Many in the legal and securities compliance industries are discussing the NERA Economic Consulting report, Recent Trends In Securities Class Action Litigation: 2013 Full-Year Review. The Wall Street Journal provides a good summary as does Kevin LaCroix at The D&O Diary. NERA’s executive summary is available here.
The three takeaways that most commentators are discussing are a marked increase in class action filings, an increase in court dismissals of these cases and but also a significant increase in average settlement amounts.
Securities class actions are up 10% in 2013 compared to 2012. As the Wall Street Journal summarizes:
But while plaintiffs are filing more lawsuits, the claims are more likely to get dismissed. Dismissal rates increased from 32%- 36% for cases filed between 2000 and 2002 to 44%- 51% for cases filed between 2007 to 2009, according to the report. . . . The average settlement amount in 2013 hit a record $55 million, an increase of 53% over 2012 and 31% more than the previous high in 2009, the report found.
It is difficult to reconcile all of these indicators and predict whether they represent future trends for 2014 and beyond. Assuming that these trends continue into 2013, there will be more lawyers filing securities class action cases but more judges will seriously consider dismissing those cases in which the plaintiff fails to satisfy the PSLRA pleading standards (at the motion to dismiss stage) or present the evidence required to withstand a defensive motion for summary judgment. The new record in settlements further suggests that, notwithstanding the good prospects of obtaining a dismissal, corporate boards are often eager to eliminate the risks early, presumably to the great delight of the plaintiff lawyers who take home a handsome premium in almost any settlement.
The other statistic that caught my eye in the NERA report is the following: “Of the 4,226 class actions filed since the PSLRA, only 20 have gone to trial and only 14 of them reached a verdict.” NERA Report p. 36. The PSLRA (“Plaintiffs Securities Litigation Reform Act”) was signed into law in 1995. It is astounding to me that only 14 securities litigation cases have reached verdict since then. That would mean that every other case has either settled or been dismissed prior to verdict or is pending.
As a class action litigator most often on the defense side of the “v”, this statistic reminds me that, what can be said of securities class action can be said of class actions in general: the likelihood of a class action lawsuit making it to trial is incredibly small. While attorneys on both sides must be willing to try any case to verdict and plan for that possibility—the real job description of most defense lawyers is to obtain a dismissal (the best case scenario) or position the parties for the most reasonable settlement that might be achieved given all facts and the risks.