Are Litigation Filings a Predictor of Increased Legal Demand?

Topics: Billing & Pricing, Business Development & Marketing Blog Posts, Client Relations, Data Analytics, Law Firm Profitability, Law Firms, Litigation, Midsize Law Firms Blog Posts, Peer Monitor, Practice Engineering, Thomson Reuters

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We’ve seen a steady rise in the use of predictability analysis and other data analytics at law firms. From estimating the cost of a matter to determining the return on investment of lateral hires, almost every firm is using some manner of analytical tools to help it make smart, data-driven decisions.

But what if you could predict — or at least get some early indications — that the demand was going to increase or decrease at your law firm? Being able to predict an upswing or downturn in demand could help numerous parts of the firm. For example, a firm could make attorney and staffing headcount adjustments on legal matters much earlier, saving significant cost. Or, a firm may be able to focus on new marketing strategies or adjust current ones. A firm may even be able to predict some future billable hours and improve its forecasting of budgetary needs.

This is a daunting challenge, however; there is no single, magic data set that will give you a clear prediction (or even a strong indication) of the direction your firm may be headed.

So, we looked at what data we had available from Thomson Reuters Monitor Suite and Peer Monitor to see if we could predict trends. If we looked at the volume of litigation matters filed according to Monitor Suite across the country, for example, it might help predict litigation practice demand trends tracked by Peer Monitor. When we see an increase in the number of litigation matters filed, perhaps in some subsequent quarter, would we see an increase in litigation practice demand, or perhaps the opposite impact if litigation filings decreased? For our purposes here, we define litigation demand growth as the year-over-year growth in total amount of billable hours worked by attorneys in firms’ litigation practices.

Methodology

In our sample, we examined all new state and federal filings from law firms with a head count of 40 or more attorneys by quarter, from Q4 of 2016 to Q2 of 2019. (Note: These figures are not necessarily a representation of currently active dockets, but rather of the number of new dockets filed in a particular quarter.)

We began our analysis with Q4 2016 because Q4 2017 was the first quarter that saw positive litigation practice demand growth in about five years. By looking at the volume of litigation filed throughout 2016, we wanted to make sure we looked back far enough to capture any variations in the volume of litigation filed that might lead to an increase or decrease in demand.

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Findings

Starting off with Q4 2016, there were 38,425 dockets filed and 40,729 dockets filed in the next subsequent quarter, Q1 2017, representing a 6.0% increase. In the following quarter, Q2 2017, there was another 3.4% increase in the volume of litigation filed. In both periods, however, law firms saw declines in litigation demand.

It wasn’t until Q4 2017 that we saw an increase in litigation practice demand and even then, growth was less than 1%. This is in spite of the fact that two of the three preceding quarters had seen growth in matter volume of up to six-times the pace of Q4 litigation demand growth.

As we explore further, it’s difficult to find any sort of pattern or correlation between matter volume and litigation demand. Matter volume appears to be highly volatile at times, growing by 16.2% in Q1 2019, then falling by 11.8% the next quarter. Litigation demand sees some variations as well, but not to the same extremes as new matter filings and not in any way that would demonstrate a correlation of the former to the latter.

Conclusions

From looking at these findings, I am unable to find a correlation between the volume of litigation filings and overall law firm legal demand. While looking at the data, I found instances where my hypothesis could potentially hold (see, e.g., Q1 2019 litigation filing growth followed by slight Q2 2019 litigation demand growth), but other examinations found either the opposite effect or no correlation at all. This leads to the conclusion that any correlation that we may have found between an increase or decrease of litigation filings and legal demand was more of a coincidence than an actual pattern.

So, what does this mean? Well, it may mean that we cannot use the volume of litigation filed to give us indication of future litigation practice demand. Perhaps this indicates that the demand on attorneys’ time is front-loaded, occurring before the docket has been filed with the court. Or perhaps litigation attorneys expend their work hours on certain matters that would contribute to litigation demand growth, but ultimately no litigation filing ever happens — like negotiations that occur in alternative dispute resolution cases or other situations outside of the court’s realm.

So why write about an experiment that lead to a busted hypothesis? We know that law firms are always looking for new ways to harness data to their benefit. It’s valuable to the market to discuss where not to look so law firms can avoid going down a path that research has shown will lead to a dead end.

From Bacon, to Galileo to Copernicus, a large part of experimentation has always been about discovering what doesn’t work. Now that we know this, we can move on to other analysis that may bear better outcomes.