The Financial Accounting Standards Board (FASB) has proposed a new standard for public disclosure of pending lawsuits. This raises interesting legal technology and management questions for general counsels. 

Reporting Rights in the January 2009 issue of InsideCounsel reports on FASB Statements No. 5 and 141[R]. These now-delayed rules would lower

“the threshold for reporting the potential loss from a lawsuit from the current ‘probable’ to anything short of ‘remote.’ …. Currently, because many loss contingencies are reasonably possible rather than probable, companies usually deal with significant litigation by describing it and stating that an estimate of loss cannot be made. That’s a far cry from the detailed liturgy FASB’s original proposal mandated, a liturgy that critics say will not only fail to work as intended, but will prejudice companies in a variety of ways.”

It strikes me that you could view the proposed FASB standard as the moral equivalent of financial mark to market rules. Failure to mark financial assets to market contributed to the current economic crisis. If corporations now have to report more financial assets at market (rather than book) values, why not also the moral equivalent for lawsuits? I wish the article had analyzed whether the mark to market debate will affect the FASB rule-making.

Whatever the final FASB rule, legal technology can help law departments value lawsuits. Litigation risk analysis with decision trees is a proven way to estimate the value of a lawsuit. Building decision trees is not easy, but neither is valuing financial assets. (Many financial institutions have invested heavily in valuation models.)

Also, law departments should maintain databases of all their prior cases to track what cases looked like at filing and how they resolved. An input to these databases can be likely settlement values extracted from proprietary jury verdict databases. Though matter management and e-billing systems are more widespread than in the past, I see no evidence that law departments have systematically used these systems to create historical records of – and, more importantly, forecasting tools for – their litigation costs.

Beyond FASB requirements is a more interesting question. How are GCs managing corporate risk if they do not know the liability of pending suits?