NERAThe number of securities class action filings in 2014 was level with recent years’ filings but the number and dollar value of settlements during the year plunged, according to the latest annual report from NERA Economic Consulting. This year’s report is quite detailed and contains a number of new analyses of lawsuit filings and case resolutions. The January 20, 2015 report, entitled “Recent Trends in Securities Class Action Litigation: 2014 Full-Year Review” can be found here. NERA’s January 20, 2015 press release about the report can be found here. My own report about the 2014 securities class action lawsuit filings can be found here.


Number of Securities Lawsuit Filings: According to the report, there were 221 securities class action lawsuit filed in 2014. (Please see my note at the end of this post about NERA’s lawsuit counting methodology and how it differs from the methods used in other reports). The number of 2014 filings was essentially level with that of recent years; in 2013, there were, according to NERA, 222 filings, and 2012 and 2011 there were 212 and 228, respectively. The number of filings during the period 2009-2014, during which there was an annual  average number of annual filings of 220,  showed “remarkable stability.”


Increased Likelihood of Being Sued: While the number of filings has remained relatively stable in recent years, the likelihood of any one company with a listing on U.S. exchange experiencing a securities class action lawsuit has in fact increased significantly compared to historical levels. The reason for this greater likelihood is that while the number of lawsuit filings has remained relatively stable, the number of companies with listings on U.S. exchanges has declined significantly. In 1996, there were 8,783 companies with listings on U.S. exchanges. In 2014, there were 5,209 U.S. listed companies, representing a decline of 41%. This decline in the number of companies has, according to the report, “implications for the average probability of being sued.” This probability has increased from 2.3% over the 1996-1998 period to 4.2% in 2014.


Changing Mix of Cases: While the annual number of lawsuit filings has remained relatively stable in recent years, the mix of cases has changed. For example, in 2010, merger objection cases accounted for 31% of all securities class action filings during the year, whereas during 2014, merger objection cases accounted for only 18% of securities suit filings. At the same time, “traditional” securities lawsuit filings (that is, cases alleging violations or Rule 10b-5, Section 11 or Section 12) increased – the number of traditional filings increased 11% in 2014 compared to 2013 and 30% compared to 2010.


Impact of Halliburton Pendency on Filings: The report has an interesting observation about the possible effect of the pendency of the Halliburton case on the number of securities class action filings. Readers will recall that the Halliburton was a potentially important U.S. Supreme Court case that could have but that ultimately did not have a significant effect on securities class action litigation (about which refer here). The report notes that the number of securities class action filings was slow while Halliburton was pending, but that during the July-November period after the Supreme Court issued its opinion in the case, the average monthly number of filings increased 25%. The low number of filings during December brought down this monthly average, but even with this reduction the post-Halliburton monthly average number of filings was 14% higher than the monthly average while the case was pending. The NERA report carefully comments that “while we note the temporal correlation, we are not suggesting how much, if any, of the change in the filing activity is due to these decisions since we have not considered confounding factors.”


Aggregate Investor Losses: The aggregate value of investor losses represented by the 2014 securities lawsuit filings was at its lowest level during the period 2005-2014. (The investor loss variable is a proxy NERA uses for the aggregate amount investors lost from buying the defendant’s stock rather than investing in the broader market.) The $154 billion aggregate investor losses associated with the 2014 cases is just below the $159 billion in investor losses in 2013 but well below the $234 billion in 2012. The report notes that the lower number of aggregate investor losses in more recent years is “explained mainly by the almost complete absence of cases with very large investor losses.”


Motion to Dismiss Outcomes: The report notes that motions to dismiss are filed in 95% of all securities class action lawsuits, although courts rule on only about 80% of all motions filed (in other cases, the lawsuits settle or are withdrawn prior to court ruling). During the period 2000-2014 in cases in which rulings were issued on motions to dismiss, the motions were granted in 48% percent of cases, granted in part and denied in part in 26% of cases, and denied in 21%.


Changing Dismissal Rates: The rate at which cases have been dismissed has changed over time. The report notes that the dismissal rate for cases filed during the period 2000-2002, the dismissal rate was 32-36%; during the period 2004-2006, the dismissal rate was 43-47%; and the dismissal rate for cases filed during the period 2007-2009, the dismissal rate was at least 45%-52%. The reports authors are cautious about drawing conclusions based on this apparent rising trend in the dismissal rate  due to “the large fraction of cases awaiting resolution among those filed in recent years, and the possibility that the dismissals will be successfully appealed or re-filed.”


Outcome of Class Certification Motions: The report also has some information that is interesting to consider when evaluating the possible impact of the U.S. Supreme Court’s Halliburton decision. The report notes that 73% of cases are settled or dismissed before a motion for class certification is filed. In cases in which a motion for class certification has been filed, the court reaches a decision on the motion 56% of the time. Of the class certification motion rulings, 75% were granted and 12% were denied (with mixed rulings in other cases). The report notes that of the three post-Halliburton cases of which the authors aware in which the defendants sought to oppose class certification in reliance on the type of price impact evidence Halliburton authorized, that the motions were granted and the classes certified despite the price impact evidence.


Declining Number of Settlements and Slowing Case Resolution: The number of cases settled during 2014 declined for the third consecutive year and was at or close to an all-time low since the passage of the PSLRA. Overall, the number of cases resolved through settlement or dismissal also has been low for three years. At the same time, since 2011, the number of pending cases has been increasing, reaching 653 in 2014, a 19% increase from the lowest  pending number of pending cases in 2011 (547). This increase in the number of pending cases during a period when the number of filings was roughly constant suggests “a slow-down of the resolution process during that period.”


Declining Average and Median Settlements: Just as the number of settlements has declined in recent years, the average and median settlement amounts have also declined. Excluding merger objection cases, IPO laddering cases, and settlements over $1 billion, the average settlement in 2014 was $34 million, compared to $55 million in 2013 (adjusted for inflation), a decline of 38%. Even more interesting, the median settlement (excluding merger objection suits, IPO laddering cases and settlements in which the class received $0) during 2014 was only $6.5 million, the lowest median in ten years and adjusted for inflation the third lowest since the passage of the PSLRA. By contrast, the median in 2013 was $9.3 million and in 2012 was $12.6 million (both figures adjusted for inflation).


Declining Aggregate Plaintiffs’ Fees and Expenses: Mirroring this decline in average and median settlement value, the aggregate annual plaintiffs’ fees and expenses during 2014 of $619 million was far below that of 2013 (when equivalent figure was $1.164 billion). This figure was at its lowest level during 2014 since 2004 (when the aggregate amount was $487 million).


This detailed report contains a wealth of other information and analysis and it merits a complete reading at length and in full.


Readers will want to carefully note the “counting” methodology used in the NERA report to understand how the filing figures in the report differ from other published figures. In a footnote, the report’s authors explain that if multiple actions are filed against the same defendant and the same allegations but are filed in different circuits, the separate actions are treated as separate filings (and if they are later consolidated, the tally is revised accordingly). This methodology is different than that used in other published analyses, which count lawsuits against the same defendant and the same allegation only once regardless of whether or not there are separate complaints filed in different circuits. Also the NERA report also includes with the tally lawsuits that alleging only breach of fiduciary duty or other violations of the common law or that only involve claims under foreign or state law. Other published tallies only include a lawsuit in the count if it alleges a violation of the federal securities lawsuit.