Securities Litigation Filings Continue To Fall in First Quarter 2015, Paper Finds

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By Yin Wilczek

April 23 — Securities and business-related case filings continued their downward slide in the first quarter of 2015, according to a new paper by insurance consultant Advisen Ltd.

The largest declines were in shareholder derivative actions, the paper found. The 22 actions filed in the first quarter of this year represented a 60 percent decrease compared to the 55 cases that were filed in the same quarter in 2014. Merger objection lawsuits—33 filings—fell by 45 percent compared to the 60 that were filed in the same quarter last year.

Securities class actions were essentially flat—42 were filed in the first quarter compared to the 43 that were filed in first quarter 2014, the paper found.

Conversely, capital regulatory actions—lawsuits brought by the Securities and Exchange Commission and other regulators—increased by 20 percent compared to the same quarter last year.

Factors for Decrease 

At an April 23 webcast to discuss the findings, Kevin LaCroix, executive vice president at insurance broker RT ProExec and author of the D&O Diary blog, pointed out that since the litigation peak in 2011, filings are reverting back to pre-financial crisis levels. However, other factors also could be contributing to the slide, including the stock market's long bull run, he said.

One factor that may be easily overlooked is the widespread adoption of forum-selection bylaws, LaCroix added. That “undoubtedly is reducing the occurrence of multi-jurisdictional litigation and possibly reducing the overall number of lawsuits” being filed, he said.

According to a report released in February by Cornerstone Research, more than 300 companies adopted such provisions in 2013 and 2014.

LaCroix also pointed out that another type of securities litigation is on the rise—that related to initial public offerings. “I think we’re going to continue to see IPO-related litigation during the course of 2015 as a result of the IPO activity in 2013 and 2014,” he said.

According to Ernst & Young LLP, 291 companies issued IPOs in 2014, making it the best year for IPOs in more than a decade.

Why Sue Over IPOs?

There are two significant reasons why IPOs attract securities litigation, LaCroix said. One is that the issuers often are concentrated in a single product or service so that they and their stock prices are particularly vulnerable to downturns, he said. In addition, these cases are especially attractive to plaintiffs' attorneys because the issuers are strictly liable under the 1933 Securities Act for material misrepresentations or omissions in offering documents.

LaCroix added that IPO-related litigation is brought in state as well as federal court because 1933 Act Section 22 expressly provides for concurrent state court jurisdiction. Although Section 22 was amended in 1998 by the Securities Litigation Uniform Standards Act, federal district courts “continue to struggle with the question of whether or not plaintiffs can keep their cases in state courts,” he said. He observed that plaintiffs in California have been particularly successful in preventing 1933 Act suits filed in California from being removed to federal court.

Plaintiffs' firms like bringing IPO-related litigation in state court because, among other reasons, many of the procedural requirements of the Private Securities Litigation Reform Act arguably don't apply to state court proceedings, LaCroix continued. “The case law is mixed as to whether they can keep it in state court,” he said. “Clearly that's one of the things that makes this type of litigation particularly interesting.”

Among other recent cases, helicopter services provider CHC Group Ltd. earlier this month was sued over its $310 million IPO in January 2014.

To contact the reporter on this story: Yin Wilczek in Washington at

To contact the editor responsible for this story: Kristyn Hyland at

The Advisen report is available at

The E&Y IPO release is available at