Even though (as have been well-documented by other observers) securities class action litigation filings increased in 2013, overall corporate and securities litigation filings during 2013 declined for the second year in a row, according to a February 4, 2014 report from the insurance information firm, Advisen. Though the corporate and securities filing activity in 2013 was below levels seen in more recent years – as credit crisis-related litigation swelled litigation levels – the litigation levels last year were above historical averages as well as above pre-credit crisis levels. The report, which is entitled “D&O Claims Trends: 2013 Wrap-Up & Possibilities for 2014,” can be found here.
As a preliminary matter, it is important to understand the terminology that Advisen uses. Unlike some other public reports, which only analyze securities class action litigation, the Advisen reports includes a variety of other types of corporate and securities litigation in its analysis The Advisen analysis also includes regulatory actions; individual securities actions; breach of fiduciary duty actions; merger objection cases; and derivative cases. In addition, unlike other public sources, the Advisen report includes actions filed in both federal and state court, as well as actions filed outside the United States. For these reason, the information in the Advisen report may appear different than other recently published reports on securities litigation
The most significant finding in the report is that for the second year in a row, overall corporate and securities lawsuit filings were down in 2013 compared to the prior year. There were 1,344 new corporate and securities lawsuit filed in 2013, compared to 1,677 in 2012, a decline of about 20 percent. The filing levels for both of the two most recent years were well below the peak of 2,041 new corporate and securities lawsuit filings in 2011. However, the 2013 filings still exceed the filings for any year prior to 2009 and also exceed the ten-year average of 1,285. These figures suggest that while 2012 and 2013 involved a decline in annual filing levels, the figures for those years also represent an easing of the litigation activity that attended the credit crisis. While the filing figures are down from the elevated levels following the crisis, they remain eat higher levels compared to historical norms from years prior to the crisis.
All categories of litigation that Advisen tracks declined in 2013, except for securities class action lawsuit filings, which rose slightly. The Advisen report suggests that, in addition to the winding down of the financial crisis litigation, the decline may be due to the fact that there are fewer publicly company targets. In addition, there were fewer merger objection cases filed in 2013 and in 2012 compared to 2011, because there were fewer merger transactions in those years than there were in 2013.
For several years, Advisen has tracked the decline in the number of securities class action lawsuits as a percentage of all corporate and securities lawsuits filed. As recently as 2007, securities class action lawsuits represented about 23 percent of all corporate and securities lawsuit filings. By 2011, however, this figure has dropped to 10 percent. In the last two years, this figure has risen slightly, and in 2013, securities class action lawsuit represented about 13 percent of all lawsuit filings. However, the report notes that “although in the past two years securities class actions have been creeping up slowly as a percentage of total events, they are still a long way away from pre-credit crisis levels.”
The number of settlements fell for the second year in a row as well. But while the number of settlements declined, the average settlement during the year rose significantly from $13.2 million in 2012 to $51.5 million in 2013. (It is important to keep in that the universe of cases that Advisen tracks is both broad and diverse and the averages are calculated across a wide variety of different kinds of cases.) The 2013 figures were largely a reflection of several very large securities class action lawsuit settlements. The average securities class action settlement in 2013 was $82 million, compared to $33 million in 2012.
The findings in the Advisen report, as well as the overall corporate and securities litigation trends in 2013 and the likely litigation possibilities in 2014, will be the subject of free one-hour Advisen webinar to be held February 4, 2014 at 11 am EST. I will be participating in the webinar, along with Jack Flug of Marsh, Dennis Kearns of QBE and Jim Blinn of Advisen. Information about the webinar, including registration, can be found here.