Securities class action lawsuit filings “saw a small increase” during 2013, while securities class action settlements reflected a dynamic in which “large settlements got larger and smaller settlements got smaller” during the year, according to the annual report from NERA Economic Consulting. The January 21, 2014 report, entitled “Recent Trends in Securities Class Action Litigation: 2013 Full-Year Review” can be found here. NERA’s January 21, 2014 press release about the report can be found here. As discussed below, the report has particularly significant analysis – based on the decline in the number of publicly traded companies — about the likelihood of an average publicly traded company becoming involved in securities litigation.
A preliminary word is order to highlight and explain the differences between the filing figures appearing in the NERA report and those published by other commentators (including this blog, as reflected in my own 2013 securities litigation filing study, which can be found here).
Two aspects of the NERA’s lawsuit counting methodology result in NERA reporting higher filing figures than other commentators. Both of these items are identified and described in endnote 2 to the NERA report. First, NERA includes in its lawsuit tally not only cases involving alleged violations of the federal securities laws, but it also includes cases filed in federal court that “allege violation of common law, including breach of fiduciary duty” (for example, in merger objection lawsuits), as well as cases filed in federal court that allege violation of “foreign or state law.” Second, multiple lawsuits filed against the same defendant involving the same basic allegations that are filed in separate circuits are counted as separate lawsuits (multiple suits in the same circuit are counted only once).
As a result of these counting methodologies, the filing figures that NERA reports are higher than those reported by other commentators. NERA itself notes with respect to its counting methodology that “different assumptions” than those that NERA used “would likely lead to counts that are directionally similar” but that might “in certain circumstances lead observers to draw a different conclusion about short-term trends in filings.” In other words, in drawing conclusions about filing trends, it is very important to understand how the assumptions made and methodologies used affect the analysis.
Based on its counting methodology, NERA determined that there were 234 securities class action lawsuits filed in 2013, representing a 10% increase over the 213 filed in 2012, and a slight increase over the 2008-2012 average of 224. NERA noted an increase even with respect to what it describes as “standard” securities class action lawsuits (that is, suits alleging violations of Section 10(b) of the ’34 Act or Sections 11 or 12 of the ’33 Act.) NERA noted that there were 165 of these “standard” lawsuits in 2013, representing a 15% increase over the 143 filed in 2012, and representing the highest annual number of “standard” filings during the 2009-2012 period (although still well below the 218 “standard” cases filed in 2008 during the surge of filings associated with the credit crisis).
I have frequently noted that securities lawsuit filings trends are often described solely with respect to the absolute number of filings, without taking account of the fact that the number of publicly traded companies has been declining for years. The NERA report expressly addresses this concern, noting that during 2013, there were 43% fewer publicly traded companies than there were in 1996. Taking this decline in the number of publicly traded companies into account, the number of 2013 securities lawsuit filings suggests that “an average company listed in the U.S. is 83% more likely to be the target of a securities class action lawsuit in 2013 than in the first five years after the passage of the PSLRA.” In my view this is a particularly significant conclusion that should be underscored for anyone who wants to understand the likelihood that any particular publicly traded company might become involved in securities litigation.
As noted above, the NERA study includes within its tally of securities lawsuit filings federal court merger objection cases that involve only alleged breaches of fiduciary duty, even if the cases do not involved alleged violations of the federal securities laws. Taking this counting methodology into account, the NERA study reports that merger objection cases represented the largest distinct group of filings in 2013, even though the merger objection filings during the year were down compared to the peak of such filings in 2010. In 2013, there were 50 merger objection filings, compared to 56 in 2012 and compared to 70 in 2010. Though down from the 2010 peak, the 2013 merger objection filings remained well above prior years; for example, there were only 9 such filings in 2007.
Filings against non-U.S. companies had surged in 2011, largely as a result of filings that year against U.S.-listed Chinese companies. The filings against foreign issuers declined in 2013 compared to 2011, although these filings were still above historical levels. In 2013, there were 35 filings against non-U.S. companies, representing 15% of all filings, compared to 62 such filings in 2011 representing 27.7% of all filings that year. By contrast, in 2009, there were only 23 filings against non-U.S. companies, representing only 11.1% of all filings that year.
The 2013 filings levels against non-U.S. companies were closer to the proportion that foreign companies represent among all U.S.-listed companies than was the case in 2011. That is, in 2013, foreign companies represented 16.3% of all U.S.-listed companies and were involved in about 15% of all securities lawsuit filings, whereas in 2011, foreign companies represented about 16.4% of all U.S. listings, but were involved in about 27.7% of all securities lawsuit filings.
The NERA report also contains an analysis of motions to dismiss in securities cases. The report notes that a motion to dismiss is filed in about 95% of cases, although courts reach a decision in only about 80% of cases because cases are sometimes resolved before the court rules or because plaintiffs voluntarily withdraw their suits. Out of the motions to dismiss for which a court decision was reached, the motion is granted 48% of the time, granted in part and denied in part 25% of the time, and denied 21% of the time.
About 75% of all cases settle or are otherwise resolved before a motion for class certification is filed. Moreover, because courts actually rule on the motion for class certification in only 58% of the cases in which a motion for class certification is filed, courts actually rule on a motion for class certification in only about 15% of all securities cases. Of the cases in which the court rules on the motion, the motion for class certification is granted about 77% of the time. However, the NERA reports that the Supreme Court’s 2011 ruling in the Halliburton case and 2013 ruling in the Amgen case are likely to have an impact on these figures going forward, as is the anticipated ruling in the Court’s 2014 consideration of the Halliburton case.
Only 100 securities class action lawsuits settled in 2013, only slightly above the record low number of settlements in 2012, when there were 96 (which was the lowest number of settlements since 1996). There were also relatively fewer cases dismissed in 2013 as well (only 79, compared to 87 in 2012 and 118 in 2011). Resolved cases “relatively few compared to historical norms.” The report discusses the possibility that dismissals and other case resolutions may be pick up after the Supreme Court rules in the its current consideration of the Halliburton case.
Largely as a result of the presence of eight very large settlements during the year, the average settlement amount in 2013 broke prior records, reaching $55 million, an increase of 53% over the previous year’s average of $36 million and 31% over the previous high of $42 million in 2009. While the average settlement during the year was up, the median settlement was down. The median settlement amount in 2013 was $9.1 million, representing a 26% decrease from the median of $12.3 million in 2012. Overall, the report concludes, a few large settlements drove the average up, while many small settlements drove the median down; hence the report concludes that “large settlements got larger and smaller settlements go smaller.”
With respect to plaintiffs’ attorneys’ fees, the report notes that during the period 2011-2013, for settlements below $5 million, median fees represented 30% of the settlement, whereas for settlements above $1 billion, the percentage falls to about 9.6% of the settlement. Aggregate plaintiffs’ fees were $1.13 billion in 2013, well above the $650 million aggregate in 2012, but well below the $1.543 billion in 2010.
Though I have attempted to summarize the NERA report above, the report itself contains a wealth of other information that I have not come close to capturing here. The report is relatively brief, but it is full of useful and interesting information and is well worth reading at length and in full. It is worth noting, as the report itself notes several times, that the Halliburton case now pending before the U.S. Supreme Court has the potential to significantly alter the litigation environment on which this statistical analysis is based.