Continuing an recent downward trend, corporate and securities litigation filings during the third quarter declined, both compared to the prior quarter and compared to the third quarter last year, according a new report from Advisen, the insurance information firm. In its report, entitled “D&O Claims Trends: Q3 2014” (available here), Advisen reports that corporate and securities litigation declined 18 percent compared to the second quarter and 48 percent compared to the third quarter of 2013. This year’s filings are on pace for the third consecutive year of declining filing activity, as the wave of litigation that followed the financial crisis recedes into the past. However, the report does note that securities class action filing activity rose during the third quarter compared to the second quarter.
Unlike other published litigation reports, the Advisen claims update attempts to track not just securities class action litigation activity, but all corporate and securities litigation filing activity. So, in addition to securities class action filings, Advisen seeks to track, for example, shareholder derivative litigation and securities enforcement litigation, among other things. The Advisen report also tracks securities litigation brought on behalf of individuals (rather than on behalf of a class) and also attempts to track corporate and securities litigation outside the U.S. as well. Because the Advisen report tracks litigation activity other than just securities class action litigation activity, the data reporting and conclusions in the Advisen report will differ from other published reports.
The Advisen report states that during the third quarter all corporate and securities litigation filings declined for the second consecutive quarter, putting 2014 on pace for its third straight year of annual aggregate declines. Third quarter filings not only declined by almost one-fifth (18%) from the second quarter, but third quarter filing activity is nearly half of what it was during the third quarter of 2013. The 48% year over year quarterly decline is the largest since before the financial crisis.
Nearly all classes of litigation that Advisen tracks declined in the third quarter compared to the second quarter. One exception is securities class action litigation, which increased to 52 filings in the third quarter from 43 in the second quarter. Because securities class action litigation activity picked up while other types of litigation declined, the percentage of all corporate and securities litigation filings represented by securities class action litigation increased. Securities class action litigation represented 21 percent of all corporate and securities litigation during the quarter, which is the highest quarterly percentage of total cases since 2009 and which exceeds the annual average of 15 percent since 2004.
Companies in the financial services industry were the most frequent targets for corporate and securities lawsuits in the third quarter. Fully one third of all third quarter filings were against companies in the financial services sector. Other industries that were active in the third quarter were: information technology (15%); industrials (14%) and consumer discretionary (13%).
The absolute number of merger objection lawsuit continued to decline in the third quarter, continuing a trend that began in 2011. At the current pace, it appears that the number of merger objection lawsuits will decline for the third year in a row in 2014. But while the Advisen report tracks the number of merger lawsuits, it does not track the number of mergers, leaving open the possibility that the number of merger of lawsuits has declined because the number of mergers has declined. Another factor may also be at work; in the past, mergers often attracted multiple lawsuits. It is possible that the aggregate number of merger objection lawsuits is declining because the number of separate lawsuit filed with respect to each merger deal is declining. The more interesting statistic is the percentage of all merger deals that attract at least one lawsuit. In recent years, the percentage of deals attracting at least one lawsuit has approached 100%. Because the Advisen report discusses only the absolute number of merger lawsuits, it does not shed any light on the more important question of the percentage of all merger deals attracting at least one lawsuit.
The general message of the Advisen report is that overall corporate and securities litigation filing levels are declining. Certainly relative to the high water mark of financial crisis-related litigation in 2011, filing activity is down. But evaluating the relative levels of filing activity arguably is a matter of your point of reference. Exhibit 1 in the Advisen report, a bar graph showing annual filing activity, makes the point. The exhibit shows that while filing activity is down relative to the financial crisis-related peak it also has returned to pre credit crisis-related levels. So another way of looking at the filing activity levels is that –rather than saying that the filing activity levels are declining — the filing activity has returned to more normal levels after the huge surge of litigation that followed the financial crisis.
Advisen Quarterly Claims Trends Webinar: On Thursday October 16, 2014, I will be participating in Advisen’s Quarterly Claims Trend Webinar. This free event will take place at 11 am EDT. Also participating in the seminar, in which the panelists will discuss the important trends in corporate and securities litigation, will be Jed Melnick, a leading corporate and securities litigation mediator and Managing Partner, Weinstein Melnick LLC, and Joseph E. White III, Co-Founder & Attorney at the Saxena White law firm. The event will be moderated by Jim Blinn of Advisen. Information about the seminar, including registration, can be found here.