Largely as a result of a flood of M&A related
lawsuits, there were a significant number of new securities class action
lawsuits filed in the first quarter of 2011, and even factoring out the M&A
lawsuits, the first three months of the year still represented an active period
for securities lawsuit filings.
Taking the merger objection suits into account, there
were a total of 55 new securities class action lawsuits filed in the first
quarter. That would imply an annualized rate of 220 securities suits for the
year, which would be well above both the 176 filed in 2010 and the 1996-2009
annual average of 195 filings. However, the rash of merger suits filed during
the first quarter does complicate the numeric analysis, as the changing
mix of cases may make the year to year measures somewhat of an apples-
There were 20 federal court merger objection lawsuits in
the first quarter. (There were even more state court merger objection lawsuits,
as discussed further below.) Subtracting the federal court merger
objection lawsuits from the first quarter securities class action lawsuit
filing tally would reduce the number of first quarter filings from 55 to 35,
which would be idenitcal to the 35 new securities suits filed in the first
quarter of 2010. Obviously, the process of determining what to include in the
lawsuit count has a huge impact on the ultimate tally. I have further
observations about "counting" the securities suit filings below.
The 55 securities suits in the first quarter represent a
surprisingly diverse range of kinds of companies. The companies targeted in the
55 suits represent 42 different Standard
Industrial Classification (SIC Code categories. Only two SIC Code
categories had as many as three companies sued - SIC
Code Category 2834 (Pharmaceutical Preparations) and SIC
Code Category 3674 (Semiconductors and Related Devices.).
By interesting contrast to recent years' filing patterns,
the first quarter filings included relatively few companies in the 6000
SIC Code group (Finance, Insurance and Real Estate). While the credit crisis
litigation wave was unfolding and lawsuits against financial companies flooded
in, suits against companies in the 6000 SIC Code group predominated. The
relative decline of litigation activity in this category provides even further
proof that the credit crisis related litigation wave has largely played out. I
count a total of only three cases in the first quarter that might even arguably
be categorized as credit crisis related. Among these three were two
new securities suits in the first quarter involving failed or troubled banks,
which is a filing phenomenon that seems likely to continue in the weeks and
Among the 55 first quarter cases were nine suits filed
against companies domiciled outside the United States. In addition to these
nine, there were two additional companies sued that were incorporated in the
United States but that have their principle place of business outside the U.S.
These eleven total cases represent about 16.3% of all first quarter filings, a
percentage that is above the approximately 12% of 2010 filings that involved
non-U.S. companies. This relative increase in the incidence of filings
against non-U.S. companies is frankly unexpected in light of the U.S. Supreme
Court's June 2010 decision in Morrison v. National Australia Bank (about
which refer here).
The persistent elevated level of filings against non-U.S.
companies is largely attributable to the surge in lawsuits involving Chinese
companies. Four of the nine lawsuits filed in the first quarter against
non-U.S. companies were filed against Chinese companies. Three additional
lawsuits involved companies incorporated elsewhere but with their
principle places of business in China. These seven suits together represent
about 12.7% of all first quarter filings. Indications are that this phenomenon
of suits involving Chinese companies is likely to continue, as in recent days,
plaintiffs' lawyers have issued numerous press releases (for example, here
indicating that they are "investigating" certain other Chinese
companies (a development that usually presages a subsequent lawsuit filing.)
As the new filings have shifted away from financially
related companies, the jurisdictions in which lawsuit filings have been
concentrated have also shifted. During the credit crisis litigation wave,
lawsuit filings were concentrated in the Southern District of New York. Indeed,
there were nine new securities suit filings in the Southern District of New
York during the first quarter 2011, but for the first time since 2007 there
were more quarterly filings in a federal district other than the Southern
District of New York. Specifically, there were ten new securities lawsuit
filings in the Central District of California, and another five in the
Northern District of California, a changing jurisdictional mix that reflects
the shifting mix of companies that are getting sued.
More About the Merger Objection Lawsuits: As
I noted above, there were twenty new federal court merger objection lawsuits
filed during the first quarter of 2011. A total of at least 63 different
M&A transactions produced merger objection litigation in the first quarter,
but many of the lawsuits relating to these transactions were filed in state
court rather than in federal court. In addition, some of the transactions
provoked lawsuits in both state and federal court, and some provoked multiple
different lawsuits in different states.
Breaking all of this M&A related litigation down, and
counting both the state and federal merger objection lawsuits, there were
a total of at least 81 different lawsuits relating to
at least 63 different transactions. OF these 81 lawsuits, 20
were filed in federal court and 61 were filed in state court. As indicated
above, some transactions produced multiple lawsuits in different jurisdictions.
A Note About Counting:
Some readers may note that my count of 55 first quarter securities lawsuits
differs substantially that the 39 lawsuits reported as of today on the Stanford
Law School Securities Class Action Clearinghouse website. There are two reasons
for this difference. One is timing, as I have counted suits that have not yet
made it onto the Stanford site's list. The other is counting protocol, as I
have included 11 federal merger objection suits on my list that are not
included on the Stanford website list.
As I have noted numerous times in the past on this site,
one of the most challenging parts about keeping a running tally of securities
class action lawsuit filings is deciding what you are going to count. As part
of my counting protocol used during the first quarter, I have chosen to "count"
all federal court securities suits, including all merger objection suits. This
has produced a count that differs in certain particulars from the Stanford
website count. However, I should hasten to add that my count includes all of
the cases noted on the Stanford site. It just includes a few more.
These differences underscored the importance of
definitional consistency when making comparisons across time. The comparisons
are only meaningful if the counting protocols are consistent over time.
Finally, and whatever else might be said about the
increasing numbers of merger related lawsuits, it seems apparent that the mix
of cases is decidedly shifting. While there may be fewer traditional securities
class action lawsuits being filed than in some prior years, the amount of
total litigation activity is at or above historical averages when the merger
objection litigation is taken in to account. And it also seems to be the
case that at least as a matter of percentages of all filings, the merger
objection lawsuits now outweigh the tradtional securities class action
other items of interest from the world of directors & officers liability,
with occasional commentary, at the D&O Diary, a blog by Kevin LaCroix.
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