As the various annual securities suit filing reports have been coming out, it has become clear that federal securities class action lawsuit filings were at record levels in 2016, largely as a result of a rise of merger objection lawsuit filings in federal court. Now that 2017 is well underway, it is clear that the heightened pace of securities suit filing has continued, and arguably even accelerated, in the New Year.
As of Friday, January 27, 2017, with two business days still left to go this month, there have already been 41 federal court securities class action lawsuit filings YTD. Of these 41 lawsuits, 12 are merger objection suits, meaning that even if the merger objection lawsuits are disregarded, there were still 29 lawsuits filed in the first few weeks of the year.
Let’s put this in perspective. If there were no more lawsuits filed this month and we finished January with the current 41 filings, that would imply an annualized number of 492 securities class action lawsuit filings for the year, which would far exceed 2016’s total of 270 and rival the 498 securities suits filed in 2001 (when filing numbers were driven up by a wave of IPO laddering cases). An annual total of 492 securities suits would be more than two-and-a-half times greater than the 1996-2014 annual average of 188. (I am by no means predicting that we will in fact finish the year with a total number of securities suits in that range, but viewing the January YTD filings on an annualized basis does underscore how extraordinary the filing pace has been so far this year.)
By way of comparison, the 2016 monthly average number of securities suit filings was 22. The only month during 2016 where the filing activity level rivalled the pace so far in January 2017 was November 2016, when there were 36 securities suit filings. The fact that last year’s most active month was right at year-end and just two months ago suggests that the heightened level of activity in January 2017 is more than just a spurt but rather part of a larger trend toward increased securities suit filings that was already evident last year.
During last week alone (that is, the week from Monday January 23, 2017 through Friday January 27, 2017), there were 20 new federal court securities class action lawsuit filings, just under 2016’s monthly average of 22 filings, and as many as or more than the number of filings in five different months during 2016.
The filings on Friday, January 27 are representative of this frenetic pace of lawsuit filing activity. On Friday alone, there were six new federal court securities class action filings:
- a federal court merger objection class action lawsuit filed in the District of Minnesota against Vascular Solutions and certain of its directors and officers (complaint here);
- a traditional securities class action lawsuit filed in the Central District of California against Gigamon and certain of its executives (here);
- a traditional securities class action lawsuit filed in the Eastern District of Pennsylvania against Egalet, Inc. and certain of its directors and officers (here);
- a federal court merger objection lawsuit filed in the District of Colorado against Stillwater Mining and certain of its directors and officers (here);
- a federal court merger objection lawsuit filed in the District of Delaware against Universal American Corp. and certain of its executives (here);
- and a traditional securities class action lawsuit filed in the Northern District of California against State Street Corp. and certain of its directors and officers (here).
As this one-day sample shows, federal court merger objection lawsuits are so far this year, and as they were in 2016, a significant factor contributing to the heightened pace of securities lawsuit filings.
As I have previously noted, another significant factor contributing to the elevated number of filings so far this year has been the significant number of lawsuits against life sciences companies, which was also an important factor last year.
So far this month there have already been ten lawsuits filed against companies in the 283 SIC code Industry Category (Drugs), including nine in the 2834 SIC Code category (Pharmaceutical Preparations). There have also been three lawsuit filings in the 384 SIC code group (Surgical, Medical and Dental Instruments and Supplies), meaning that year to date there have already been a total of 13 securities suits filed against life sciences companies, representing 31% of all filings.
By way of comparison, during 2016, securities suits filed against companies in the life sciences sector represented about 25% of all securities lawsuit filings during the year, a year in which securities suit filing overall were at record levels.
Anyone who has watched filing activity over time knows that the number of securities suit filings ebbs and flows, but even given the well-established variability, the arrival of twenty new securities suits in one week – including six on a single day – is extraordinary, if not down right alarming. The fact that the pace of securities suit filings has traditionally ebbed and flowed suggests that the current accelerated pace is not likely to continue for long. Just the same, the number of suits that have come in this month, following on the heightened filing pace at the end of last year, suggests that this could be another very active year for securities suit filings.
For those who may be interested in other factors that featured prominently in last year’s filings, there have also been a number of cases filed this year against non-U.S. companies. Of the 41 cases filed YTD, six have involved foreign companies, representing about 15% of the total number of filings.