February 24, 2017

“Bet-the-Company” Lawsuits Quadruple in 2 Years!

According to a recent BTI study, the number of businesses facing “bet-the-company” litigation has quadrupled since 2014.  BTI interviewed over 300 lawyers at US companies with more than $1 billion in annual revenues, & over 50% of those companies reported dealing with bet-the-company suits in 2016.  This compares to 37% in 2015 and just 12% in 2014.

Big-ticket litigation is widely perceived to be a uniquely American phenomenon, but Kevin LaCroix has been following developments on the international front – & there may be storm clouds gathering there as well, as this excerpt from a recent D&O Diary blog suggests:

A number of high-profile cases are now working their way through European courts. These cases are being closely watched and their progress could affect the likelihood of further future litigation. If the claims are successful, they could “pave the way” for similar shareholder actions in the future.

These cases include actions in the U.K. involving RBS and Tesco, as well as actions filed in Germany against Volkswagen.

D&O Liability: On the Rise Globally

Consistent with these litigation trends, this recent Allianz study says that D&O liability exposure is increasing across the globe. Here’s an excerpt from the study’s executive summary:

Tightening regulations, emerging technologies, increasing shareholder activism, intensifying class action litigation activity, escalating merger objections and IPO activity and the rise of regulator activism are among the many challenges facing corporate directors and officers. Executive liability is increasing yearly, particularly in areas such as employment and data protection.

The study flags the growing influence of third party litigation funders in the growth of collective actions & notes the impact of an increasingly aggressive regulatory environment on D&O liability:

There is a growing trend towards seeking punitive and personal legal action against officers for failure to follow regulations and standards. According to AGCS analysis, the number one cause of D&O claims by number and value is non-compliance with laws and regulations.

Take Shelter: The Securities Litigation Storm is Here!

I feel a bit like the prophet Jeremiah this morning – so here’s some more glum news from the D&O Diary, which provides this summary of Cornerstone Research’s annual class action review:

There were a record 270 securities class action lawsuits filed in 2016, which is 44 percent greater than the number in 2015 (188) as well as the average number of class action lawsuits filed during the period 1997-2015 (also 188). The filing activity increased as the year progressed; the number of filings in the second half of 2016 was 21 greater than in the year’s first half. The filing activity in the second half of 2016 was the highest for any semiannual period between 1996 and 2016.

What’s driving the increase?  Delaware’s hostility toward disclosure-only settlements is a big part of the story:

Much of the increase in 2016 filing activity is attributable to the increase in federal court merger objection filings; there were 80 federal court merger objection lawsuit filings during the year, more than four times greater than the number in 2015 (as plaintiffs’ lawyers shifted their filings from state court to federal court, as a result of Delaware state court rulings hostile to the kind of disclosure-only settlements that largely characterize the resolution of these cases). The 80 federal court merger objection lawsuit filings during 2016 was the highest number since Cornerstone Research first began separately tracking the M&A lawsuits in 2009.

The litigation exposure of US exchange-listed companies was the highest in 20 years. To put that more concretely, during 2016, approximately 1 in 25 listed companies was the subject of a “traditional” class action lawsuit – and that number doesn’t include merger objection suits!

Have a nice day, everybody.  If you need me, I’ll be hiding under my desk.

John Jenkins