Filings Show Decrease in Financial Litigation

By Robert Ambrogi Esq
Something unexpected seems to be happening in litigation – its numbers are going down. Although most predictions for 2011 said that the numbers of new cases would continue the upward trend of the last few years, several midyear indicators show that new filings are noticeably down from the year before.

Litigation last dropped off in 2006 and 2007 but has shown a steady increase ever since. By most accounts, this trend was expected to continue this year. One of the most authoritative litigation surveys, the annual Fulbright & Jaworski litigation trends report, said last October that companies of all sizes expected to see litigation grow during the coming year.

Midway through 2011, no comprehensive reports are available that document overall trends for the year so far. However, there are a handful of reports that look at specialized segments and they seem to reflect a common theme.

One is the 2011 mid-year assessment (PDF) of securities class action filings published by the Stanford Law School Securities Class Action Clearinghouse in cooperation with Cornerstone Research. It finds that filings of securities fraud class actions decreased moderately in the first six months of 2011.

The decrease in the first half of 2011 is in contrast to the second half of 2010. Through June 30 of this year, a total of 94 federal securities fraud class actions were filed, Stanford reports. That is a 9.6 percent decrease from the 104 filings in the second half of 2010. The decline includes a drop in credit-crisis filings, with just two such filings in the first half of 2011, the report says.

Also down is the number of filings that name companies in the S&P 500 Index as defendants. So far this year, 8.5 percent of filings have named S&P 500 companies, compared to 15.4 percent in the second half of 2010, Stanford says.

Another source that is reporting a downturn in case filings is FINRA, the Financial Industry Regulatory Authority. Through June, the number of new arbitration cases filed with FINRA is 2,534. This is a 13 percent drop from the same period in 2010, when 2,922 cases were filed. It is an even larger drop from the same period in 2009, when 3,874 cases were filed.

One Study Finds Filings Up

Admittedly, at this midyear point, trends are difficult to pin down and not everyone who looks at the numbers sees the same thing. As an example, consider the Stanford/Cornerstone report above. A different organization, NERA Economic Consulting, also looked at securities class action filings so far this year and came to a much-different conclusion.

NERA finds that federal securities class action lawsuits in the first half of 2011 were filed at the second-highest semi-annual rate of the last eight years. It reports that there were 130 filings, 36 more than the 94 reported by Stanford. “If this pace of filings is maintained,” NERA predicts, “there will be 260 filings by year-end in 2011 – the highest level since 2002 and the fourth highest in the 16 years since the passage of the Private Securities Litigation Reform Act.”

To be fair, the Stanford report also predicts that the total number of filings by the end of 2011 could exceed the total for 2010. However, that would be true only if the number of filings against Chinese reverse merger companies (CRMs) continues at the same level as it did in the first half of the year, when there were 24 of these cases filed.

That is unlikely, Stanford says, because only a limited number of CRMs exist. If CRM filings are excluded from the second half of 2011 and other filings continue at the same pace, then the total filings for 2011 would be 165, “making 2011 the second lowest year in filings activity after 2006,” Stanford says.

So, will 2011 end up as a year in which litigation is up or down? The few available indicators generally agree that new case filings so far are down from 2010. But these numbers are far from complete.

Tell us: How do you think filings will fare in 2011?
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Robert Ambrogi Esq

We are proud to partner with an author of Bob’s caliber to provide exclusive articles for our legal clients and leading industry experts. Robert J. Ambrogi is a news media veteran and the only person ever to hold the top editorial positions at the two leading national U.S. legal newspapers, the National Law Journal and Lawyers Weekly USA. He is currently a Massachusetts lawyer who represents clients at the intersection of law, media and technology. He is also internationally known for his writing and blogging about the Internet and technology. Media and Technology Law Bob represents a range of businesses and individuals, concentrating in print and electronic media companies and the editorial, sales, marketing and technology professionals who work in them. He also counsels businesses and individuals in employment matters. Arbitration and Mediation An established professional in alternative dispute resolution, Bob has been an arbitrator since 1994, focusing on labor and employment and securities disputes. A mediator in a range of civil disputes, Bob completed the training required by Massachusetts law to protect confidentiality.

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