Securities and business litigation filings fell almost 50 percent in the third quarter from a year earlier, the biggest drop since before the financial crisis, Advisen data show. The filings declined 19 percent from the second quarter, with only securities class action cases rising to 52 from 43.
The pace of filings has “returned to normal following the financial crisis,” said Kevin LaCroix, executive vice president of RT ProExec, an insurance intermediary focused on management liability issues.
Speaking during an Advisen webinar on directors and officers liability claims trends, he attributed the uptick in securities class actions to an increase in initial public offerings.
LISTEN TO THE WEBINAR: Quarterly D&O Claims Trends: Q3 2014
Jed Melnick, managing partner at Weinstein Melnick LLC, and Joseph White III, co-founder and attorney at Saxena White, each noted that a lack of case law and reforms in the merger objection arena made for a competitive and combative atmosphere. The cases, which are almost always brought by individuals or “committee of plaintiffs” following a merger or acquisition, tend to turn on disclosure or whether companies have performed their fiduciary duties toward shareholders.
Melnick, who is a mediator, added that these cases are often characterized by “a lack of rational economic analysis of what a case might be worth.”
He said, “You have to find the leaders playing the long game” on the plaintiffs’ side when developing a case strategy.
White, an attorney, cited a greater number of lower-quality cases, in which “there is a lower liability level … and the pieces are not all there.”
Difficulties in developing strategy in merger objection cases can extend to dividing compensation among the law firms involved — there can be more than four firms in some cases. This often devolves into “a back of the napkin thing,” White said, where firms settle among themselves based on efforts devoted to the case.
“Anytime you have a group making a decision, you have to defer to the hawk,” Melnick said, adding that the final breakdown often has as much to do with what firms did on the last case.
Recent Reforms
LaCroix cited a recent Delaware case that upheld the bylaws of a North Carolina bank requiring all shareholder disputes be litigated in North Carolina. This decision could limit the number of jurisdictions in which cases could be filed against a company, he said.
