Seventh Circuit a Refuge From Record Pace of Securities Filings
NERA Economic Consulting has published the latest in a number of studies highlighting the record number of federal securities class action lawsuits in 2017. The report’s wealth of data compliments the recent survey in The Shifting Tides of Merger Litigation and a similar analysis by Kevin M. LaCroix of the D&O Diary.
According to NERA, class action lawsuits challenging corporate mergers have driven most of the growth in federal securities litigation since 2016. These cases migrated from Delaware to federal courts following the Delaware Court of Chancery’s In re Trulia, Inc. Stockholder Litigation decision, which makes it more difficult for class counsel to receive attorneys’ fees for settlements that provide no monetary compensation to stockholders. As a result, the number of federal merger challenges more than doubled in both 2016 and 2017. The Third Circuit, which includes Delaware, saw a four-fold increase in merger class actions in 2017. Only the Seventh Circuit, which has followed Trulia, saw an overall decline in securities filings:
Whether the movement of merger-objection suits out of Delaware persists will likely depend on the extent to which other jurisdictions adopt the Delaware Court of Chancery’s lead on disclosure-only settlement disapproval, as well as on the rate of corporate adoption of forum selection bylaws. In the latter part of 2016, the Seventh Circuit ruled against a disclosure-only settlement in In re: Walgreen Co. Stockholder Litigation. Unsurprisingly, the proportion of merger objections filed in the Seventh Circuit fell by more than 60% in 2017 versus 2016. In 2017, merger-objection cases filed in the Seventh Circuit were dismissed at nearly double the rate of other circuits.
The NERA study confirms that Trulia did not end the problem of sue-on-every-deal merger litigation. So long as these lawsuits remain profitable for class counsel, plaintiffs can be expected to continue to file cases in jurisdictions perceived to be friendly to non-monetary settlements.