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Driven by lawsuits challenging corporate mergers, 300 securities class actions were filed in U.S. federal courts in 2016, a 32% increase over 2015 and the highest number of filings in any year since the aftermath of the 2000 dot-com crash, says a report issued Monday.
Federal merger objection cases, which totaled 88 last year, grew at the fasted rate since 2010, said David Tabak, managing director of New York-based NERA Economic Consulting, which produced the annual report, said in a statement.
The recent growth in securities class actions “is more likely due to state court decisions limiting ‘disclosure-only’ settlements, rather than due to increased M&A activity. Plaintiffs have begun to shift merger-objection cases to venues outside of Delaware, though the full extent of this trend remains to be seen,” said Mr. Tabak.
Observers have previously suggested that the increased number of M&A claims may reflect only a shift from state to federal courts as a result of the January 2016 ruling by the Delaware Court of Chancery in In re Trulia Inc.
In the Trulia decision, the court ruled against “disclosure-only” settlements in M&A deals. A disclosure-only lawsuit is litigation filed by plaintiff attorneys following M&A deals that result in their being awarded legal fees when all they did was force defendants to provide largely immaterial disclosures about the deal without conveying any monetary benefit to shareholders.
Among other survey findings, a total of 113 securities class actions settled in 2016, the highest number since 2011, and a near-record 149 cases were dismissed.
The survey also found that filings continued to be concentrated in the 2nd U.S. Circuit Court of Appeals in New York and the 9th U.S. Circuit Court of Appeals in San Francisco, with 72 filings and 87, respectively, according to the report, “Recent Trends in Securities Class Litigation: 2016 Full-Year Review.”