The Inigo 2024 Defense Counsel survey findings are in.
We have published our 2024 Defense Counsel survey, our third annual temperature check of the US Securities Litigation landscape, with some familiar areas of discussion and some new.
The new cybersecurity disclosures, a new cadre of judges on the Federal bench, plus a tougher financing environment and mixed economic picture are affecting corporate litigation in the US, according to the leading corporate attorneys whose opinions we polled. Delaware also continues to be a tough forum to defend Derivative actions.
- Cybersecurity – will new disclosures trigger more class actions?
- Securities class actions – are settlement demands increasing?
- Artificial intelligence – the next ESG or EV DeSPAC?
- Bankruptcies – what happens when there is no money left?
- Derivatives and Delaware – how bad can it get?
We asked our respondents 58 questions across these subjects, as well as conducting extensive interviews to understand their perspective. We will highlight some of the key findings we discovered here but there is much more detail in the survey, which we encourage you to read.
Firstly, despite ransomware attacks and other cyber breaches against businesses continuing apace, most US-listed companies are unprepared for the Securities and Exchange Commission’s new rules on reporting their cyber readiness and any attacks they suffer, defense counsels told us. In addition, there is a view amongst many of them that the Plaintiff Bar will also see this as an attractive opportunity. As a result, they predict that the new disclosure regime will likely lead to more lawsuits being filed against public companies.
Another worrying trend that our survey respondents told us is that the size of defense settlements has jumped. There have been several very large settlements this year and, with others in the pipeline, the total value of settlements could set a record in 2024. That, combined with other factors, such as the growing influence of new judges appointed to the Federal Bench by President Biden, means those we surveyed expect the cost of defending and settling claims will rise.
Artificial Intelligence (AI) looks set to revolutionize our lives, but it’s also likely to catch many companies out, either because they exaggerate their use of the new tech or because they don’t foresee how it will disrupt their business. Nearly three quarters of the defense counsels we spoke to thought AI will trigger more litigation in the year ahead, particularly following SEC Chair Gary Gensler’s warnings to companies to not ‘AI wash’. This is supported by the fact that we have already seen 3 AI related SCA filings in Q1 24 alone.
Some likened the wave of litigation to the recent phenomena around Electric Vehicle litigation, which has been disproportionately higher than other industry sectors. There was less agreement about how aggressive the enforcement regime will be but it is clear the litigation landscape is going to evolve almost as fast as the technology, with the majority believing this will lead to more litigation against companies operating in AI.
Next we explored the financial health of companies and the impact this has on litigation. Although the pandemic is now receding in people’s memory, there’s a sting in the Covid tail for Corporate America. Sluggish consumer demand, the end of stimulus packages and ratcheting interest rates to counter the rising inflation partly created by those aid measures has meant a surge in the number of US companies filing for bankruptcy. Worse, more of those businesses are collapsing, rather than being able to restructure their debts and trade on.
This is a problem for their D&O cover, particularly if the companies don’t have enough money set aside to pay their share of the defense costs required under the B and C sides of their policies. With no money left in the pot it can be very difficult to reach a settlement, say defense counsels. The moral of the story is to not stint on buying A Side coverage, as it might be all there is to defend a company’s executives and board members if it goes down in flames.
The final chapter covers a theme familiar in both our previous surveys. There is now a slew of derivative litigation in Delaware, with our prediction of there being 5 settlements over $100m coming true last year. Defense counsels cite the continued fallout from landmark judgments, like those redefining the Caremark standard as well as the McDonald’s decision, clarifying the duties of officers as well as directors. They also highlight the state’s courts being more friendly to plaintiffs as well as mushrooming Section 220 Demands as making it an even tougher state now for companies to fight lawsuits. It’s become even more of a favorite destination for plaintiff’s lawyers as a result, and the cost of defending and settling cases is rising, so companies need to beware.
We cover this and much more in our survey, with thanks to our respondents for taking the time to complete the survey and participate in interviews.
Finally, in this year’s report, as in previous years, we marked the predictions we made in 2023 – and made some more for 2024. We asked defense attorneys to once again rate their adversaries, which we use to rank the top five plaintiff’s law firms in the country. Will your regular opposite numbers feature on that list, and do you agree with the views of your peers? If you’d like to read the full survey, please click on the link here.
