An uptick in merger-related class-action suits shifting from state to federal courts continued in the first half of 2018, even as the total number of securities class-action filings dipped nearly 10 percent compared with the same period last year.
Ninety-three M&A securities class actions were filed in the first half of 2018, compared with 96 in the first half of 2017, which is more than three times as many as in the first half of 2016, according to a July 25 report from Cornerstone Research and the Stanford Law School Securities Class Action Overall Clearinghouse.
Overall, the plaintiffs’ bar filed 204 new securities class actions during the first half of 2018, down from a high of 226 in the first half of 2017. That’s still twice as high as the “1997-2017 semiannual historical average,” the report said.
More merger strike suits have migrated from state to federal courts following a 2016 Delaware Chancery Court decision that curbed a popular settlement model in securities class actions alleging merger problems.
“There’s probably some noise in those numbers,” Michael Bongiorno, a partner at Wilmer Cutler Pickering Hale and Dorr LLP who focuses on securities litigation, told Bloomberg Law. There are a lot more securities cases involving mergers and acquisitions in federal courts now, which aren’t the normal securities fraud cases that are the “bread and butter” of securities practitioners, he said.
Some federal circuits, including the U.S. Court of Appeals for the Seventh Circuit, have been “skeptical” of merger strike suits in much the same way state courts have, Mark Gimbel, co-chair of Covington & Burling LLP’s commercial litigation group, told Bloomberg Law. District courts in the Seventh Circuit saw only six of the 204 securities class actions filed in the first half of 2018.
Jurisdictional Shifts, Missing Trends
The Ninth, Second, and Third Circuits saw the highest numbers of securities class actions in the first half of 2018, according to the report. District courts in the Ninth Circuit saw 42 securities class-action filings in the first half of 2018 — more than three times as many as the 13 for the same period in 2017.
The uptick in West Coast cases matches what Bongiorno, who is based in New York and Boston, said he has seen in his practice.
The “broad trends” outlined in the report “can be helpful in predicting what is likely to be driving shareholder cases in the year ahead,” and might help clients focus on areas of liability, said Gimbel, who is based in New York.
The report didn’t find an increase in state courts hearing some Securities Act of 1933 claims, which was “somewhat surprising,” Gimbel said.
The U.S. Supreme Court in March ruled that state courts can adjudicate those claims, despite a 1998 law establishing that for most federal securities claims, federal courts have exclusive jurisdiction. There wasn’t a significant increase in state court suits after the decision, the report said. The report focused on suits filed in California state court.
Gimbel has noticed an increase in these suits in other state courts, and predicted this will emerge as a trend in the second half of 2018 or in 2019, he said.