Quote of the Day - The cost of settling private class action securities fraud litigation continues to rise. The price of poker is going up.
Perhaps it's not a trend yet, but all indicators point to a shift in filing class action lawsuits from federal courts to state courts. First, we've seen a sharp drop in federal class action filings, largely in response to the Class Action Fairness Act, which makes it harder to mount a federal class action suit. According to Stanford's records, federal securities class actions peaked in 2001 with nearly 500 such actions filed. With more than half of 2007 now in the books, we've seen only 66 such filings so far. The downturn in securities class action lawsuits are of little comfort, however. Companies must now satisfy stringent SOx requirements.
Companies are just marching to the beat of a different drummer. In fact, I'm not sure most companies would consider the trade away from Plaintiff's lawyers to the SEC's enforcement a welcome change.
Even so, the insurance companies have noticed the downward drop in class action filings, but complain because even though the number of class action lawsuits overall has decreased, settlements have spiked upward. That variance makes sense, however. Since Congress has made it harder (but not impossible) to file class action suits, those that are filed receive more attention from Plaintiff's attorneys, who knowing the increased expectations to survive defense challenges, bring better cases rather than more cases.
On the other hand, we've seen a slight uptick in state court class action filings, at least in California, according to the Class Action Defense blog from mega-firm Jeffer Mangels, a point echoed on the Corporate Counsel blog. That latter post turns its focus to the supposed chilling effect of the indictment of partners from class-action superpower law firm Milberg Weiss. This indictment, however, is likely more of an attempt to "let's make an example" rather than cause Plaintiff's lawyers to stop filing class actions.
Indeed, the statistics available show continued filings, with the indictment bringing not much more than a hiccup instead of the expected breather. At most, Plaintiff lawyers have shifted their focus, and it hasn't even slowed down Milberg Weiss, who recently announced the filing of a nationwide class action lawsuit against pet food manufacturers.
Heck, even State attorney generals are getting in on the act.
It remains to be seen whether CAFA, the indictment of Milberg Weiss and the upswing in SEC enforcements will cause a substantial and sustained downturn in class action filings. According to the Rand Corporation, class actions were on a sharp increase in 2002, well before CAFA was enacted.
You can count on one thing, though. Class actions aren't going away. A strong defense is the best way to kill them off.