outside counsel for the early triage stage of claims while 83 per cent said they had modified their business practices to temper future class action issues.

For the second successive year, internal staffing declined with the number of in-house lawyers dedicated to managing class action litigation coming down to an average of 3.6 attorneys per company.

"With the pandemic, we've seen a groundswell of new litigation, and even those companies who have not yet faced a Covid-19 class action have considered or adopted new business practices in an attempt to address related issues and minimize risk," Carlton Fields' national class actions practice group chair, Julianna Thomas McCabe, said.

The survey identified labour and consumer fraud matters as the leading categories for class actions, reporting spending figures for each category at 22 per cent and 20 per cent respectively.

Data privacy and cybersecurity matters have remained at the forefront of corporate counsel's minds for future class action threats, with 42 per cent of surveyed companies predicting an influx of cases.

The high level of concern about data privacy lawsuits stems from recently enacted or imminent state privacy statutes such as the California Consumer Privacy Act. Some respondents felt that what is being seen now could just be the tip of the iceberg.