The number of securities class action lawsuit filings increased in 2023 for the first time in four years, according to a new report from NERA. According to the report, the number of filings increased more than 10% in 2023 compared to 2022. On the other hand, the number of cases resolved in 2023 declined during the year. The January 23, 2024 report, entitled “Recent Trends in Securities Class Action Litigation: 2023 Full-Year Review, can be found here.
Under the counting methodology NERA uses in the report, lawsuits filed against the same corporate defendants based on the same allegations but in separate federal judicial circuits are counted as separate lawsuits (until such time as the cases are consolidates). Also, while most of the lawsuits the report “counts” allege violations of the federal securities laws, the report also “counts” lawsuits that allege violations of the common law, including breach of fiduciary duty. Because of these aspects of NERA’s counting methodology, the NERA report lawsuit tally may differ from other published securities lawsuit filings tallies. Also, it is important to keep in mind that the NERA report counts only federal court securities class action lawsuits; it does not include state court securities class action lawsuits.
According to the report, there were 228 federal court securities class action lawsuits filed in 2023, compared to 206 in 2022, representing an increase of more than 10%. The 228 securities suits filed in 2023 is the highest annual number of federal court securities class action lawsuits since 2020 (when there were 327 federal court securities class action lawsuits).
The number of filings in the most recent years, including in 2023, were substantially below the number of securities suits filed during the period 2017-2020, largely due to the significant number of federal court merger objection class actions filed during those years. By contrast, there were only seven federal court merger objection class action lawsuits filed in 2023, the lowest annual number of federal court merger objection suits in ten years. (It should be noted that the merger objection lawsuits are still being filed, they are just being filed as individual actions rather than as class action, and so they do not show up in the class action statistics.)
The report notes that, after disregarding merger objection lawsuit and lawsuits against crytpo companies, the industrial sector with the largest percentage of securities lawsuit filings in 2023 was the electronic technology and services sector, which accounted for 22% of the filings. In addition, filings against companies in the financial sector represented 18% of filings, more than double the percentage in 2022 and due in part to the Banking Crisis of 2023. At the same time, however, and largely due to the decline in the number of COVID-19 -related securities suits during the year, the percentage of filings relating to companies in the health technology and services sector declined to 19% in 2023 from 27% in 2022.
There were 39 traditional securities class action lawsuits filed against non-U.S. companies in 2023, representing a slight increase from the 36 filed in 2022. However, the percentage of all filings that the lawsuits against non-U.S. companies declined in 2023 (as the overall number of filings increased in 2023.) The filings against non-U.S. companies represented 18.9% of all filings in 2023, whereas the filings against non-U.S. filings represented 20% of all filings in 2022.
For the first time in many years, these percentages of lawsuits against non-U.S. companies as a share of the total lawsuits were smaller than the percentage of non-U.S. companies listed on U.S. exchanges. As the report shows, the percentage of all non-U.S. companies among all U.S. listed firms has been increasing in the last ten years, from a low of about 17% in 2014 to a recent high in 2023 of just over 24%. The proportion of all lawsuits that the suits against non-U.S. companies represent was lower in both 2022 and 2023 than the proportion of all U.S.-listed companies that the non-U.S. companies represent. In other words, non-U.S. companies are being sued less frequently than their proportional representation among all U.S.-listed companies might otherwise suggest.
The report also notes that there have been 20 environment-related securities class action lawsuits filed in the last five years, including eight filed in 2023, including wildfire-related lawsuits filed against Hawaiian Electric Industries, two lawsuits against the train derailment after affects against Norfolk Southern, and the lead communications cable cases filed against Verizon and AT&T, among others.
Interestingly, the reports notes that the number of cases that have been resolved has been declining each year since 2018. In 2023, the number of cases resolved declined by 15% from 190 during the year compared to 223 in 2022. The number of case resolutions in 2023 represented the lowest level of case resolutions in the last 10 years. Since 2015, more cases have been dismissed than settled. For cases filed and resolved over the past 20 years, over two-thirds were resolved within three years of the filing of the first complaint, while 16% of cases have taken longer than four years to resolve. The median time to resolution is 2.1 years.
Of cases that have been filed and resolved in the period January 2014 to December 2023, a motion to dismiss was filed in 96% of cases. The courts reached a decision in 74% of the cases in which motion to dismiss were filed, while 17% were voluntarily dismissed by plaintiffs, 8% settled before the court ruled on the dismissal motions, and 1% of motions were withdrawn by defendants. Among the cases in which decisions were reached, the motions were granted in 60% of cases (with or without prejudice) while 40% were denied in whole or in part. (It should be noted that from the plaintiffs’ perspective a motion denial only in part counts as a win.)
Aggregate settlement values in totaled $3.9 billion in 2023, representing a slight decline from the inflation-adjusted aggregate settlement value in 2022 of $4.2 billion. Excluding settlements over $1 billion, the average settlement in 2023 was $34 million, compared to an inflation-adjusted average in 2022 of $39 million, representing a 12% decrease. The median settlement in 2023 was $14.4 million, compared to the inflation-adjusted median settlement in 2022 of $13.5. The ten largest settlements in 2023 ranged from $90 million to $1 billion, and together totaled over 66% of the aggregate settlement value in 2023. Plaintiffs’ attorneys’ fees and expenses made up about 24.9% of the $3.9 billion aggregate settlement value in 2023.
The report is full of an extensive amount of detail and information and warrants reading at length and in full.