The legal economy's best friend?

Legal chieftains at U.S. companies say the long reach of state and federal regulators, even more than the still struggling economy, will be the top factor that draws businesses into court battles in the next year.

"Stricter regulation" will be the number one driver of increased litigation according to general counsels and other corporate law officials surveyed by Fulbright & Jaworski.

In the report released Tuesday, 30% of respondents pointed to regulation for why they expect the number of legal disputes to increase, topping the 26% who said "company growth" would cause lawsuits and 21% that pointed to the "poor economy."

Last year, only 19% of the lawyers surveyed said tighter regulation enforcement would the main cause of litigation.

The position appears to mirror the sentiment among many Republican presidential candidates and Tea Party supporters that have blamed government regulators for restricting job creation and economic growth.

Of the survey respondents in the U.S., 55% reported retaining an outside counsel in the past year for assistance with a government or regulatory investigation. That's up from 43% in 2010.

Those third-party lawyers could be tapped to conduct internal investigation aimed at heading off a government inquiry or could be called upon to assist with an ongoing action.

The survey collected responses from 275 corporate legal officials at U.S. companies.

The poll also found a slight uptick in the number of companies facing actions from regulators. In 2011, 41% reported that one or more regulatory proceedings were commenced against their companies, up from 40% last year.

Respondents pointed to the Department of Justice, state attorney generals and the Labor Department's Occupational Safety & Health Administration as the top sources of regulatory investigations.

Fulbright & Jaworski Partner Saul Perloff said the survey likely reflects a combination of increased regulator enforcement in recent years and uncertainly about future rules. For example, he said energy companies have expressed concern about new regulations tied to the Gulf oil spill and Japan's nuclear power plant catastrophe, and finical firms are still unsure of the impact of the Dodd Frank Act.

"The data shows us that over the past few years regulatory actions have been a significant source of litigation," he said. "But general counsels are also likely looking out on the horizon for what could cause their internal clients problems."

Overall, all 33% of the survey's U.S. respondents expected all types of litigation to increase in the next 12 months, while 59% expected litigation to remain on par with the past year. Only 8% expect a drop off in lawsuits.

(Published by WSJ - October 18, 2011)