In the latest development in a short but very interesting sequence of events in a recently filed SPAC-related securities lawsuit, a federal district court judge in the Southern District of Florida has directed a magistrate judge to consider whether the plaintiff’s firm that filed the lawsuit must show cause that it didn’t violate and bar or local rules in allegedly soliciting the plaintiff on whose behalf the law firm filed the complaint.
As I noted in a post on this site at the time, on August 23, 2023, a plaintiff shareholder filed a securities class action lawsuit in the Southern District of Florida against MSP Recovery, which does business as LifeWallet.
As reflected in an update I added to the original post, in an August 24, 2024 order, entered on the Court’s own motion, the Court dismissed the plaintiff’s complaint without prejudice on the grounds that the complaint was an impermissible “shotgun pleading.” The court’s order gave the plaintiff leave until August 28, 2023, to file an amended complaint. A copy of the Court’s August 24, 2023 order can be found here.
As I noted in a further update that I added to the original post, on August 28, 2023, the plaintiff filed with the Court a Notice of Voluntary Dismissal indicating that the plaintiff was dismissing his action without prejudice. A copy of the plaintiff’s Notice of Voluntary Dismissal can be found here.
On August 28, 2023, amidst all these developments, defense counsel filed a motion for the plaintiff law firm to show cause and show evidence that the plaintiff or any putative class member was not solicited in violation of applicable bar and local rules. A copy of defendants’ motion to show cause can be found here.
In the motion, defense counsel argued that the plaintiff’s firm had issued press releases encouraging company shareholders to join the suit and even drafted a complaint before finding a plaintiff. In their motion, the defendants argue that “This lawsuit is the product of a concerted advertising campaign launched by [the plaintiff’s counsel] a mere three weeks ago. The advertising campaign violates multiple bar rules and is a clear violation of the rules protecting the company from illegal advertising.” The motion adds that the plaintiff’s firm “formulated a lawsuit and a specific desire to sue the Defendants and went fishing for clients to make that happen.”
The motion alleges further that the law firm’s press releases were widely disseminated advertisements, and that the advertisements were not approved by the Florida Bar prior to their publication. The motion argues further that the law firm “went so far as to prepare a form complaint before it ever had a client.” The law firm “then posted the plaintiff-less complaint – which is nearly identical to that now on file – on its website in a plain effort to solicit its desired claimant.” The law firm “got what it wanted. But in doing so it also violated the Florida Bar Rules and this Court’s holdings on improper solicitations.”
In a short August 29, 2023, Order, Southern District of Florida Chief Judge Cecilia M. Altonaga entered an order, in response to the defendants’ motion, referring the issues raised by the motion to Magistrate Melissa Damian “to take all necessary and proper action as required by law.” A copy of the August 29 order can be found here. A Law360 article describing the motion and the court’s order can be found here.
For any observers of securities class action litigation as it is practiced today, this is a very interesting sequence of events. The way this has all fallen out so far is interesting in and of itself, but the likely scrutiny of the plaintiff law firm’s client solicitation practices is even more interesting.
Anyone involved in securities litigation these days knows that the practices the defendants describe in their motion to show cause are not usual at all. Indeed, it is a fairly regular occurrence after a publicly traded company experiences a stock price decline for any reason that some plaintiffs’ law firms put out “trolling” press releases trying to drum up a client on whose ostensible behalf the law firms can file a lawsuit. These kinds of practices are most common among the plaintiffs’ law firms that regularly represent retail investors rather than institutional investors.
None of the alleged actions by the plaintiff’s firm described in the defendants’ motion will strike anyone even casually familiar with securities litigation today as unusual. What is unusual is the defendants’ move to try to subject the practices to judicial scrutiny in light of applicable bar and local rules.
It remains to be seen how the Magistrate’s consideration of the defendants’ motion will play out. A notation to the electronic court docket shows that the Magistrate has scheduled a court hearing on the motion for October 17, 2023. The court’s order directing the matter to the Magistrate at a minimum suggests that some practices that have become routine will receive scrutiny and that the practices will be weighed against the applicable bar and local standards. It will be interesting to see whether the practices will withstand scrutiny. There would be a considerable segment of the defense community, not to mention the many companies that the plaintiff’s law firm involved has previously sued, who would welcome court action against the plaintiff’s law firm’s practices.