It was over a year ago – March 11, 2020, to be exact – that the World Health Organization declared the COVID-19 outbreak to be a pandemic. And it was also over a year ago – March 12, 2020, in fact – that the first of the coronavirus outbreak-related securities class action lawsuits were filed. Since that time, more than two dozen other coronavirus-related securities suits have also been filed. But while the pandemic related litigation has been an interesting phenomenon, a year into the development there are some interesting questions about the litigation. Such as, for example, why hasn’t there been more securities litigation related to the pandemic? In this post, I take a look at the litigation (so far) and try to answer a few of the questions.
Tracking the COVID-19-Related Securities Litigation
On March 12, 2020, just as the first of the government shutdown orders were kicking in, plaintiffs’ lawyers filed the first of the coronavirus outbreak-related securities class action lawsuits. There were actually two suits filed that same day, posing the question of which of them was actually filed first. The two suits were filed, respectively, against Inovio Pharmaceuticals (about which refer here) and Norwegian Cruise Line Holdings (here). (Inovio was also later hit with a separate shareholder derivative lawsuit that raised essentially the same allegations as the securities class action lawsuit, as detailed here.)
After these first two lawsuits filed last March, plaintiffs’ lawyers filed further pandemic-related securities lawsuits over the course of the ensuing twelve months. By my count, a total of 28 coronavirus outbreak-related securities class action lawsuits filed have been filed. There was a time toward the end of 2020 when it seemed like the litigation filing trend had played itself out, but as it has turned out the lawsuits have continued to come in, albeit intermittently. Indeed, of the 28 total pandemic-related securities suits, five were filed in 2021, with two being filed as recently as February 2021. (The most recent suit, filed against Bluebird Bio, was filed on February 12, 2021, as discussed here.)
It should be noted that my lawsuit tally differs slightly from those of other publicly available sources; the Stanford Law School Securities Class Action Clearinghouse, for example, has the count at 25. The difference between the two tallies is definitional. What does or does not make any given lawsuit coronavirus-related is the kind of thing about which reasonable minds may disagree.
As I have noted in prior posts about the various coronavirus-related securities lawsuits, the suits generally fall into one of three categories: lawsuit against companies that experienced outbreaks in their facilities; lawsuits against companies that claimed to be able to profit or prosper from the pandemic; and lawsuits companies whose operations or finances were disrupted by the pandemic. Many of the more recent suits have fallen in the third category.
The filing of 28 securities lawsuits related to the coronavirus outbreak over the last twelve months is a noteworthy phenomenon, but in the context of a litigation environment in which plaintiffs’ lawyers annually file more than three hundred (or in some recent years more than four hundred) securities class action lawsuits, the coronavirus related securities litigation hardly qualifies as a litigation wave, especially by comparison to the flood of litigation we saw in the wake of the global financial crisis. All of which raises the question: why hasn’t there been more coronavirus outbreak related securities litigation?
Certainly, at the outset of the coronavirus outbreak, many observers, including this blog, were speculating that we might see a great big pile of coronavirus-related securities litigation.
One reason the litigation has not materialized in volume has to do with what happened to the stock market over the course of the last 12 months. The initial market turbulence last March in response to government shut down orders created an environment where the possibility of litigation seemed likely. But the swift government action to put pandemic relief in place calmed the markets. Since that time markets overall have been generally positive.
As one commentator noted in the March 11, 2021 Law360 article entitled “Why a Surge of COVID Securities Suits Hasn’t Happened” (here), it appears that investors took a forward looking view, regarding companies whose operations and finances were disrupted as facing only “temporary setbacks.” Another commentator in the same article noted that many companies were very proactive in providing precautionary disclosure about possible adverse impacts from the outbreak and from government closures. The lawsuits that were filed, the article further notes, generally involved very company specific circumstances, rather than more generalized circumstances.
The government-sponsored pandemic relief measures not only helped to calm the securities markets; they may also have helped many businesses to stay afloat. There were of course a number of high-profile bankruptcies in the first few months of the pandemic, particularly in the retail sector (Nieman Marcus, J.C. Penny). Given the level of disruption from the pandemic, it is hardly surprising that some businesses failed. What is more surprising is that there weren’t more businesses that failed. Frankly, I assumed that there would a huge surge in bankruptcy filings. In fact, as it turned out, the number of bankruptcy filings in 2020 was actually down for the year (although, according to statistics compiled by the American Bankruptcy Institute, Chapter 11 filings were up for the year). I can say that for myself, one of my assumptions when I projected that there might be more pandemic-related securities litigation was that more businesses would file for bankruptcy than actually proved to be the case.
One related question to why we haven’t seen more litigation so far is whether there might be more pandemic-related litigation yet to come. It has, in fact, been more than a month since the last pandemic-related securities lawsuit was filed. I think it might be reading too much into what could be a short-term lull to try to conclude from the lapse of a month that we have seen the last of these lawsuits; over the last year, there were several month-long filing lulls. More to the point, we are still in the public health crisis phase of the pandemic outbreak, which seems likely to continue for some time. The business recovery phase is likely to extend even further. As businesses re-open, re-orient, and try to move on, there undoubtedly will be some that will stumble or that will become overly optimistic about their prospects and attract the unwanted attention of the plaintiffs’ lawyers.
But while I do believe there will be further pandemic-related securities lawsuits filed, I don’t think the numbers of any future lawsuits will dramatically alter the overall level of related litigation. By way of comparison, I think that SPAC-related securities litigation will prove to be a much more significant phenomenon in 2021 than coronavirus-related securities litigation.
One more question that needs to be asked about the coronavirus outbreak-related securities suits that have been filed so far is how will these various lawsuit fare. Of course, much will depend on the specific circumstances involved in each case. But just the same it will be interesting to see how courts view these cases overall. In particular, it will be particularly interesting to see how courts view these cases in the larger context of the pandemic itself. The fact is that everyone was blindsided by the outbreak; will that affect how courts view the plaintiffs’ allegations in these cases? As I noted in a recent post in which I reviewed the early motion to dismiss returns on these cases, the track record so far is mixed; indeed, there are so few rulings to date that it is hard to make any generalizations.
In the end, it may well be that concerns about the context within which a pandemic-related lawsuit might be viewed may explain why there weren’t even more pandemic-related litigation. Of course, the dog that didn’t bark is always an imponderable, but it may be that these concerns acted as something of a check on plaintiffs’ lawyers’ willingness to file lawsuits related to the pandemic. Considered in that light, the question might not be why weren’t more lawsuits filed, but rather why were there as many suits as have in fact been filed?