Observers of securities class action litigation know that virtually every securities suit that survives dismissal ultimately settles. Very few securities suit go to trial. In the following guest post, Teresa Milano, SVP, Lockton, and Doug Green, Partner, BakerHostetler, suggest that securities litigation overall would benefit if more cases were tested on the merits. The authors provide suggestions of how the goal of merits-based case resolutions might be realized. I would like to thank Teresa and Doug for allowing me to publish their article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this site’s readers. Please contact me directly if you would like to submit a guest post. Here is the authors’ article.
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A companymakes an announcement. The company’s stock price suddenly drops. Shareholders file a securities class-action (SCA) lawsuit accusing the company’s senior leaders of making false or misleading statements. After an unsuccessful motion to dismiss, the defendants decide to settle rather than fight the suit in court.
This has become an all-too-familiar scenario for many public companies. With SCAs rarely litigated through summary judgment, much less through trial, companies are subject to a self-perpetuating cycle that can lead to significant financial consequences. The plaintiffs’ bar is incentivized to file more cases, which drives up directors and officers liability (D&O) insurance costs and ultimately reinforces the expectation that most SCAs will settle without ever being tested on their legal merits.
While it will require a significant change in thinking, public companies can take action to help end this vicious cycle.
The backdrop and reality
The data reveals a stark reality: Out of more than 6,800[i] SCAs filed since 1995[ii], fewer than 1%[iii] have gone to trial. In the past decade alone, just two cases have resulted in a verdict.[iv] The vast majority of these cases are resolved through either settlement (approximately 46%) or dismissal (about 43%).[v]
A steady stream of SCAs is filed each year. While there are some peaks and troughs, filings hover around 200 to 225 per year, with 229 SCAs filed in 2024 and 2023.[vi] Correspondingly, settlements remain a significant factor, with 88 settlements totaling $3.7 billion in 2024 and 83 settlements totaling $4 billion in 2023.[vii]
As filings and settlements continue to rise, the costs of defending these lawsuits — largely paid by insurers — climb, pushing D&O premiums higher. This reinforces a cycle that motivates the plaintiffs’ bar to file even more cases, creating legal uncertainty and making it difficult for companies, directors, officers, and insurers to know how claims would actually be decided on class certification, summary judgment, or trial.
Why aren’t SCAs defended through summary judgment or trial?
A confluence of factors creates a powerful incentive for parties to settle rather than face the uncertainty of trial. Many SCAs are filed following a stock drop, with the potential for massive damages reaching into the hundreds of millions or even billions of dollars.
Beyond the financial exposure, the defense of these lawsuits is a costly and resource-intensive process. Litigation defense typically involves extensive document discovery, fact witness testimony (including from directors and officers), expert witness reports and depositions, and a host of motion practices, all against the backdrop of an uncertain trial outcome. Additionally, defending these lawsuits can be a major distraction to a company’s core business and can attract unwanted public attention, all while carrying the possibility of setting a legal precedent that could embolden further filings against the company.
There’s also a practical reason why so few SCAs are tested on the merits. As noted above, the dismissal rate is near 50%, which is better than other types of litigation. Understandably, defendants feel their cases should be dismissed and don’t give much thought beyond that. Discovery is stayed during the motion to dismiss process, so defense counsel doesn’t get steeped in the facts. In days gone by, defense counsel would conduct a meaningful background review before filing a motion to dismiss, but for various reasons, that’s no longer standard practice.
The convergence of these factors means that, if a court denies a motion to dismiss, the defendants are surprised and worried, and defense counsel doesn’t really know if the case is defensible on the merits. At that point, the easiest thing to do is settle — and thus too few cases are tested on the merits.
But the “strategy” of reflexive settlement only deepens an unsustainable cycle. If it continues, it will lead to more claims and settlements, driving up D&O costs and further emboldening the plaintiffs’ bar, ensuring companies face a continuous stream of new lawsuits.
Driving meaningful change
Breaking this perpetual cycle is essential to restoring a fair legal environment. This requires a fundamental shift in companies’ mindset and strategy to ensure more SCAs are tested on their merits.
An effective step would be to reinstate a meaningful background review at the beginning of a case. This doesn’t need to be a ransacking; experienced defense counsel can do it for less than $150,000 in most cases. If there may be an economic defense on class certification, it may make sense to have an economist do enough work to preliminarily advise on its strength. This work, too, won’t break the bank.
With a background review, defense counsel is able to provide better strategic advice. We suggest an upfront background review meeting with the individual defendants, the insurers, and broker to make a strategic plan that extends beyond the motion to dismiss. After all, more than half of all cases survive the motion to dismiss, so planning ahead is key.
- If the case involves a potentially significant economic defense on class certification, defense counsel can be ready to push for an early class certification motion and potentially seek to stay or limit fact discovery in the meantime.
- If the case is highly defensible on the merits, the defendants might provisionally decide to defend the case through summary judgment or trial, if necessary. We say “provisionally” because defendants can always decide to settle — if that makes sense — as the case develops.
- If the case is uncertain, defense counsel, the defendants, the insurers, and broker can make a plan to further assess the case monthly or quarterly as it plays out. In that way, defendants avoid the reflex to simply settle.
There are two important qualifications. First, defendants need to begin this process when they consider defense counsel. Far too often, defendants focus solely on a defense counsel’s motion to dismiss record. But, again, most cases aren’t dismissed, so defendants must take a broader perspective. Defendants should consult their broker and insurers for input on the right lawyers for a particular case, including those with the ability to shepherd the case through class certification, summary judgment, and trial.
Second, defense counsel needs to be able to size up the case to provide good advice about the ability to safely litigate it beyond the motion to dismiss. There are a host of legal and economic factors that bear on this assessment. For purposes of this post, we note that two things are critical:
- Defense counsel needs to be highly experienced in defending securities class actions past the motion to dismiss stage.
- The decision to litigate the case beyond the motion to dismiss should be made with the involvement of a company’s broker and insurers, who see a lot of cases and have excellent insights.
Conclusion
The current state of SCA litigation is characterized by a high settlement rate and a lack of proving the merits of a case, which benefits the plaintiffs’ bar. To combat this trend, a concerted effort must be made to defend more SCAs through summary judgment or trial. To do this, defendants, defense counsel, insurers, and brokers need to work collegially to pick the right cases in which to test the merits. Only by testing the merits more often can we restore balance and break the cycle of ever-increasing lawsuits and D&O costs.
Bottom line: More SCAs need to be litigated, even through trial.
[i] https://www.cornerstone.com/insights/press-releases/securities-class-action-filings-remain-steady-while-size-of-filings-increased-substantially-in-first-half-of-2025
[ii] The Private Securities Litigation Reform Act was enacted in 1995 to help deter frivolous lawsuits. Among other things, the Reform Act heightened pleading standards and created a safe harbor for forward-looking statements.
[iii] https://www.cornerstone.com/insights/press-releases/securities-class-action-filings-remain-steady-while-size-of-filings-increased-substantially-in-first-half-of-2025
[iv] For the Plaintiff: Hsu v. Puma Biotechnology, Inc. (C.D. Cal. 2022); For Defendant: In re Tesla Inc. Securities Litigation (N.D. Cal. 2023).
[v] https://www.dandodiary.com/2025/01/articles/securities-litigation/cornerstone-research-securities-suit-filings-increased-in-2024/.
[vi] https://www.nera.com/insights/publications/2025/recent-trends-in-securities-class-action-litigation–2024-full-y.html?lang=en.
[vii]https://www.cornerstone.com/wp-content/uploads/2025/03/Securities-Class-Action-Settlements-2024-Review-and-Analysis.pdf.