One likely explanation for the resolution slowdown is the Supreme Court’s pending decision in Amgen Inc. v. Connecticut Retirement Plans and Trust Funds, in which the Court granted certiorari in June 2012. In the case [PDF] below, the U.S. Court of Appeals for the Ninth Circuit held that investors need not prove materiality to invoke a fraud-on-the-market presumption at the class certification stage.
Amgen’s impact on case resolutions is “a realistic possibility,” says Todd A. Murray, Dallas, cochair of the Class Actions and Derivative Suits Subcommittee of the ABA Section of Litigation’s Securities Litigation Committee. “You know this case is out there and will be decided in the near term. Why would you roll the dice on that when you might have a lot lower burden on certification and thus potentially a higher value on settlement from the plaintiff’s side?”
Supreme Court Jurisprudence
Recent Supreme Court jurisprudence focusing on class action litigation has, however, mostly favored defendants. First, in Janus Capital Group, Inc. v. First Derivative Traders [PDF], a 2011 case, the Court held that a person could not be primarily liable for a securities violation unless the person had ultimate authority over a misleading statement or omission. Wal-Mart Stores, Inc. v. Dukes [PDF], another 2011 case, “was not a securities case, but it made very important pronouncements,” explains Jennifer H. Rearden, New York, another cochair of the Class Actions and Derivative Suits Subcommittee of the Section of Litigation’s Securities Litigation Committee. The Court held that the plaintiffs had not met the necessary class certification factors.
Lastly, in Credit Suisse Securities v. Simmonds [PDF], a 2012 case, the Court held that the plaintiff’s claims were time barred and not tolled based on the defendants’ delayed reporting of short-swing profits. The Court decided in the plaintiff’s favor, on the other hand, in Erica P. John Fund, Inc. v. Halliburton Co. [PDF], a 2011 case, holding that investors need not prove loss causation to obtain class certification. “Halliburton might suggest that Amgen will turn out well for plaintiffs,” Murray says. “But, a couple of justices in oral argument [PDF]seemed to signal some doubt that perhaps suggest we need to ratchet this back a bit.”
Other Potential Explanations
NERA’s report states that another possible reason for the decline in resolved cases is simply that fewer cases were pending that could be resolved. The number of pending cases at the end of 2011 was at its lowest since at least 2000, according to the report, with only 541 cases available for potential resolution. “The fact [that] lawyers are settling less cases in 2012 has a lot to do with the cases that are maturing,” acknowledges Louis F. Burke, New York, cochair of the Section’s Class Actions and Derivative Suits Committee.
The report points out that “the decrease in the number of pending cases at the end of 2010 versus 2011 is much smaller than the decrease in the number of cases resolved in 2011 versus 2012.” Section leaders account for this disparity with reasons in addition to the Amgen case. A recent increase in merger-objection cases may help explain the lower number of settlements, Murray offers. These cases, which the report defines to include objections to mergers and acquisitions as well as other changes to corporate structure, have been much more prevalent in the last few years than previously.
“Courts have shown concerns about settling those particular kinds of cases for non-monetary remedial measures,” Murray explains. “Also, there is always the question of where settlement money will come from.” As for the decline in dismissed cases, Rearden points in part to a “sympathy” for investors on behalf of the courts. “Investors have lost billions of dollars since 2008,” she notes.
Stable Filings and Settlement Amounts
The report also maintains that the number of federal securities class actions filed in 2012 is unremarkable, only slightly below the average rate over the previous five years. “The decline in credit cases did not translate into an overall decline,” Burke observes. “Plaintiffs have found new causes of action, such as merger-objection cases. The trend is that lawyers reinvent themselves every once in a while. I don’t think the trend is going to go down.” Rearden wonders, however, whether recent Supreme Court decisions favoring defendants will decrease the number of future filings.
The average settlement amount in 2012 also stayed steady, the report finds. The 2012 average was $36 million, as compared to a $42 million average over the period from 2005 to 2011. Excluding large settlements, 2012’s average is even more consistent with prior years and in line with a gradual increase in settlement amounts since the mid-1990s. “I don’t know that there’s any predictable science, or scientific approach, to numbers of settlement.” Burke concludes. “They are what they are.”
Lisa R. Hasday is an associate editor for Litigation News.