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September 26, 2019 business of law

Class Action Spending Reaches 10-Year High

Companies spent nearly $2.5 billion defending class actions in 2018, and half the companies surveyed expect spending to increase throughout 2019

By Daniel S. Wittenberg

In 2018, class action spending reached its highest levels since the 2008 financial crisis. According to the 2019 Class Action Survey, companies spent nearly $2.5 billion defending class actions in 2018. This accounts for 11 percent of the $22.25 billion market for legal services in litigation. Significantly, over half of the respondent companies participating in the survey are facing class action litigation, and spending is expected to increase throughout 2019.

2018 has seen the highest in class action spending to date

2018 has seen the highest in class action spending to date

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Labor and Employment Class Action Litigation

Topping the list by matter type and spending is labor and employment. For the first time in 15 years, plaintiffs posted a record high certification success rate in wage and hour litigation, according to the 2019 Workplace Class Action Litigation Report. This largest category of workplace lawsuits, however, will likely diminish following the recent U.S. Supreme Court decision in Epic Systems Corp. v. Lewis, which held that employee arbitration agreements with class and collective action waivers are enforceable under the Federal Arbitration Act. Though there may be a decrease in the number of lawsuits and class certifications in this arena, the costs and complexity of arbitration will likely correspondingly increase.

The #MeToo movement is also significantly impacting employment litigation and workplace class action litigation. In 2018, 74 percent of the Equal Employment Opportunity Commission’s Title VII filings focused on sex-based discrimination—an almost 10 percent increase from the prior year. Moreover, there was an eight percent increase in the number of sexual harassment filings. These types of claims resulted in significant settlements over the past year, which included two separate actions resulting in an approximate total of $700 million dollars secured for victims from two prominent universities.

Securities Class Action Litigation

Filings of securities class actions reached their highest levels since the dot-com crash of 2000, according to NERA’s Recent Trends in Securities Class Action Litigation: 2018 Full-Year Review. There were 441 federal securities class actions filed in 2018, the fourth year of consecutive growth, and nearly double the number filed in 2015. Almost half of these filings were merger-objection filings, with the next largest segment consisting of Rule 10b-5 insider trading actions.

In 2018, securities class action settlements totaled just above $5 billion—the third-highest amount in the last 10 years, according to Cornerstone Research’s recent report, Securities Class Action Settlements. There were five “mega” settlements of $100 million or higher resulting in total settlement amounts in 2018 that were 50 percent higher than the combined averages for the preceding nine years. Thirty-two cases settled in an amount between $10 million and $49 million, for a 60 percent increase over the prior year. According to Cornerstone, Rule 10b-5 claims rose 45 percent to $687 million and the average settlement amount averaged $64.9 million. Additionally, in 2018, stand-alone ’33 Act claim case filings (those involving alleged material misstatements or omissions in the offering or sale of a security, or alleged false or misleading information in registration statements) were 45 percent higher than the average over the previous five years.

As a whole, class action spending are expected to increase through 2019.

In conjunction with Stanford Securities Litigation Analytics, Cornerstone reported that in cases that ultimately ended in class settlement in 2018, it took an average of 4.8 years to reach a ruling on a motion for class certification. Also, from 2013 to 2018, the median settlement amount for cases resolved after filing a motion for class certification, but prior to a ruling, was $12.6 million, compared with $18 million for cases settled after a ruling. Twenty-one percent of cases settled on a class basis within two years of filing.

Life Science Securities Class Actions

Life science companies were hit with 86 securities class actions in 2018, according to Developments in U.S. Securities Fraud Class Actions Against Life Sciences Companies. Of these actions, 78 different life sciences companies were named as defendants. In 2018, roughly one out of every five securities fraud class action suits was brought against a life sciences company. Almost half of the total cases involved life sciences companies with a market cap of $1 billion or more. Most class actions against life sciences companies were filed in the Second, Third, and Ninth Circuits.

Roughly 20 percent of the claims against these entities involved alleged misrepresentations concerning product safety and efficacy. Scores alleged misrepresentations regarding negative side effects related to drug products being investigated, tested, or evaluated. Approximately 14 percent of the matters arose from alleged misrepresentations pertaining to regulatory hurdles. Additionally, about 30 percent involved alleged material misrepresentations of information concerning potential mergers, sales, or other transactions. Companies with products or devices in the stage prior to approval by the Food and Drug Administration (FDA) fared better in litigation than those in the post-FDA approval stage, according to the report Securities Class Actions in the Life Sciences Sector 2018 Annual Survey. District court decisions at the pleadings stage, including summary judgment, involving pre-FDA approval products were decisively in favor of defendants, with a defense success rate of 73 percent. Defendants’ litigation success rate with post-FDA approval products improved significantly between 2017 and 2018, with defendants prevailing in 57 percent of district court rulings.

Food and Beverage Class Actions

Class action litigation against food and beverage companies in 2018 reached their highest levels since 2015, according to the Food Litigation 2018 Year in Review. At 158 filings, this represented a nine percent increase over the prior year and is the most over a 10-year period. The most active jurisdiction in this sector remains California, with almost half of the cases filed there. By category, the largest number of claims pertained to false labeling. This represented a 16 percent increase from 2017. Six percent of the cases in this segment related to animal treatment. However, most of the cases in this sector alleged misrepresentations of the quality or quantity of ingredients. All-natural claims represented 21 percent of the matters filed, and most involved allegations of foods with multifunction ingredients or allegations of foods containing pesticides. Slack-fill cases represented the third largest subject, constituting 15 percent of class actions filed.

Data Breach Trends—The Wave Ahead

Data privacy and security may be the next source of significant class action lawsuits. According to the Identity Theft Resource Center’s Data Breach Report, more than 1,100 data breaches were reported in 2018. Businesses constituted the largest sector compromised, accounting for 46 percent of the data breaches reported. For example, as of June 2019, Yahoo! was still attempting to settle a class action lawsuit involving millions of users following one of the largest data breaches in history, with a revised settlement figure of $117.5 million.

Future class action concerns also loom over the California Consumer Privacy Act, which goes into effect in 2020. Moreover, in January of this year, the Illinois State Supreme Court ruled that the state’s Biometric Information Privacy Act, like California’s forthcoming statute, only requires individuals to show a violation of the law to bring suit. When legislators pass laws allowing consumers private rights of actions for data issues without requiring injury, “companies are rightly concerned,” said Julianna McCabe, director of the National Class Action Survey, in a recent Law.com story [subscription required]. As data breaches continue to increase, class action litigation and regulatory enforcement actions in this arena will continue to swell.

The same can be said for class actions in general. As a whole, class actions and class action spending are expected to increase through 2019. McCabe further noted to Law360 [subscription required], “the plaintiff’s bar is well financed right now . . . [and] the economy is booming . . . .” Therefore, we can expect that the volume and complexity of class action filings and spending will continue to rise.

 

Daniel S. Wittenberg is an associate editor for Litigation News.

Resources

  • Carlton Fields, 2019 Class Action Survey, available at https://classactionsurvey.com.
  • Cornerstone Research, Securities Class Action Settlements: 2018 Review and Analysis.
  • David H. Kistenbroker, Joni S. Jacobsen & Angela M. Liu, “Developments in U.S. Securities Fraud Class Actions Against Life Sciences Companies,” Dechert (Feb. 6, 2019).
  • Diana Novak Jones, “Companies’ Class Action Costs Hit 10-Year High, Survey Says,” Law360.com (Apr. 16, 2019).
  • Identity Theft Resource Center, Data Breach Reports (Nov. 30, 2018).
  • NERA Economic Consulting, Recent Trends in Securities Class Action Litigation: 2018 Full-Year Review (Jan. 29, 2018).
  • Perkins Coie, Food Litigation 2018 Year In Review (Feb. 20, 2019).
  • Seyfarth Shaw, 15th Annual Workplace Class Action Litigation Report, 2019 Edition.
  • Sidley Austin, Securities Class Actions in the Life Sciences Sector 2018 Annual Survey.
  • Alaina Lancaster, “Koh Inches Closer to Approving Yahoo Breach Settlement, Though Questions Linger,” Law.Com (June 27, 2019).

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