© 2014 The Texas Lawbook.
By William D. Wood
Contributing Writer to The Texas Lawbook
(April 15) – In-house senior counsel at U.S. energy companies, like those in many other industries, are increasingly involved in regulatory, government or internal investigations of one kind or another, and list them among their greatest concerns.
The survey found that the most frequent types of litigation matters pending against energy companies in the past 12 months were contracts (56%), personal injury (41%) and environmental/toxic tort (32%), the latter followed closely by labor and employment (30%).
This is a far different picture from the total survey sample incorporating all industry sectors where labor and employment jumped far ahead of contracts this year (48% vs. 36%), followed by personal injury (25%). The current 32% figure for environmental/toxic tort litigation in the energy sector is little changed from the 29% in 2012 but well below the 44% level in 2011, which placed it second only to contracts (60%) that year.
More energy respondents listed regulatory/investigations on their list of most numerous pending matters in 2013 than in the 2012 survey (23% and 16%, respectively).
However, when asked to name the three to five types of matters that most concern their companies, an equal number of energy respondents put regulatory/investigations and environmental/toxic tort matters on their list (46% each) – virtually equal to contracts (48%). A full half of the Texas energy respondents listed environmental/toxic tort disputes on their list of areas of attention.
That level of concern certainly is warranted. Over the past three years, consistently more than half of the energy companies surveyed have had one or more regulatory proceedings commenced against them in the previous 12 months.
More Energy EPA Investigations
According to the current survey, in the past 12 months two-thirds of the energy sector retained outside counsel for a government or regulatory investigation, clearly above the total survey figure of 59%. The three entities most often driving these investigations across the total survey sample were the DOJ with one-third of respondents listing it, followed by the SEC and EPA, each just over 20%.
Energy respondents echoed those figures for the first two entities, but nearly half of them reported involvement in an EPA investigation. And of those, two-thirds were the primary target of the EPA investigation. This figure is up from 45% that were primary targets of the EPA in the 2012 survey.
Time Spent on Regulatory Matters Up Again
A core question in the survey is to ask respondents to estimate whether they have spent more time, less time or the same amount of time addressing regulatory requests and enforcement proceedings during the previous three years. The rise among the total sample of respondents spending more time has been notable over the past three surveys, but is even more pronounced in the energy sector.
In 2011, 34% of energy respondents were spending more time on such matters; in 2012, it was 45%; and in 2013, the figure reached 59%. Only the financial services and insurance industries were higher than energy in 2013.
Lawsuits Remain High
Seventy-eight percent of energy companies had one or more lawsuits commenced against them in the last 12 months, compared with 82% for the total survey sample. Energy companies with more than 50 matters commenced against them comprised 19% of the sector, comparable to 18% for the total sample. Only the financial services and healthcare sectors surpassed energy in the percentage of companies with more than 50 lawsuits launched against them.
More than half of the energy sector had one or more lawsuits with more than $20 million at issue – the most of any sector – and nine percent had five or more cases that large.
The Texas energy sector matched the total survey sample at 78% facing a new lawsuit and 18% with more than 50 lawsuits commenced against them.
Many energy companies, as usual, went on the offensive in 2013 with 60% initiating one or more lawsuits. The Texas energy sector was less aggressive with just 39% commencing a lawsuit, but 21% commenced five or more cases.
One In Five Had High-dollar Arbitrations
U.S. energy companies were less likely than the total survey sample to have had an arbitration commenced against them in the past 12 months: 38% of the sector faced at least one, compared with 44% of the total sample; 17% of the energy sector faced five or more new arbitrations, compared with 21% of the total sample.
However, arbitrations valued at more than $20 million initiated against energy companies over the past year were more prevalent than in any other industry; 19% of the sector faced at least one new arbitration of that scale in the past 12 months, compared with 11% of the total sample. Just eight percent of the Texas energy sector had an arbitration valued at over $20 million.
Privacy/Data Protection Issues Up
Privacy and data protection issues in disputes or investigations are not as common among energy companies as in some industries, such as healthcare or technology/communications. Still they are definitely a factor that has the attention of in-house litigation departments throughout the sector. Those reporting an increase in these issues had dipped to 16% of the sector in the 2012 survey, but rose to 28% in 2013, slightly above the 2011 level (26%).
Two-thirds of these issues were related to searching and collecting data from company equipment used by employees, and more than half of the issues were conducting the same tasks on employees’ personal equipment, from computers to cell phones.
Discovery in the Cloud and Mobile Devices
There has been a steady and significant rise in the use of cloud computing by U.S. companies, in general, over the past three surveys. In 2011, 27% were using the cloud; in 2012, it was 37%; and in 2013, 47% reported using it. Cloud use in the energy sector has not grown as rapidly. More than a third of the sector is using it, but the engineering/construction and technology/communications companies, for example, are almost twice as likely to use the cloud.
Despite that, the need to go to the cloud to collect or preserve data for threatened or actual disputes and investigations has been higher in energy than in many sectors. The rate for energy in the 2013 survey was 43% of the sector, behind only technology/communications and manufacturing.
Mobile devices are also a growing source of data collection and preservation, particularly in the energy industry where 52% had to conduct discovery on employees’ mobile devices, versus 41% of the total survey sample. Only retail/wholesale and engineering/construction companies reported levels as high as energy.
All of this adds up to an increasingly complex disputes and investigative environment for corporate litigation departments to manage. If there is a positive side to that for the legal profession as a whole, it may be that one-quarter of the energy respondents surveyed in 2013 said they expect to increase the number of in-house lawyers they have to manage and/or conduct disputes during the next 12 months.
William D. Wood is a partner in the Houston office of Norton Rose Fulbright. He leads the firm’s Energy and Infrastructure practice. He can be contacted at William.wood@nortonrosefulbright.com.
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