According to a January 29, 2018 report from NERA Economic Consulting, there was “an explosion” of U.S. federal court securities class action litigation filing in 2017, as new securities suits were filed at a “record pace.” The report, entitled “Record Trends in Securities Class Action Litigation: 2017 Full-Year Review,” can be found here. NERA’s January 27, 2018 press release regarding the report can be found here. My analysis of the 2017 securities class action lawsuit filings can be found here.
The Number of Lawsuits Filed
According to the report, there were 432 securities suit filings in 2017, the highest number of filings since 2001 (when, largely due to a flood of IPO laddering cases, there were 508 suits filed). The 432 filings in 2017 were 84% higher than the trailing five-year average of 235 lawsuit filings.
The upsurge in securities suit filings in 2017 was largely due to the continued shift from state to federal courts of merger objection lawsuits. Of the 432 securities suits filed in 2017, 197, representing about 46% of all filings, were merger objection suits.
The 2017 filing rate was still significant even if the merger objection suits are disregarded. The 90 traditional securities suits filed in the first quarter of 2017 was the highest quarterly total since 2001. However, traditional suit filings declined compared to the first quarter in each of the final three quarters of 2017. This, the report notes, “may portend a slowdown in standard filings in early 2018.”
The Litigation Rate
With the upsurge in the number of merger objection cases, and as a result of the long-term decline in the number of publicly-traded companies, the percentage chance that a U.S.-listed company would be hit with a securities class action lawsuit rose to 8.2% in 2017, compared to 3.2% for 2000-2002 period. However, the merger objection suits arguably distort this calculation, as only companies involved in M&A activity risk a merger objection suit. If the merger suits are disregarded, the chance that a U.S.-listed company would become involved in a securities suit was 4.1%, compared to 3.0% between 2000 and 2002.
Filings Against Foreign Companies
There were 55 traditional securities suit filings against foreign companies in 2017, representing a 25% increase over 2016 and a 50% increase over 2015. The 55 traditional suits filed against non-U.S. companies represents 25.5% of all traditional securities suit filings in 2017, the highest annual percentage of suits against foreign companies since 2011 (when the flood of Chinese reverse merger suit filings increased the number of suits against foreign companies).
Non-U.S. companies continue to be “disproportionately targeted” in traditional securities class action lawsuits. The percentage of suits filed against foreign companies is greater than these companies presence on the U.S. exchanges would suggest; while foreign companies represent only 17.1% of all U.S.-listed companies, these foreign companies were hit with 25.5% of securities suits in 2017.
Aggregate Investor Losses
Using a figure called “NERA-defined Investor Losses,” the report states that aggregate investor losses reflected in the 2017 filings was $334 billion, 50% more than the five-year average of $222, largely due to the increase during the year of suits with investor losses of between $1 billion and $5 billion and a jump in the number of filings with investor losses of over $10 billion.
Of cases filed between January 2000 and December 2017, motions to dismiss were granted (with or without prejudice) 45% of the time, were granted in part and denied in part 30% of the time, and denied 25% of the time. In 2017, there were 108 dismissals of traditional securities suits, equal to the annual high number of dismissals over the past 10 years. One factor in the increase in the number of dismissal is the increase in the number of voluntary dismissals – there were only two voluntary dismissals in 2016 but 32 in 2017 (the increase in 2017 “can be partially attributed to more cases being filed”).
Class Certification Statistics
Most cases are resolved before the lawsuit reaches the class certification stage. 72% of cases are settled or dismissed before reaching class certification. Of the remaining 28% of cases, the court reached a decision on class certification in only 55% of cases – meaning that only 15% of cases reach a class certification decision. Of these 15% of cases, the motions for class certification are granted in whole or in part 89% of the time.
Average, Median, and Aggregate Settlements
Average settlement values declined to $25 million in 2017, compared to $74 million in 2016. The decline in average settlement value is a reflection in the “dearth” in the number of large settlements during the year. Median settlement values also decline. The median settlement in 2017 was $6 million, compared to $9 million in 2016. The 2017 median settlement value is the lowest annual median since 2001. Aggregate settlement amounts were also lower in 2017. The aggregate value of all securities suit settlements in 2017 was $1.8 billion, compared to $6.4 billion in 2016.
The aggregate of plaintiffs’ attorneys’ fee and expense awards was $467 million in 2017, a drop of 65% for the $1.3 billion in such awards in 2016 and the lowest level since 2004.
The report is very detailed and contains a wealth of additional information beyond the details noted above. The report warrants reading at length and in full.