As numerous observers (including
this blog) have noted, securities class action lawsuit filings were down in
2012 compared to the previous year and historical averages. It turns out that
the downturn was not limited just to securities class action litigation. New
lawsuit filings for corporate and securities litigation generally declined in
2012, according to a January 29, 2013 report from Advisen entitled "D&O
Claims Trends: 2012 Wrap Up" (here).
The new report details an annual decline across all of the categories of
corporate and securities litigation that it tracks, while at the same time
noting that litigation filings in the aggregate in 2012 were still elevated
compared to prior years.
According to the survey, the total number of corporate
and securities lawsuits declined 21 percent from 2,043 suits in 2011 to 1,616
in 2012. But though the numbers declined year over year, the 2012 filings still
exceeded all other years except 2011. The elevated levels between 2012 and the
years preceding 2011 was largely due to what the Advisen report calls
"securities fraud" suits (which it should be emphasized is a category that does
not include securities class action lawsuits and largely consists of
regulatory and enforcement actions) and shareholders derivative suits.
The report emphasizes that the apparent decline in overall
corporate and securities litigation levels between 2011 and 2012 may be a
reflection of the fact that 2011 was an "unusually active year" for litigation.
But, the report adds, to the extent that the 2012 figures do represent a longer
term trend, it may be that the plaintiffs' firms' resources "are being
allocated outside the realm of D&O related litigation."
The decline in the number of securities class action
lawsuits, which has been mush noted, "likely reflects a change in the emphasis
by plaintiffs' firms due in part to a string of Supreme Court decisions
favoring defendants," as well as a "shift in focus towards other types of suits
that can be resolved quickly in more favorable state jurisdictions at a far
lower cost to the law firm."
Along those lines, the report notes that as recently as
2007, securities class action lawsuits represented 22 percent of all corporate
and securities lawsuit filings, but only about 11 percent in both 2011 and
2012. The declining significance of securities class action lawsuit as a
percentage of all corporate and securities lawsuit filings is a reflection of
the changing mix of corporate and securities litigation.
The largest drop in corporate and securities litigation
activity between 20011 and 2012 occurred with respect to breach of fiduciary
duty suits, which fell 31 percent year-over-year. A large factor in this drop
was the decline in 2012 of new merger objection lawsuit filings, after those
types of suits had increased sharply between 2006 and 2011. According to the
report, the number of new merger objection suits declined 24 percent in 2012
compared to the all-time high levels in 2011. This decline in merger objection
suit filings may be in part a function of the decreasing M&A activity.
However, the ten percent decline in M&A activity "does not fully explain
the large decrease in suits."
Though suits against financial firms continued to
predominate among all corporate and securities lawsuits, the percentages of
suits involving financial firms was also down in 2012. Suits against financial
firms involved 28 percent of all new filings in 2012 compared to 31 percent in
2011, largely "an outcome of the continuing wind down of subprime and credit
The report notes that during 2012, though the number of
settlements was down, the average securities class action lawsuit settlement
(including proposed and tentative settlements) was $51.8 million, compared to
$34.9 million in 2011.
The report includes an interesting report on Foreign
Corrupt Practices Act enforcement activity and related follow-on litigation, as
we as related D&O insurance issues. The report notes that though FCPA
enforcement activity was down in 2012, most commentators expect that the
decline will prove to be temporary. The report also notes that between 20% and
30% of FCPA enforcement actions trigger shareholder derivative suits.
Advisen Report Webinar: On
Tuesday January 29, 2013 at 11 am EST, I will be participating in a webinar
sponsored by Adivsen in which the report's findings will be discussed.
The webinar will provide a quarterly review of securities and other
litigation impacting D&O coverage and will identify and analyze the trends
of greatest significance to Risk Managers and Management Liability
professionals. The participants in this free webinar will include AIG's Tom
McCormack, John McCarrick of the White and Williams law firm, and Advisen's
David Bradford and Jim Blinn. Further information about the seminar, including
registration instructions, can be found here.
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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