Federal securities fraud class action filings have been on a meteoric rise over the past 18 months. According to a recent report released by Cornerstone Research, plaintiffs filed 226 new federal securities fraud class action cases in the first six months of 2017. This figure is the highest ever since Congress passed the Private Securities Litigation Reform Act in 1995, eclipsing the previous record of 152 set in the second half of 2016. The 226 new cases in 2017 also shatter the 1997-2016 historical average of 96 filings per half.
Securities defendants can rest easier after the Supreme Court’s decision to strictly construe certain statutory time limits under the Securities Act of 1933. On June 26, 2017, the Court issued its opinion in California Public Employees’ Retirement System v. ANZ Securities, Inc., holding that claims brought under Section 11 are subject to a three-year statute of repose, which cannot be equitably tolled. The 5-4 decision will likely have major implications, not only for securities litigation, but for any case involving application of a limitations period that may be construed as a statute of repose.
The year 2016 was the biggest yet for U.S. securities class action settlements. On June 14, 2017, Securities Class Action Services, a division of Institutional Shareholder Services, Inc., released its updated list of the top 100 securities class action settlements of all time. The revised list featured 13 settlements in 2016 totaling over $5.6 billion. This, according to the report, was enough to make 2016 the biggest year ever in terms of total approved settlement funds.
As previously discussed here, Delaware enacted legislation that prohibits corporations from adopting charter or bylaw provisions that shift a corporation’s legal costs to stockholders who are unsuccessful in litigation with respect to internal corporate claims. At the same time (both became law on August 1, 2015), it also enacted legislation that Delaware corporations may adopt bylaws requiring that internal corporate claims must be filed exclusively in Delaware.
Here is our annual list of hot topics for the boardroom in the coming year:
1. Corporate strategy: Oversee the development of the corporate strategy in an increasingly uncertain and volatile world economy with new and more complex risks
Directors will need to continue to focus on strategic planning, especially in light of significant anticipated changes in U.S. government policies, continued international upheaval, the need for productive shareholder relations, potential changes in interest rates, uncertainty in commodity prices and cybersecurity risks.
Last week the New York Court of Appeals rendered an important decision involving going-private transactions in which a controlling shareholder offers to buy out the public shares. The high court announced that “New York courts should apply the business judgment rule as long as certain shareholder-protective conditions are present; if those measures are not present, the entire fairness standard should be applied.”1
In IBEW Local 98 Pension Fund v. Best Buy Co. Inc., Plaintiffs alleged that misleading statements by Best Buy officers made during a phone call with stock analysts artificially supported Best Buy’s stock prices until a report issued three months later revealed a decline in sales. Defendants successfully defeated class certification by demonstrating that any increase in price of the Best Buy stock was attributable to nonfraudulent events.
As previously discussed here, the Delaware Senate had already approved legislation that would prohibit corporations from adopting charter or bylaw provisions that shift a corporation’s legal costs to stockholders who are unsuccessful in litigation with respect to “internal corporate claims.” Now, that legislation (S.B. 75) has, easily and without much discussion, been passed by the Delaware House of Representatives. The legislation will now go to Delaware’s governor. Given the relatively easy road the bill has taken in reaching the ’governor’s office (notwithstanding some very vocal opposition to it), it seems likely the governor will sign it, after which it will become law.