It is big news when one of the most successful plaintiff-side corporate and securities lawyers decides to walk away from the game, but that is exactly what Stuart Grant of Grant & Eisenhofer, the Delaware shareholder litigation firm, is going to do. According to Alison Frankel’s interesting June 25, 2018 Reuters article and interview (here), Grant is leaving his firm effective June 30, 2018, because, in his own words, he doesn’t like losing, as he has been doing in the past few years. Both Grant’s reasons for leaving and his plans for what comes next are interesting. In his interview with Frankel, Grant also had a number of interesting things to say about a number of corporate and securities litigation topics.
As Frankel’s article notes, Grant is leaving his practice at “an unsettling time for shareholders’ lawyers. Delaware judges have “seemingly spent the past few years ratcheting back shareholder advances against corporate fiduciaries,” in cases such as Corwin v. KRR and Dell v. Magntar among others – “all major decisions against shareholders, all argued and lost by Stuart Grant.”
Grant was candid in admitting that losing the cases has taken a toll. He says that if you go back a few years, “we were winning 90 to 95 percent of our cases.” He admits that he liked that. However, in the last year and a half, according to Grant, “we’ve probably lost more we’ve won. I’m not used to that.” There has been an economic effect of course, but there has also been a “happiness effect.” He admits, “I like winning. I don’t like losing.”
So Grant is leaving the firm (although he will stick around a few more months to finish up cases). What comes next? Grant’s focus now “will be on a start-up litigation finance venture” called Bench Walk Advisors. Bench Walk is the advisor to two funds, one for a hedge fund client that has already put up more than $100 million, and the other backed by Marion Capital, an appraisal arbitrageur. The firm is looking for investments of between $1 million and $25 million, crossing the range from traditional litigation finance in cases from commercial contracts to mass torts; buying claims and judgments; buying IP and lending directly to law firms.
In Frankel’s interview, Grant has a number of interesting comments on a variety of topics.
First, with respect to securities class action litigation, Grant notes that in recent years “there’s definitely been a shift of who’s been bringing these cases.” The big pension funds, Grant says, “don’t want to bring them anymore” because “they’ve just had bad experiences.” Another reason the big pension funds have been involved in fewer cases is that “there are fewer promising securities class actions.” There are fewer promising cases, according to Grant, because of the generally rising stock market over the last few years and because of the increased vigilance of the audit firms. Frankel reports that Grant considers “the awakening of the audit firms as corporate watchdogs to be one of his signal accomplishments as a shareholders’ lawyer.”
Second, with respect to Delaware shareholder litigation, Frankel reports that Grant believes that over the years, he and his firm “really did develop the law” in chancery court breach-of-duty cases. However, Grant believes the “advances” have been “substantially reversed in the past few years as Delaware’s Supreme Court has “erected ever-higher barriers to shareholder claims against corporations and their boards,” particularly with respect to M&A transactions. The courthouse doors, Grant says, “are effectively closed in Delaware.” It is “almost impossible to challenge a deal in Delaware.”
In part, Grant says, the shareholders’ lawyers can blame themselves for these changes. When every deal drew a lawsuit, the judges resisted. “They hated these holdup cases.” That is “one of the reasons they swung as far as they did.” Grant says that there is a growing recognition among the Delaware judges of the importance to the state of the businesses incorporated there. Delaware, Grant says, is the “only judiciary that thinks part of its role is to be an ambassador.” The judges are frequently giving speeches and going to conferences, often hosted by the corporate defense bar or folks with corporate interests. Judges who deliver corporate-friendly opinions “go to corporate events and hear how smart they are.” Nevertheless, Grant says, the pendulum could swing, “especially if judges in other states issue rulings that highlight the high bar that Delaware has set.”
Third, with respect to appraisal claims and appraisal arbitrage, Grant bemoaned what seems to be then end of an area of practice that had been remunerative for his firm. At first, with generous statutory interest rates and a reasonable assurance that the appraisal price would be no lower than the deal price, it was a no-lose proposition. But the private equity funds hated appraisal arbitrage and they lobbied to get lawmakers and judges to end it. In retrospect, Grant says, the turning point was his 2017 Petsmart case, in which court concluded that the company was worth what the PE consortium had agreed to pay – a ruling Frankel reports that Grant considers “his biggest-ever litigation defeat.” Rulings like Petsmart have made appraisal an increasingly unattractive bet for hedge funds.
Fourth, with respect to the oft-discussed possibility of requiring shareholders to arbitrate shareholder disputes, Grant has a surprising reaction. He speculates that if each shareholder claimant is required to separately arbitrate their claims rather than being able to litigate collectively, it would represent “a business opportunity for plaintiffs’ firms,” on the theory that arbitration for one client at a time is cheaper, faster and less risky than acting as lead counsel in a class action. It may actually be good for the economics of the plaintiffs’ law firms.
Finally, in commenting on his legacy, Grant expresses the hope that his accomplishments include “raising expectations about shareholders’ lawyers.” In the past, he says, there was “this very condescending view of the plaintiffs’ side.” He says that his firm has forced a recognition that plaintiffs firms can do it right and they can represent big institutional clients.
For many years, Grant has been both one of the most prominent and one of the most successful plaintiffs’ lawyers. His decision to walk away is interesting, both because of who he is and because of his reasons. His admission that he is leaving because he doesn’t like losing shows both a remarkable level of candor and an unusual level of self-knowledge. I am sure it has not been fun for Grant to have sustained a number of high-profile defeats, but I don’t think very many others would have been willing to admit they were leaving because of the losing.
Grant’s decision to leave the active law practice to pursue a litigation funding venture is also quite interesting. The move underscores the extent to which litigation funding is becoming a ubiquitous part of the litigation arena in the U.S. I think it is worth noting that Grant is far from the first plaintiffs’ lawyer to try to make a go of it in litigation funding. Readers may recall that Sean Coffey, formerly of the Bernstein Litowitz firm, with several other attorneys, tried to launch a litigation funding firm called BlackRobe Capital Partners, only to see the firm close its doors within a matter of months. The environment for litigation funding has changed since Coffey’s venture founded, so Grant’s experience may be different.
Grant’s comments about the litigation environment are quite interesting, particularly his comments about securities class action litigation. His suggestion that institutional investors are less interested and are involved in fewer cases in part because there are fewer good cases is quite ironic in light of the fact that there are now more securities class action lawsuits being filed than ever. His comments suggest that while fewer cases may be being filed, they aren’t being filed by institutional investors and they are not necessarily good cases – which is, in fact, exactly what is happening in my opinion.
It is too bad that Grant has decided to hang up his cleats, so to speak. Grant was a skilled advocate. Not everyone liked him, but just the same he was respected and highly regarded by foes and allies alike. The problem for everyone when someone likes that withdraws is that it is not as if the business is going to go away. It just means the field is open for others, some of whom may not necessarily be as skilled as a practitioner like Grant.