The recent upheavals in the global financial markets have set the table for new waves of class action litigation. Originally sparked by the subprime mortgage meltdown, the market turmoil has led, among other things, to abrupt recapitalizations, mergers, and failures of major companies. This has provided a rich stew of potential litigation, and class action plaintiffs’ lawyers are beginning to feed.
For example a class action was filed on behalf of shareholders against Constellation Energy alleging that the company improperly covered up the extent of its potential losses on amounts owed to it by Lehman Brothers. In another recent action, shareholders of Merrill Lynch filed a complaint claiming that its planned acquisition by Bank of America was based on a flawed process and an unconscionable agreement, and further alleging that the defendants breached their fiduciary duties in the deal. In yet another class action, shareholders of AIG have asserted claims arising from AIG’s purported over-exposure to allegedly grossly imprudent risk taking in the subprime lending market.
One question of particular interest that arises with respect to the AIG case and other similar litigation is what role, if any, the unprecedented scale of the government’s intervention in AIG, and the financial crisis generally, will have on the litigation. Whether the government’s involvement serves to limit the scope of private actions in any way remains unclear. For instance, AIG was facing a number of shareholder suits prior to the government’s acquisition of an 80% stake in the insurer. How these suits will be affected by the government’s stake remains to be seen. Some commentators have even suggested that the government itself may become the biggest litigant of all as a result of the magnitude of its intervention.