Record Securities Class Actions in 2018 Driven by Merger Suits

Securities class action volume stayed steady in 2018 but remains well above historical averages for federal courts, two new reports say.

The jump in the number of class suits filed each year from around 300 in 2016 to over 400 in 2018 stems from a 2016 Delaware state court decision that drove merger-related claims from state court to federal court. The ruling could also explain the surge in merger-related securities class actions in the Third Circuit, which includes Delaware.

One securities litigation attorney says it’s hard to predict whether the spike in filings will continue.

The reports don’t agree on the exact numbers of federal securities class actions filed in 2018, but both show little difference between 2017 and 2018 securities class filings. Cornerstone Research and the Stanford Law School Securities Class Action Overall Clearinghouse released their joint report Jan. 30, while NERA Economic Consulting released its report Jan. 29.

The NERA report found that the total number of securities class suits had increased to a record 441 from last year’s 434, while the Cornerstone report showed a slight drop, to 403 from last year’s record 412.

Both reports agree that this year’s numbers are still nearly double the average of cases filed in the five-year period after the passage of securities class reforms. They’re drastically up even from 2016, when Cornerstone reported 271 new suits and NERA identified 299.

Merger Migration

The migration of merger-related securities class suits from state to federal court has driven much of the overall increase. A 2016 Delaware Chancery Court decision disfavoring the use of a common state suit settlement prompted the move.

Cornerstone reported 182 merger-related securities class actions in 2018, down from a high of 198 the year before. NERA found 210 such suits, up from the previous year’s 204. For the year prior to the Delaware decision, Cornerstone reported only 85 merger-related suits, while NERA recorded 92.

But it’s hard to predict whether federal merger objection suit numbers will remain elevated because “that dynamic’s always changing,” Michael Bongiorno, co-chair of the Securities Litigation and Enforcement Practice Group at Wilmer Cutler Pickering Hale and Dorr LLP, told Bloomberg Law.

There’s always a chance that other federal courts will follow the lead of the U.S. Court of Appeals for the Seventh Circuit, which in 2016 ruled against the disclosure-only merger settlements the Delaware state court curbed. District courts within the Seventh Circuit have seen far fewer merger-related securities class suits than those in other circuits, according to the NERA report.

Second, Ninth Circuits Lead

The Third Circuit—which includes Delaware—saw the most merger-related securities actions in 2018, the reports said. But district courts within the Second and Ninth Circuits get the bulk of other securities class filings.

Both reports saw decreases in Second Circuit non-merger filings, although district courts within that circuit still see more core securities class suits overall. Cornerstone reported 71 such suits in 2018, down from 75 the year before, while NERA found 78, a slight drop from 80 in 2017.

Cornerstone found 69 non-merger suits in the Ninth Circuit, up from 45 in 2017. NERA also identified 69 core suits in that circuit compared to 50 the year before.

The numbers match what Bongiorno’s seen in his practice. He’s noticed “strong, robust filings, particularly in New York and California,” which are part of the Second and Ninth Circuits, respectively.