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 crisis activity.”
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.
Time for a Music Video Interlude: All the Single Babies. If you like it, then you'd better put a diaper on it.