In a new report issued this week, ""Navigant Consulting, Inc."":http://www.navigantconsulting.com found that beyond the billions in writedowns, the credit crisis produced an alarming 576 new litigation matters filed in U.S. federal courts in 2008. The Chicago-based firm said the jump in legal disputes was driven by securities cases and last year's Lehman bankruptcy.
According to the Navigant report, the 576 subprime-related cases filed in federal courts in 2008 were twice the number filed in 2007, and by themselves exceed the 559 savings-and-loan cases handled by the Resolution Trust Corporation over its entire six-year existence.
Navigant said that hindsight of the savings-and-loan debacle suggests resolution from the nation's current economic turmoil is still years away. Since January 1, 2007, a total of 866 cases have been filed in federal courts - and the litigation wave has shown few signs of abating, Navigant said. Almost 70 percent of those cases remained active at year-end 2008.
Jeff Nielsen, managing director of Navigant Consulting’s financial services disputes and investigations group, and lead author of the report, commented, ""Whether you’re talking about the economic collapse or the related litigation, the year 2008 was by any measure historic. The credit crisis continues to find new ways to inflict damage, and each time a new wellspring of litigation seems to emerge.""
Based on Navigant's market data, the number of subprime-related filings on a quarterly basis peaked at 179 in the first quarter of 2008. However, the firm said, new cases continued to be filed at a rate of more than 100 per quarter throughout the year and even trended up slightly following the Lehman bankruptcy filing in September. Securities cases drove much of the litigation in 2008 (38 percent), followed by borrower class actions (24 percent), and contract disputes (17 percent). Other categories tracked by Navigant included employment and bankruptcy litigation.
The report also found an expansion in the scope of litigation tied to the financial crisis. For example, the 2008 figures included more than 50 cases tied to auction-rate securities, a category that did not exist in 2007.
Geographically, New York and California account for approximately half of all cases filed in 2008.
Nielsen noted that more than two new cases continue to be filed for every one that is disposed, meaning that the backlog continues to grow. The Navigant report also concludes that certain types of government-driven litigation, which are yet to be filed, could run on for years.
""One thing you can bank on,"" said Nielsen, ""is that however long it takes for credit market conditions to improve, it will take considerably longer to work through the related litigation.""