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Merger objections drive class action lawsuits

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Federal securities class action litigation filings rose to their highest level in 20 years, driven in part by a shift in merger objection lawsuits from state to federal courts, says a survey issued Tuesday.

There were a record 270 filings in 2016, according to “Securities Class Action Filings 2016 in Review,” a report issued by Boston-based Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse in Stamford, California. 

The 270 filings, 82 more than those issued in 2014, were a 44% increase above the 1997-2015 historical average, according to the report. 

The increase was largely due to 80 filings related to merger and acquisitions, according to the report. It reflects the shift of merger-objection lawsuits to federal from state courts following the rejection in January 2016 of a disclosure-only settlement by the Delaware Chancery Court, said John Gould, a senior vice president of Cornerstone Research, in a statement. 

A disclosure-only lawsuit is litigation filed by plaintiff attorneys following M&A deals that result in them being awarded legal fees when all they did was force defendants to provide largely immaterial disclosures about the deal.

“But this is just part of the story,” said Mr. Gould. “Traditional filings maintained their momentum from 2015 and the first half of 2016. The previous three semiannual periods have all had more than 90 such filings, including 94 in the second half of 2016,” Mr. Gould said.

Last week, a report issued by New York-based NERA Economic Consulting reported that, driven by merger objection lawsuits, 300 securities class actions were filed in U.S. federal courts in 2016, which was the highest number of filings in any year since the aftermath of the 2000 dot-com crash. 

NERA and Cornerstone use different methodologies.