Piling On? An Empirical Study of Parallel Derivative Suits

33 Pages Posted: 16 Dec 2015 Last revised: 14 Jan 2017

Stephen J. Choi

New York University School of Law

Jessica Erickson

University of Richmond School of Law

Adam C. Pritchard

University of Michigan Law School

Multiple version iconThere are 2 versions of this paper

Date Written: January 11, 2017

Abstract

Using a sample of all companies named as defendants in securities class actions between July 1, 2005 and December 31, 2008, we study parallel suits relying on state corporate law arising out of the same allegations as the securities class actions. We test several ways that parallel suits may add value to a securities class action. Most parallel suits target cases involving obvious indicia of wrongdoing, indicating that parallel suits do uncover additional targets. Moreover, we find that although a modest percentage of parallel suits are filed first, over 80% are filed after a securities class action (termed “piggyback” parallel suits). Although we do find that parallel suits, and in particular piggyback parallel suits, sometimes target individual officers not already named as defendants in the securities class action, suing more officers do not positively correlate with an increase in settlement incidence, monetary recovery amounts, or attorney fees. Parallel suits sometimes result in settlements when the corresponding class action is dismissed; however, only rarely do the parallel suit settlements provide monetary recovery for investors. We find that piggyback parallel suits often result in non-monetary, corporate governance settlements, particularly for frequent filing plaintiffs’ attorneys. Corporate governance settlements correlate with significantly lower attorney hours and attorney fees for the plaintiffs’ attorneys. We conclude that such settlements are used to justify fees in cases where there is no monetary recovery.

Keywords: Derivative suits, securities class actions

JEL Classification: K22

Suggested Citation

Choi, Stephen J. and Erickson, Jessica and Pritchard, Adam C., Piling On? An Empirical Study of Parallel Derivative Suits (January 11, 2017). NYU Law and Economics Research Paper No. 16-05; U of Michigan Law & Econ Research Paper No. 16-001. Available at SSRN: https://ssrn.com/abstract=2703509 or http://dx.doi.org/10.2139/ssrn.2703509

Stephen J. Choi

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

Jessica Erickson

University of Richmond School of Law ( email )

28 Westhampton Way
Richmond, VA 23173
United States

Adam C. Pritchard (Contact Author)

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States
734-647-4048 (Phone)
734-647-7349 (Fax)

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