Cornerstone Research: High Dismissal Rate of M&A Class Actions “Troubling”
Last week, Cornerstone Research published Securities Class Action Filings — 2017 Year in Review, which confirms what other studies have shown: federal securities class actions reached record levels in 2017, largely due to the continuing surge in lawsuits challenging mergers and acquisitions. The report notes that M&A class actions experience a particularly high dismissal rate: 78 percent between 2009 and 2016. Professor Joseph Grundfest of Stanford Law School considers this surge in dismissed securities lawsuits “troubling from a public policy perspective” and suggests that policymakers should consider further class action reform.
Although the Cornerstone report does not explicitly mention mootness dismissals–where class plaintiffs voluntarily terminate M&A class actions on an individual basis after defendants agree to provide supplemental disclosures to a proxy document–this phenomenon likely explains the continuing flood of swiftly-dismissed M&A class actions in federal courtrooms. Plaintiffs’ counsel frequently receive six-figure payouts from these cases, even though the plaintiffs voluntarily dismiss their complaints. For instance, plaintiff’s counsel were paid $280,000 in fees following the voluntary dismissal of a lawsuit concerning the Amazon/Whole Foods merger.
These securities lawsuits are unlikely to go away so long as class counsel profit from them. It remains to be seen if Congress or the federal courts will take action.