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