Cornerstone Research recently released its 2016 year in review report on securities class action filings.
According to the report, in 2016, the number of new federal securities class action filings reached a record high of 270, which represents a 43 percent increase over the 189 federal securities class action claims filed in 2015. This is particularly remarkable given that there are a lower number of companies listed on U.S. securities exchanges in 2016 as compared to past years. The litigation exposure of U.S. exchange-listed companies to traditional class action suits was a record 3.9 percent in 2016, which was higher than any prior year.
The increase in federal securities class action filings was mainly driven by the significant rise in the number of federal filings of class actions involving merger and acquisition transactions. There were a total of 80 such filings in 2016, which is more than four times greater than in 2015.
As background, in January 2016, the Delaware Chancery Court rejected a disclosure-only settlement in connection with a merger objection lawsuit. Many view this ruling as the first of many to follow that will establish the Delaware Chancery Court’s and other state courts’ growing aversion to disclosure-only settlements of merger objection lawsuits. In these types of settlements, many state courts believe the agreed-upon supplemental disclosures provide little value to the stockholders and that the stockholder releases received by the company are too broad. Given the Delaware courts’ position, an increased number of merger objection lawsuits are being filed in federal courts rather than in state courts.