NERA Releases Updated Canadian Securities Class Action Report

The number of outstanding securities class action lawsuits in Canada reached an all-time high during 2010 according to a January 31, 2011 report by NERA Economic Consulting entitled "Trends in Canadian Securities Class Actions: 2010 Update." The report can be found here. The report includes an appendix in which securities lawsuit trends in several other countries are summarized, including Australia, Japan, and Italy, as well as the United States.

According to the report, there were eight new securities class action lawsuits filed in Canada during 2010. The number of 2010 filings is one fewer than the nine new cases filed in 2009, and two fewer than the record ten filings in 2008. Allowing for the settlements in six cases during the year in which defendants agreed to pay a total of CAN$80 mm, there are now 28 active Canadian securities class action lawsuits.

A total of 25 lawsuits have now been filed under Bill 198, the relatively new secondary liability provisions of the Ontario securities laws. Of the nine Bill 198 cases that have settled, the average settlement is CAN$10.7 mm, with four cases settling for more than $10 million and three settling for less than CAN$3 million.

Interestingly, one of the 2010 filings involved a company - Canadian Solar - whose shares do not trade on a Canadian exchange (its shared trade on NASDAQ. This is the second Canadian securities suit involving a company whose share do not trade on a Canadian exchange (the first being the 2008 lawsuit involving AIG).

The report notes that it has become relatively common in recent years for Canadian companies to be subject to securities lawsuit in the United States. Between 1996 and 2010, Canadian-domiciled companies have been named as defendants in securities class action lawsuits in the U.S. Of these, 17 cases also had parallel class action lawsuits in Canada.

The report notes that the number of future filings in the US against Canadian companies may decline in future years owing to the U.S. Supreme Court's holding in Morrison v. National Australia Bank. Indeed, Morrison could have an impact on at least some of the cases pending in the U.S. against Canadian companies. The report notes that the Morrison case comes at a time when Canada and even other countries may be expanding the reach of their collective action mechanisms. It is entirely possible that there may be an increase of lawsuits in Canada involving companies whose shares do not trade in Canada, particularly in light of the fact that at least one Canadian court has been willing to certify a global class of claimants.

The average settlement amount of the 37 U.S. cases involving Canadian companies that have settled is US$71.5 mm, but this average is skewed by two large settlements involving Nortel. The median of these settlements is US$6 mm. For the 14 US cases against Canadian companies that have settled since 2007 (i.e., after the Nortel settlements), the average settlement is U.S $20.5 mm and the median settlement is uS$6.2 mm.

This Week at the PLUS D&O Symposium: Weather permitting, this week I will be attending the 2011 PLUS D&O Symposium in New York City. I know that many readers of this blog will also be there. I hope that if you see me at the Symposium that you will take a minute to say hello, particularly if we have not previously met. I look forward to seeing everyone there, or at least everyone who can make it through the storm. Safe travels to all, good luck to all of us with the weather.

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.