Over the last couple of years, defense oriented commentators have used the meme “event driven securities litigation” as part of complaining about the increasing volume of class action litigation. From my perspective, there could be merit to some complaints, but the meme is far too broad and all “event driven” cases are not equal. Why? Because the events at issue may range from allegedly causing massive fires to allegedly concealing product liability risks to allegedly failing to disclose accurate facts regarding regulatory interactions with agencies such as FDA to losing verdicts in cases alleging perpetration of massive fraudulent conveyances. Simply put, one size memes do not fit all fact patterns.

That said, the “event driven” meme also came to mind while reading a December 5, 2018 article in LAW360 regarding oral arguments in the Delaware Supreme Court regarding the Fresenius case. There, a would be buyer terminated a corporate m&a deal based on the plummeting value of a target due to regulatory failures, which caused the buyer  to invoke a “material adverse event” clause. The issues went to trial, and a Delaware chancery judge (Lasker) upheld the termination based on adverse outcomes in events prior to the intended closing date for the transaction. In a nutshell, “What mattered was the root of this shortfall. Fresenius claimed that Akorn made misrepresentations when it claimed to be in compliance with Food and Drug Administration regulations and making progress in fixing manufacturing shortfalls. In particular, according to a NYT article of October 2, 2018, Fresenius said that Akorn had been sloppy with — or, worse, fabricated — the data that underlies F.D.A. drug approvals.”

Now, in just three days, the Delaware Supreme Court has affirmed the Fresenius ruling by Judge Lasker, in a brief three page order by Chief Justice Strine. It therefore seems logical to infer that the Delaware Supreme court found it easy to conclude that “event driven” problems could indeed alter the value of an entity so much that the material adverse event clause was properly invoked to terminate the deal. Therefore, one might see merit to at least some “event driven” securities suits.

A detailed data driven study of securities lawsuits before and after Morrison is the subject of a new paper by Professor Davidoff Solomon and colleagues. A summary is online in a November 21, 2018 article at Harvard.edu; the full paper is available for download at SSRN. Part of the summary is pasted below.

“In The Myth of Morrison: Securities Fraud Litigation Against Foreign Issuers, we examine the effect of the Supreme Court’s decision in Morrison v. National Australia Bank. Morrison has been described as a “steamroller,” substantially paring back the ability of private litigants to sue foreign companies for securities fraud. In Morrison, the Supreme Court held that Section 10(b), the general antifraud provision of the Securities Act of 1934, does not apply extraterritorially in a private cause of action brought under Rule 10b-5. Rather, the Court stated that “Section 10(b) reaches the use of a manipulative or deceptive device or contrivance only in connection with the purchase or sale of a security listed on an American stock exchange, and the purchase or sale of any other security in the United States.” Morrison is widely understood as reducing the litigation risk for foreign issuers, and the decision has been characterized as potentially “encourage[ing] non-U.S. issuers to continue to list their shares on U.S. exchanges and strengthen U.S. capital markets.”

We analyze pre- and post-Morrison litigation empirically and find that the dramatic claims about Morrison’s impact are largely a myth. Morrison did not substantially change the exposure of foreign issuers to federal securities fraud litigation or the types of issuers who face U.S. litigation. Even where the decision had its greatest impact—the composition of the plaintiff class—we find that U.S. exchange trading in defendant firms before Morrison was sufficiently robust that pre-Morrison cases could have pled an investor class that would have satisfied its transactional test. While Morrison may have put an end to the “global class action,” prior to Morrison, such cases were a rarity.

We conduct our analysis by examining a sample of 388 lawsuits alleging a violation of Rule 10b-5 that were filed between 2002 and 2017 against foreign issuers—issuers headquartered outside the United States. The first question we analyze is the impact of Morrison on overall litigation risk against what we call Foreign Listed Firms—foreign firms whose securities traded on at least one non-U.S. exchange. We focus on Foreign Listed Firms because the jurisdictional rule adopted by the MorrisonCourt is most likely to affect litigation against these firms as opposed to foreign-headquartered firms that are listed exclusively in the United States. One of the driving forces behind Morrison was the idea that foreign firms with limited connections to the U.S. were being targeted with burdensome U.S. litigation. For Morrison to address this concern, it should have reduced Foreign Listed Firms’ litigation exposure.

We confirm that class action suits against foreign issuers after Morrison were almost entirely confined to those issuers having a U.S. exchange listing at some point during the class period. Moreover, conditional on a firm having a U.S. exchange listing, Rule 10b-5 cases brought after Morrison consistently defined a class period that fully coincided with the period when the issuer maintained its U.S. listing. However, surprisingly, this focus of filed cases on firms with a U.S. listing did not represent a significant shift from the pre-Morrison era. Ninety percent of pre-Morrison cases were filed against foreign firm with a U.S. exchange listing, and nearly all of them alleged a class period that fully coincided with the period when the issuer maintained its U.S. listing. This result highlights the fact that F-cubed suits (suits brought by foreign investors, against foreign firms who bought on a foreign exchange) were not common prior to Morrison.”

The Myth of Morrison: Securities Fraud Litigation Against Foreign Issuers
UC Berkeley Public Law Research Paper, U of Penn, Inst for Law & Econ Research Paper No. 18-34, 44 Pages Posted: 13 Nov 2018 Last revised: 16 Nov 2018

Some years back, a few people (including me, in 2010) bucked conventional wisdom and predicted the rise of class actions in Europe. See, for example, my 2010 post at https://www.globaltort.com/2010/03/be-careful-what-you-wish-for-in-litigation-might-that-rule-apply-to-the-iqbaltwombly-pleading-standard/.

In fact, class actions continue to expand in Europe. For a timely and useful article providing news on the latest possible expansion, see “Collective re-dress: all talk and now trousers.”  It’s online at Cooley.com.  Among other things, the article points out the following possible expansion:

  • “More sectors in scope: the Committee proposes to significantly extend the scope of representative actions to include a much larger number of legislative instruments, primarily focussed on product safety. These include the General Product Safety Directive, and the regimes relating to low voltage equipment, radio equipment, machinery, PPE, chemicals, cosmetics, toys, foods, medicines and medical devices.”

Interesting June 25, 2018 interview/article in Corporate Counsel on the expansion of the ILR through acquisition of news media, and its expansion around the globe. The article arises from ILR reaching 20 years.  Among other things, Ms. Rickard comments that litigation funding and the global spread of litigation are important developments that will shape the future. Some of us saw that coming a decade ago; e.g. here and here.

The opening of the article highlights the media effort and the global expansion:

“The Institute for Legal Reform, a U.S. Chamber of Commerce affiliate, is celebrating its 20th anniversary on Wednesday. Its president, Lisa Rickard, has been there 15 of those years and seen a host of changes in the corporate legal world.

Among the ILR’s accomplishments under Rickard, it led the effort to pass the landmark Class Action Fairness Act of 2005; created and expanded the Madison County Record enterprise, a chain of nine legal newspapers; and guided the global expansion of ILR into Europe, Asia, Australia and the Americas.”

It remains fascinating to think about due process, res judicata, and the topic of strategic settlements in class actions. One set of deals prompted rancor between both plaintiff firms and defendants, as is described in  “This is weird: Securities class action defendant wants to block lead counsel appointment”as is described in a February 28 2018 article by Alison Frankel. There, Robbins Geller attacked other plaintiff firms for making sweetheart settlement deals. aAs explained by Ms. Frankel, “according to Robbins Geller, the deal benefits only the company and plaintiffs’ lawyers – exactly the sort of settlement the 7th U.S. Circuit Court of Appeals decried as “no better than a racket” in its 2016 ruling in In re Walgreen(832 F.3d 718).”

Judging by oral argument questions at SCOTUS, one legal analyst suggests the American Pipe tolling doctrine seems likely to live on to toll statutes of limitation, as opposed to statutes of repose. See Ronald Mann, Argument analysis: Justices dubious about limiting precedent that tolls statutes of limitations to permit “stacked” class actions, SCOTUSblog (Mar. 27, 2018, 10:52 AM), http://www.scotusblog.com/2018/03/argument-analysis-justices-dubious-limiting-precedent-tolls-statutes-limitations-permit-stacked-class-actions/

As some of us predicted years ago, global litigation continues to expand in both class actions and other forms of collective actions.  Now, there’s a new tool to help litigations better assess global possibilities. The tool is described as follows in a November 22, 2017 post at Global Legal Post:

“Baker McKenzie has launched an interactive class action tool which provides information ‘at a glance’ on the key characteristics of collective action mechanisms in more than 25 countries

More on the tool can be found at aBaker web page, which is here.