The volume of securities litigation against non-U.S. companies has ‘reached record levels” despite the U.S. Supreme Court’s 2010 decision in Morrison v. National Australia Bank, according to a recent report from NERA Economic Consulting. The report, written by Robert Patton of NERA, and entitled “Recent Trends in U.S. Securities Class Actions Against Non-U.S. Companies” can be found here. The report was written as a chapter to the 5th edition of The International Comparative Legal Guide to Class & Group Actions 2013, a collection of articles on class and group actions worldwide published by Global Legal Group in association with Commercial Dispute Resolution (CDR).
According to the report, the number of U.S. securities class action lawsuits filed against non-U.S. companies reached a peak in 2011, when there were 60 filings. In the first half of 2012, there were 20 filings against non-U.S. companies. While the 2012 filing pace is off from 2011, it is still higher than prior to 2011 and well above the annual average of 18 filings during the period 2000 to 2007. The filings against non-U.S. companies in 2011 represented 28.1 percent of all securities class action lawsuit filings, and while that percentage for the first half of 2012 has declined to 19.8 of all filings, that filing level is well above levels in 2008, 2009 and 2010.
The report notes that both in 2011 and 2012, the proportion of U.S. class actions filed against non-U.S. companies exceeded the proportion of non-U.S. companies listed on the U.S. stock exchanges. The report notes that during 2011 and 2012, non-U.S. companies listed on the U.S. exchanges were likelier to be sued than were U.S. companies, reversing a trend from the preceding three years, when foreign companies listed on the U.S. markets were less likely to be sued than U.S. companies.
The report notes the irony that the increase in the number of suits filed against non-U.S. companies has occurred after the U.S. Supreme Court’s 2010 opinion in the Morrison case. It has been widely believed that the transaction-based test enunciated in Morrison would reduce the number of securities suits involving non-U.S. companies
According to the report, the reason for the proliferation of suits involving non-U.S. companies has been the wave of litigation involving U.S.-listed Chinese companies. While there were only few of these cases filed in 2008 and 2009, in 2010, there were 15, and in 2011, there were 34, representing 17 percent of all 2011 securities class action lawsuits filings and nearly two-thirds of all securities suits involving non-U.S. companies. In the first half of 2012, the rate of filing against non-U.S. Chinese companies has declined, with ten cases filed. The report notes with respect to the suits against Chinese companies that “this wave of litigation appears unlikely to re-emerge,” not only because rules regarding reverse mergers (the principal mechanism by which Chinese companies have obtained U.S listing) have become stricter, but also because Chinese companies “have become less likely to seek a U.S. listing, due to an increased perceived cost of litigation.”
Even though Morrison has not yet had a perceptible impact on the number of filings involving non-U.S. companies, Morrison has had an impact. As claimant classes are defined to omit claims on behalf of shareholders who purchased shares on non-U.S. exchanges, the shareholder classes on whose behalf the securities claims are asserted have become narrower. As the report states, “Morrison’s effect is more likely to narrow the scope of a claim against a non-U.S. company than to eliminate the claim entirely.”
The report also reflects an analysis of securities suit settlements in cases involving non-U.S. companies. The analysis shows that in each year during the period 2008 through the first half of 2012, the average settlement was lower in each year for cases involving non-U.S. companies than for cases against U.S. companies, often by a substantial margin. Although the median settlements for these two groups during the same time period are closer, in each year since 2009, the median settlement in cases involving non-U.S. companies is lower than cases against U.S. companies.
A significant factor driving the lower settlement trend for cases involving non-U.S. companies is the relatively low settlement of cases involving U.S.-listed Chinese companies (a phenomenon I previously discussed on this blog, here). The median settlement in cases involving Chinese companies during the period January 2010 through June 2012 was $3.0 million, compared to $9.0 million in cases involving settlements for other non-U.S. companies. In addition, the smaller class sizes in cases involving non-U.S. companies owing to Morrison (as noted above) could also be having an effect.
The report concludes by noting that the data in the report “underscore that the Morrison decision has not eliminated the risk of U.S. securities class action litigation to non-U.S. companies with securities traded in the U.S.”
Special thanks to the several readers who sent me a link to the NERA Report.
The Week Ahead: This week, I will be traveling to Chicago for the annual PLUS International Conference. On Thursday, November 8, 2012, I will be participating in a panel discussing D&O insurance in Asia that will be chaired by industry maven Joe Monteleone and that will also include my good friend Aruno Rajaratnam, as well as Dan Harris, the author of the China Law Blog, and Arthur Dong of Lantai Partners.
I also plan to attend many of the other sessions and conference events. I hope that if you see me around the conference you will please stop to say helllo and introduce yourself, particularly if we have not previously met. I look forward to seeing everyone at the conference.