Tuesday, January 30, 2018

NERA reports record merger-objection class action filings, stingier settlement totals

By Amy Leisinger, J.D.

A report issued by National Economic Research Associates found that total filings of securities class actions have continued to rise with 432 class actions filed in 2017 (an 89 percent increase over the past two years), with the growth dominated by a record 197 federal merger-objection filings. According to the report, however, the value of settlements declined markedly, plunging to lows not seen since the early 2000s.

“In addition, there was a record rate of case resolution, which was driven by increases of more than 40 percent in dismissals and 30 percent in settlements,” said NERA Managing Director Dr. David Tabak.

Filings. NERA’s Recent Trends in Securities Class Action Litigation: 2017 Full-Year Review noted a “dramatic increase” in securities class action filings, reflecting growth not seen in nearly 20 years. The 432 federal securities class action suits filed in 2017 involved approximately 8.2 percent of publicly traded companies, marking an increase in the average probability of a listed firm being subject to litigation from 3.2 percent for the 2000-2002 period, according to NERA. In 2017, the number of pending cases in the federal system increased to 785, up 12 percent from 2016, the report states. The increase in filings was led by a more-than-doubling of merger-objection filings typically alleging violations of Exchange Act Section 14 and/or breaches of fiduciary duty by managers of the acquisition target, according to the report. This shift is likely the result of state court decisions restricting “disclosure-only” settlements, the most prominent of these being the Delaware Chancery Court’s Trulia decision, NERA explains.

Foreign companies continued to be disproportionately targeted in standard actions, the report states. In addition, the health care, technology, and financial services sectors have been involved in the largest number of actions, but the share of filings in these sectors fell from 63 percent in 2016 to 53 percent in 2017, NERA notes.

Settlements and fees. A total of 353 securities class actions were resolved in 2017, including a near-record 148 settled cases, the report states. Aggregate NERA-defined investor losses for filings totaled $334 billion in 2017 (50 percent more than the five-year average), mostly due to numerous large cases alleging various regulatory violations, NERA explains. However, the average settlement in 2017 fell to less than $25 million, a nearly 66 percent drop when compared to 2016, likely due to a lack of large settlements seen in previous years, according to the report. For the first time since 1998, no case settled for more than $250 million, NERA notes.

According to the report, aggregate attorney fees and expenses were $467 million—a drop to a level not seen since 2004. This shift reflects a trend toward fewer and smaller settlements, NERA explains. However, the report notes, the drop is still less than the overall 70 percent decline in aggregate settlements, likely as a result of the increase in smaller settled cases with typically higher fee payout ratios.