The D & O Diary
NERA: Securities Suit Filings Stable, But Settlements and Dismissals Are Down
New securities class action lawsuit filing levels were comparable to historical norms during 2012, but the number of settlements and of dismissals were both down for the year, according to the analysis and projections of NERA Economic Consulting in their December 11, 2012 publication “Flash Update: 2012 Trends in Securities Class Actions” (here).
According to the report, there were 195 new securities class action lawsuits filed this year through November 30, 2012. NERA projects that there will be around 213 total lawsuit filings by year end. The projected number is slightly below the 2007-2011 average of 221. (It should be noted that NERA counts multiple actions in multiple jurisdictions against the same defendants as different filings, unless and until consolidated, so NERA’s initial lawsuit filing counts will be higher than those published by some other sources. NERA also notes in the report’s footnotes that it “counts” a case if it involves securities, even where the complaint alleges violations of the common law or breach of fiduciary duty. This criterion may also result in counts differing from other published sources, some of which “count” cases only if they allege violations of the federal securities laws.)
The report notes that the 2012 filing levels are more or less consistent with recent years, even though the credit crisis-related lawsuit filings have faded away. The report notes that in 2005-2006, just prior to the credit crisis, annual filing levels had been as low only about 160. The report notes that the number of filings has not declined to these prior lower levels, as “the plaintiffs’ bar has found new causes of action, with merger objection cases picking up much of the slack.”
Though filings levels have remained more or less level, the number of cases resolved during 2012 through dismissal or settlement has plummeted. (It is important to understand that the report measures the time of settlement as the date on which it is approved, so some high profile settlements that were announced in 2012 – such as the massive $2.43 billion settlement of the BofA/Merrill Lynch merger case – are not reflected in NERA’s analysis. The NERA report count of dismissals includes dismissals that are not yet final, such as dismissals without prejudice.)
According to the report, the 92 settlements that are projected to be approved in 2012 is the lowest number since 1996 and 25% lower than 2011. The 60 dismissals projected for the year represent the lowest level since 1998 and the 2012 total is 50% lower than 2011. The total of 152 cases that have been resolved (settled or dismissed) is also the lowest level since 1996. The report notes that part of the reason for these declines may simply be that there were fewer cases pending and therefore available to be resolved as 2012 began, the lowest level of pending cases since 2000. The report also speculates that the slowdown in the number of settlements and dismissals may also be due to “other changes in the legal environment.”
While the number of settlements may have declined, average and median settlements are up. The average securities class action settlement in 2012 was $36 million, compared to a 2005-2011 average of $42.1 million. But if the calculation excludes settlements over $1 billion, the IPO laddering cases and the merger objection cases, the 2012 average is $36 million, up from a revised average for the 2005-2011 period of $32 million. The median settlement in 2012 was $11.1 million, which is the largest ever annual median since 1996, and only the second year since 1996 that the median has exceeded $10 million.
FDIC D&O Lawsuits and D&O Insurance Coverage: Former directors and officers of failed banks who are sued by the FDIC may look to the bank’s D&O insurance to defend and protect themselves. However, the bank’s D&O insurer may assert defenses to coverage that could limit the availability of the insurance, according to a December 10, 2012 memorandum entitled “Not So Fast: Directors and officers Sued by the FDIC over Bank Failures Should Not Assume D&O Insurance Will Cover the Claims” (here) by Britt K. Latham and M. Jason Hale of the Bass Berry and Sims law firm.
As reflected in the memorandum, among other issues, the carriers are raising the “Insured vs. Insured” exclusion found in most policies as a defense to coverage for claims brought by the FDIC in its capacity as the failed bank’s receiver. The authors review the existing case law and observe that “this issue is expected to be hotly contested in the wake of continuing D&O lawsuits by the FDIC related to bank failures.”
My own overview of the impact of the Insured vs. Insured exclusion on the FDIC’s failed bank litigation can be found here. As I discussed in a recent post (here), in October 2012, a federal court in Puerto Rico held that the Insured vs. Insured exclusion does not preclude coverage for an FDIC’s claims as receiver of a failed bank against the bank’s former directors and officers.
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