Class actions and mass filings raise the stakes for mass tort defendants. Back in the day, before "free fall" descents into chapter 11, several "asbestos defendants" felt enormous pressures from mass trial proceedings. The names include Cimino, West Virginia’s several "mass trials," and the New York Powerhouse Litigation, and at a time, the federal asbestos MDL.
Today, financial firms face more and more of those pressures from massive financial fraud claims. AmLaw’s Litigation Daily includes this new Victor Li story on – and links to – a pair of recent class certification rulings against financial houses. The rulings include Judge Rakoff’s opinion explaining his class certification decision against Merrill. Here’s a key excerpt from his ruling, at 18:
"The common questions presented by this case — essentially, whether the offering documents were false or misleading in one or more respects — are clearly susceptible to common answers."
Now the financial houses face major pressures, including media stories which create more stock price pressure. Can a financial house risk appealing and losing? Can it risk trying a class action trial and losing? Can it risk class-wide discovery and resulting testimony that may be widely publicized? If a case is tried and lost, can it afford an appeal bond?
Financial houses also face the problem arising from the weakest member of the herd. That weakest member of the herd may lose a trial (think any mass tort) or may capitulate and settle (think tobacco litigation). More pressure follows, despite claims that the remaining members of the herd are stronger.
For a recent example of pressure, note this DealBook story on Goldman’s stock falling 5% on news that its CEO hired a criminal defense attorney.