Advisen Releases 3Q10 Corporate and Securities Litigation Report

Overall levels of corporate and securities litigation remained at elevated levels in the most recent quarter even as securities class action filing levels remained flat, according to the third quarter 2010 report of the insurance information firm, Advisen. The October 2010 report can be found here

Preliminary Notes 

The litigation analyzed in the Advisen report includes not only securities class action litigation, but a broad collection of other types of suits as well, including regulatory and enforcement actions, individual actions, derivative actions, collective actions filed outside the U.S. and allegations of breach of fiduciary duty.

In considering the Advisen report, it is critically important to recognize that the report uses its own unique vocabulary to describe certain of the litigation categories.

For example, the report uses the phrase "securities fraud" lawsuits to describe a combination of both regulatory and enforcement actions, on the one hand, and private securities lawsuits brought as individual actions, on the other hand; however, the category of "securities fraud" lawsuits does NOT include private securities class action lawsuits, which are in their own separate category (SCAS").

In addition, both "securities fraud" lawsuits and securities class action lawsuits, as well as all of the other categories of lawsuits described in the report, are subparts of the aggregate group of corporate and securities litigation the report refers to as "securities suits."

Due to these unfamiliar usages and the similarity of category names, considerable care is required in reading the report.

The Report's Analysis

According to the Report, corporate and securities litigation "remained at inflated levels" in the third quarter. There were 284 "securities suits" in the third quarter, which is slightly higher than the 278 filed in 2Q10 and the 276 filed in the third quarter of 2009. The filings for the first three quarters of 2010 annualize to 1,024 lawsuits, by comparison to the 1,105 filed in 2009 and 928 in 2008. These annual figures are significantly above the roughly 800 per year lawsuits filed in 2007 and 2006.

The new lawsuit filings have remained at elevated levels even though the number of securities class action lawsuit and "securities fraud" action (that is, enforcement actions and individual securities suits) have remained essentially flat. The heightened litigation activity levels is largely due to the number of breach of fiduciary duty suits, which "have grown rapidly as a percentage of all securities suits," now representing 34 percent of all "securities suits," compared to as little as 8 percent as recently as 2004. These breach of fiduciary duty lawsuits "often are filed in the wake of a merger or an acquisition by shareholders of the acquired company who believe the directors did not obtain an adequate price."

Securities class action lawsuits as a percentage of all "securities suits" has, by contrast, declined in recent years and now represents less that 20 percent of all corporate and securities lawsuits. According to the Report's counting methodology, there were 144 securities class action lawsuits filed in the first three quarters of the year, which annualizes to 192 lawsuits. This annualized number compares to the 234 securities class action lawsuits filed in 2009. According to the Report, there average number of securities class action lawsuit filings during the period 2004 to 2009 is 226.

The Report attributes the relative decline of securities class action lawsuit filings in 2010 to the drop in the number of new lawsuits related to the credit crisis. But though the credit crisis lawsuits have declined, financial firms remain the most frequently named in securities class action lawsuits. Overall, though, the securities class action lawsuit filings "were much more broadly dispersed than in previous quarters." The two largest categories of lawsuit defendants after financial firms are companies in the consumer discretionary and healthcare categories.

My own analysis of third quarter securities class action lawsuit filings can be found here.

Advisen's Third Quarter Litigation Overview: On October 15, 2010 at 11:00 a.m. EDT, I will be participating in an Advisen webinar reviewing the firm's third quarter securities litigation report. Other participants in this webinar include Steve Carabases of ACE, Adam Savett  of Claims Compensation Bureau and David Bradford of Advisen. The session will reveiw Advisen's analysis of third quarter 2010 securities litigation and discuss the implications for brokers, underwriters and risk managers. Information about the session, including registration information, can be found here.

In BofA/ Merrill Case, Judge Castel Denies Motion for Reconsideration and Immediate Appeal: In an October 7, 2010 order (here), Judge Kevin Castel denied the defendants' motion for interlocutory appeal or for reconsideration of Judge Castel's August 27, 2010 order denying in part and granting in part the defendants' motions to dismiss. Refer here for background regarding his August 27 ruling, which as noted here, has proven to be controversial, to the extent it seemed to suggest that BofA could not be liable under the federal securities for omission allegedly made at the direction of Secretary of the Treasury Paulson. That aspect of Judge Castel's ruling, which clearly favors the defendants, was the subject of defendants' motion.

Rather, as discussed in Alison Frankel's October 12, 2010 Am Law Litigation Daily article (here), the defendants relied on three specific issues: "Did BofA have a duty to disclose Merrill's (disastrous) interim financial results; do shareholders of an acquiring comany have causation claims; and are covenants of a private merger agreement actionable under federal securities laws? "

Judge Castel denied the request for interlocutory appeal, noting that granting the motion would "grind this action to a halt." He also held that the defendants had not presented sufficient grounds for reconsideration.

Welcome to the Blogosphere: I am pleased to note that my friend Joe Monteleone of the Tressler law firm has joined the blogosphere with his new blog, The D&O and E&O Monitor, which can be found here. The new blog is off to a great start and it looks like a worthy new addition to the blogosphere. All I can say is that Joe will soon learn that a blog is harsh mistress.

Read other items of interest from the world of directors & officers liability, with occasional commentary, at the D&O Diary, a blog by Kevin LaCroix.