Class Action Nuisance Suits: Evidence from Frequent Filer Shareholder Plaintiffs

Cambridge International Handbook of Class Actions, Fitzpatrick & Thomas, eds. (2020, Forthcoming)

Fordham Law Legal Studies Research Paper No. 3470330

European Corporate Governance Institute - Law Working Paper No. 502/2020

34 Pages Posted: 16 Oct 2019 Last revised: 9 Mar 2020

See all articles by Sean J. Griffith

Sean J. Griffith

Fordham University School of Law; European Corporate Governance Institute (ECGI)

Date Written: October 15, 2019

Abstract

This chapter explores class action nuisance suits by examining the plaintiffs that bring them. It focuses on merger litigation—claims brought by shareholders in the wake of corporate mergers and acquisitions transactions—and uses as evidence the litigation history of seven “frequent filer” shareholder plaintiffs. Over a five year period, from 2014 through 2018, these plaintiffs filed 281 shareholder suits nationwide. Compiling data on these filings and their outcomes, this chapter reveals a transformation in merger-related nuisance suits. Plaintiffs went from challenging mergers in fiduciary duty suits under state law to challenging merger disclosures in federal court under the federal securities laws. Just as state fiduciary duty suits were typically settled for supplemental disclosures, federal securities claims are typically resolved by mooting the claims through corrective disclosures. The common denominator between these two types of claims is that both entitle plaintiffs’ counsel to collect fees from the corporation on the basis of supplemental disclosures. The data also reveal two further nuisance suit developments: (1) the filing of disclosure-related claims under the federal securities laws not related to merger activity, and (2) the filing of individual rather than class complaints.

The chapter argues that these litigation patterns have evolved in response to efforts to contain nuisance suits. Claims moved from state to federal court to evade hostile state law precedent. Once in federal court, claims changed from settlement to mootness resolutions to avoid further judicial scrutiny and to avoid possible application of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”). Further innovations in nuisance filings seem specifically designed to evade the PSLRA.

Consistent application of the PSLRA to merger litigation would reverse the flow of claims back to state court if not eliminate them altogether. However, any hope of this depends upon a more coordinated judiciary. Courts must coordinate their approach to merger litigation generally and to the PSLRA in particular. Fortunately, coordination mechanisms do exist. Courts should use them to halt the inundation of merger-related nuisance suits.

Keywords: class action, litigation, shareholder, securities, PSLRA, private securities litigation, plaintiff, frequent filer, nuisance, mootness

JEL Classification: K22, K41

Suggested Citation

Griffith, Sean J., Class Action Nuisance Suits: Evidence from Frequent Filer Shareholder Plaintiffs (October 15, 2019). Cambridge International Handbook of Class Actions, Fitzpatrick & Thomas, eds. (2020, Forthcoming), Fordham Law Legal Studies Research Paper No. 3470330, European Corporate Governance Institute - Law Working Paper No. 502/2020, Available at SSRN: https://ssrn.com/abstract=3470330 or http://dx.doi.org/10.2139/ssrn.3470330

Sean J. Griffith (Contact Author)

Fordham University School of Law ( email )

150 West 62nd Street
New York, NY 10023
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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