Stanford law professor Michael Klausner, and his colleagues Jason Hegland and Matthew Goforth, have published an update to their 2011 studies reporting data on the timing of dismissals and settlements in securities class actions. In this latest update published in the April 2012 PLUS Journal, the authors address the factors that affect the timing of securities class action lawsuit dismissals and that affect the timing and size of securities suit settlements.
Klausner, Hegland, and Goforth's analysis uses statistics derived from all securities class actions filed between 2006 and 2010, 82% of which have been resolved one way or another, and 18% are still open. The sample size consisted of 653 cases, of which 253 have settled, 206 were dismissed with prejudice (preventing their refiling), 74 were voluntarily dropped by the plaintiffs, and 119 are ongoing. The authors followed the progress of each case through the motion to dismiss stage, and their analysis reveals some interesting trends in these class action securities cases. Chief among their findings is that more than 50% of all securities class action lawsuits “end well before discovery and before even a second complaint is filed,” and just under 60% settle during the discovery phase.
By taking a deep dive into these 653 cases, the authors also provide some very interesting statistics on:
- How long are securities class actions litigated before they are either dismissed or settled?
- How many times do courts give plaintiffs an opportunity to amend a complaint before finally dismissing a case with prejudice?
- How often do cases settle during the pleading stage—that is, before a final ruling on a motion to dismiss?
- For cases that are not dismissed, how long do the parties continue litigating before settling?
- How is settlement size related to settlement timing?
This final question, how settlement size relates to settlement timing, is interesting in and of itself, and one which Klausner, Hegland, and Goforth draw no concrete conclusions. Based on their sample, however, they are able to show that "while settlement size increases as cases move from the Early Pleading to the Discovery Phase, settlement size as a fraction of shareholder losses decreases." The authors explain this inverse correlation by looking at company size.
Large companies tend to settle later than smaller companies and, not surprisingly, large company settlements tend to be larger in absolute terms than small company settlements. On the other hand, small companies tend to settle for a larger fraction of shareholder losses than do larger companies. The relationship between company size and settlement timing appears as well when we look at settlement timing within the Discovery Phase. Large companies tend to settle later in discovery than do small companies.
Klausner, Hegland, and Goforth's work leaves us with three very interesting statistics to take away:
- Over half of securities class actions end early in the pleading stage, either as a result of dismissal or settlement.
- Relatively few cases entail the filing of a second, third, or later consolidated complaint.
- Among cases that settle, nearly half settle during the pleading stage—before a final ruling on a motion to dismiss. Finally, cases that settle early in the litigation process tend to settle for less than do cases that settle later
The authors intend to follow up on this research with another update discussing the role D&O insurance has played in their sample of cases.