Law Commons^™

Event-Driven Suits And The Rethinking Of Securities Litigation, Merritt B. Fox, Joshua Mitts

Faculty Scholarship

Event-driven securities suits-ones that arise after an issuer has experienced some kind of disaster-have become increasingly prevalent in recent years. These suits are based on the fraud-on-the-market doctrine, a doctrine that ultimately gives rise to the bulk of the damages paid out in settlements and judgments pursuant to private litigation under the U.S. securities laws. The theory behind fraud-on-the-market cases is that when an issuer's share price has been inflated by a Rule-10b-5-violating misstatement, investors who purchased shares at the inflated price have suffered a compensable injury if they still hold the shares after the inflation is gone. Although these …

Ethical Duties Of Class Counsel Also Representing Class Representatives, Nancy J. Moore

Faculty Scholarship

In their excellent article entitled May Class Counsel Also Represent Lead Plaintiffs?,¹ Professors Bruce Green and Andrew Kent explore a particular aspect of two broader questions I have also addressed: (1) who should regulate class action lawyers;² and (2) who will regulate class action lawyers?³ I, too, focused on lawyers' conflicts of interest; however, Professors Green and Kent focus even more specifically on conflicts arising from class counsel's simultaneous representation of both the class and individual clients who are serving or will serve as class representatives. Their concern is with three particular scenarios in which the class …

Follow The Money? A Proposed Approach For Disclosure Of Litigation Finance Agreements, Maya Steinitz

Faculty Scholarship

Litigation finance is the new and fast-growing practice by which a non-party funds a plaintiff’s litigation either for-profit or for some other motivation. Some estimates placed the size of the litigation finance market at 50–100 billion dollars. Both proponents and opponents of this newly -emergent phenomenon are in agreement that the it is the most important development in civil justice of this era. Litigation finance is already transforming civil litigation at the level of the single case as well as, incrementally, at the level of the civil justice system as a whole. It is also beginning to transform the way …

Global Settlements: Promise And Peril, John C. Coffee Jr.

Faculty Scholarship

In 2010, Morrison v. National Australia Bank Ltd. destabilized the world of securities litigation by denying those who purchased their securities outside the U.S. the ability to sue in the U.S. (as they had previously often done). Nature, however abhors a vacuum, and practitioners and other jurisdictions began to seek ways to regain access to U.S. courts. Several techniques have emerged: (1) expanding settlement classes so that they are broader than litigation classes and treating the location of the transaction as strictly a merits issue that defendants could waive; (2) adopting U.S. law as applicable to securities issued abroad by …

Deterrence And Aggregate Litigation, Keith N. Hylton

Faculty Scholarship

This paper examines the deterrence properties of aggregate litigation and class actions, with an emphasis on positive value claims. In the multiple victim scenario with positive value claims, the probability that an individual victim will bring suit falls toward zero with geometric decay as the number of victims increases. The reason is that the incentive to free ride increases with the number of victims. Deterrence does not collapse but is degraded. Undercompliance is observed, which worsens as the number of victims increases. Compliance is never socially optimal, and the shortfall from optimality increases with the number of victims. These results, …

The Globalization Of Entrepreneurial Litigation: Law, Culture, And Incentives, John C. Coffee Jr.

Faculty Scholarship

The fiftieth anniversary of Rule 23’s adoption in 1966 provides an opportunity to consider how legal change occurs. Law, culture, and incentives all play a role. But which dominates? The adoption of Rule 23 preceded a significant surge in the use of the class action, and some areas of litigation came to depend on Rule 23’s availability (e.g., securities litigation, antitrust litigation, and, for a time, mass torts litigation). Perhaps even more importantly, Rule 23 spurred the growth of the plaintiff’s bar, enabling small firms with a handful of lawyers to develop into major institutional firms of one hundred or …

Continuing To Litigate After You Have Won: Courts Defy Article Iii To Avoid Mooting Tcpa Class Actions, Despite Defendants’ Rule 68 Offers Of Complete Relief, Joseph M. Hnylka

Faculty Scholarship

Every day, thousands of ordinary Americans receive unwelcome faxes, text messages, and prerecorded telephone calls (frequently referred to as “robocalls”). The proliferation of these unwelcome messages has increased at an astronomical rate. In 2015, the Federal Trade Commission (FTC) reported that it received approximately 150,000 complaints each month. This dramatic increase occurred despite Congress’s enactment of the Telephone Consumer Protection Act (TCPA) in 1991, which was meant to restrict dramatically such unwelcome calls, texts, and faxes, and to protect the privacy interests of consumers. Because the recovery under the TCPA is limited to $500 per violation, many consumer suits under …

De Facto Class Actions: Plaintiff-And Defendant-Oriented Injunctions In Voting Rights, Election Law, And Other Constitutional Cases, Michael T. Morley

Faculty Scholarship

No abstract provided.

"Loser Pays" And Federal Preemption, John C. Coffee Jr.

Faculty Scholarship

Delaware and the federal courts have been on a collision course since 2014 when the Delaware Supreme Court upheld the facial validity of a corporate bylaw that shifted the corporation’s (and all defendants’) legal expenses to a losing plaintiff. That 2014 decision, ATP Tour, Inc. v. Deutscher Tennis Bund, 91 A. 3d 554 (Del. 2014), quickly led a number of public corporations to adopt similar “loser pays” bylaws and charter provisions, all of which are one-sided provisions (that is, only the plaintiff may be held liable) and most shift the fees against the plaintiff even if it wins (unless …

Halliburton Ii: It All Depends On What Defendants Need To Show To Establish No Impact On Price, Merritt B. Fox

Faculty Scholarship

Rule 1Ob-5 private damages actions cannot proceed on a class basis unless the plaintiffs are entitled to the fraud-on-the-market presumption of reliance. In Halliburton II, the Supreme Court provides defendants with an opportunity, before class certification, to rebut the fraud-on-the-market presumption through evidece that the misstatement had no effect on the issuer's share price. It left unspecified, however, the standard by which the sufficiency of this evidence should be judged.

This Article explores the two most plausible approaches to setting this standard. One approach would be to impose the same statistical burden on defendants seeking to show there was …

The Economics Of Class Actions And Class Action Waivers, Keith N. Hylton

Faculty Scholarship

Class action litigation has generated a series of recent Supreme Court decisions imposing greater federal court supervision over the prosecution of collective injury claims. This group of cases raises the question whether class action waivers should be permitted on policy grounds. I examine the economics of class actions and waivers in this paper. I distinguish between the standard one-on-one litigation environment and the class action environment. In the standard environment, waivers between informed agents enhance society's welfare. In the class action environment, in contrast, not all waivers are likely to enhance society's welfare.

The Role Of The Judge In Non-Class Settlement, Howard M. Erichson

Faculty Scholarship

This commentary argues that judges lack the authority, as a general matter, to approve or reject non-class settlements. While judges overseeing mass litigation can set the stage for settlement by instituting phased discovery, scheduling bellwether trials, and other methods, they should respect the line between facilitation of settlement and control over settlement terms. The paper was presented in response to Judge Alvin Hellerstein’s and his special masters' account of their handling of the September 11 clean-up litigation.

Predicting Securities Fraud Settlements And Amounts: A Hierarchical Bayesian Model Of Federal Securities Class Action Lawsuits, Blakeley M. Mcshane, Oliver P. Watson, Sean J. Griffith, Tom Baker

Faculty Scholarship

This article develops models that predict the incidence and amount of settlements for federal class action securities fraud litigation in the post-PLSRA period. We build hierarchical Bayesian models using data that come principally from Riskmetrics and identify several important predictors of settlement incidence (e.g., the number of different types of securities associated with a case, the company return during the class period) and settlement amount (e.g., market capitalization, measures of newsworthiness). Our models also allow us to estimate how the circuit court a case is filed in as well as the industry of the plaintiff firm associate with settlement outcomes. …

The Absence Of Legal Ethics In The Ali's Principles Of Aggregate Litigation: A Missed Opportunity - And More, Nancy J. Moore

Faculty Scholarship

There is little discussion of legal ethics in the American Law Institute’s recently adopted Principles of Aggregate Litigation, either in the black-letter rules or the comments. The primary exception is that the Principles devote several sections to the so-called aggregate settlement rule (Rule 1.8(g) of the ABA Model Rules of Professional Conduct), although the purpose of these sections appears to be a proposed modification of that rule to permit claimants to agree in advance to be bound by majority approval of a particular settlement. The purpose of this essay is not to discuss the controversial aggregate settlement proposal (which the …

Intraportfolio Litigation Essay, Amanda M. Rose, Richard Squire

Faculty Scholarship

The modern trend is for investors to diversify. Shareholders who own one S&P 500 firm tend to own many of the others as well. This trend casts doubt on the traditional compensation and deterrence rationales for legal rules that hold corporations liable for the acts of their agents. Today, when A Corp sues B Corp (for breach of contract, theft of trade secrets, or any other legal wrong), many of the same shareholders own both the plaintiff and the defendant. For these shareholders, damages just shift money from one pocket to another, minus of course lawyer fees. We offer here …

Cy Pres Relief And The Pathologies Of The Modern Class Action: A Normative And Empirical Analysis, Samantha Zyontz, Martin H. Redish, Peter Julian

Faculty Scholarship

Since the mid 1970s, federal courts have taken the doctrine of cy pres relief from the venerable law of trusts and adapted it for use in the modern class action proceeding. In its original context, cy pres was utilized as a means of judicially designating a charitable recipient when, for whatever reason, it was no longer possible to fulfill the original goal of the maker of the trust. The purpose of cy pres was to provide “the next best relief” by finding a recipient who would resemble the original donor’s recipient as much as possible. In the context of class …

Civil Liability And Mandatory Disclosure, Merritt B. Fox

Faculty Scholarship

This Article explores the efficient design of civil liability for mandatory securities disclosure violations by established issuers. An issuer not publicly offering securities at the time of a violation should have no liability. Its annual filings should be signed by an external certifier – an investment bank or other well-capitalized entity with financial expertise. If the filing contains a material misstatement and the certifier fails to do due diligence, the certifier should face measured liability. Officers and directors should face similar liability, capped relative to their compensation but with no indemnification or insurance allowed. Damages should be payable to the …

The Missing Link Between Insider Trading And Securities Fraud, Richard A. Booth

Faculty Scholarship

In a recent article, I argued that diversified investors - the vast majority of investors - would prefer that securities fraud class actions under the 1934 Act and Rule 10b-5 be dismissed in the absence of insider trading or similar offenses during the fraud period. See Richard A. Booth, The End of the Securities Fraud Class Action as We Know It, 4 Berk. Bus. L. J. 1 (2007), http://ssrn.com/abstract=683197. In this article, I draw on the classic case, SEC v. Texas Gulf Sulfur Company, to show that the federal courts originally viewed securities fraud as inextricably connected to insider trading …

Cafa's Impact On Class Action Lawyers Symposium: Fairness To Whom - Perspectives On The Class Action Fairness Act Of 2005, Howard M. Erichson

Faculty Scholarship

Procedural reforms alter litigation options directly, but they alter the litigation landscape in more ways than reformers anticipate. Three years ago, Congress dramatically expanded federal jurisdiction with the Class Action Fairness Act of 2005 (CAFA), a statute drafted with no love for class action plaintiffs' lawyers. Those lawyers have adapted to the statute, in part, by altering their forum-selection and claim-selection strategies. Analysis of these adaptations offers an emerging picture of the statute's impact on class actions and class action lawyers. CAFA's impact on the class action bar deserves particular attention because, although the statute speaks the language of subject …

Reforming The Securities Class Action: On Deterrence And Its Implementation, John C. Coffee Jr.

Faculty Scholarship

Securities class actions impose enormous penalties, but they achieve little compensation and only limited deterrence. This is because of a basic circularity underlying the securities class action: When damages are imposed on the corporation, they essentially fall on diversified shareholders, thereby producing mainly pocket-shifting wealth transfers among shareholders. The current equilibrium benefits corporate insiders, insurers, and plaintiffs' attorneys, but not investors. The appropriate answer to this problem is not to abandon securities litigation, but to shift the incidence of its penalties so that, in the secondary market context, they fall less on the corporation and more on those actors who …

Causation By Presumption? Why The Supreme Court Should Reject Phantom Losses And Reverse Broudo, John C. Coffee Jr.

Faculty Scholarship

Over a quarter of a century ago, Judge Henry Friendly coined the term "fraud by hindsight" in upholding the dismissal of a proposed securities class action. As he explained, it was too simple to look backward with full knowledge of actual events and allege what should have been earlier disclosed by a public corporation in its Security and Exchange Commission (SEC) filings. Because hindsight has twenty/twenty vision, plaintiffs could not fairly "seize [] upon disclosures" in later reports, he ruled, to show what defendants should have disclosed earlier.

Today, a parallel concept – "causation by presumption" – is before the …

Understanding Dura, Merritt B. Fox

Faculty Scholarship

On April 19, 2005, the Supreme Court announced its unanimous opinion in Dura Pharmaceuticals, Inc. v. Broudo, concerning what a plaintiff must show to establish causation in a Rule 10b-5 fraud-on-the-market suit for damages. The opinion had been awaited with considerable anticipation, being described at the time of oral argument in the Financial Times, for example, as the "most important securities case in a decade." After the opinion was handed down, a representative of the plaintiffs' bar lauded it as a unanimous ruling protecting investors' ability to sue. A representative of the defendant's bar equally enthusiastically hailed it as …

How Like A Winter? The Plight Of Absent Class Members Denied Adequate Representation, Susan P. Koniak

Faculty Scholarship

Class actions assume absent class members. ² Notices in class actions tell class members that they need not show up in the courthouse, although they may if they choose.³ Class members are told that class counsel and the named class representatives will look out for them, although if they choose to hire their own lawyer, she may appear on their behalf.⁴ They are also routinely told that once the decision in the class action becomes final they will be bound by it, losing any and all right to protest the resolution of their claims by the class action …

Comments On A Class Action Rule For Mississippi Comments, Howard M. Erichson

Faculty Scholarship

In my primary contribution to this Symposium, I address whether Mississippi ought to adopt a class action rule. In that article, I show that the lack of a class action rule prevents neither mass disputes nor mass aggregate litigation. I argue that for some mass disputes, class actions provide a superior mechanism for dispute resolution, and that Mississippi therefore should adopt a rule permitting class actions. There is another important question, however, which is what such a rule should contain if adopted. Indeed, the questions of whether to permit class actions and what a class action rule should contain are …

A Framework For Reparations Claims, Keith N. Hylton

Faculty Scholarship

These remarks, prepared for the Boston College Third World Law Journal Reparations Symposium, compare the goals and viability of reparations claims as tort suits. I contrast two approaches observed in the claims: a "doing justice" model, which involves seeking compensation in important cases of uncorrected uncompensated injustice, and a "social welfare" model that seeks to change the distribution of wealth. Claims under the first category are far more consistent with tort doctrine and likely to meet their goals than social welfare-based claims.

Typology Of Aggregate Settlements, A , Howard M. Erichson

Faculty Scholarship

It is odd, considering how often lawyers engage in aggregate settlements, that no one seems able to explain what "aggregate settlement" means. It is one of the most important yet least defined terms in complex litigation. Lawyers and judges talk about aggregate settlements as though it were obvious what the term signifies and as though it describes a single thing. In fact, group settlements in multiparty litigation vary significantly. And they vary in ways that make it difficult to determine whether certain deals ought to be understood as collective settlements or simply as groups of individual settlements bundled together. This …

Mississippi Class Actions And The Inevitability Of Mass Aggregate Litigation, Howard M. Erichson

Faculty Scholarship

It's not about whether there will be mass aggregate litigation, but how. As long as the economy features mass marketing, mass employment, mass entertainment, mass transportation, mass production of goods, and mass provision of services, disputes will arise in which a mass of claimants seek relief from a common defendant or set of defendants. Lawyers on both sides naturally handle such matters collectively rather than individually. With or without the judicial imprimatur of class certification, multi- claimant disputes routinely are litigated and resolved on a collective basis. The real question is not whether there will be mass litigation, but whether …

Secret Settlements And Practice Restrictions Aid Lawyer Cartels And Cause Other Harms, Susan P. Koniak, David Dana

Faculty Scholarship

In this article, the authors argue that the use of secrecy agreements and practice restrictions in settlement contracts should be prohibited not only by the ethics rules, but also by criminal and civil law. The authors begin by discrediting four arguments that are traditionally employed to support the use of secrecy agreements and practice restrictions. They then argue that the use of secrecy agreements and practice restrictions generate substantial costs, but do not secure any legitimate benefits that could not be attained by other, less costly means. The authors also explain how the problems caused by secrecy agreements and practice …

Who Should Regulate Class Action Lawyers?, Nancy J. Moore

Faculty Scholarship

Ethical issues arise frequently in class action litigation. These issues include conflicts of interest, solicitation, application of the no-contact rule, the reasonableness of attorneys' fees, and the attorney-witness rule. There has been considerable difficulty applying existing rules of conduct to these situations, partly because of confusion regarding the relationship among class counsel, the named class representatives and absent members of the class. Thus as to conflicts of interest - perhaps the most pressing problem facing class action lawyers - it has been said that a "strict reading of the conflict of interest rules in class actions should be tempered, because …

In Hell There Will Be Lawyers Without Clients Or Law, Susan P. Koniak, George M. Cohen

Faculty Scholarship

Class action abuse is a particularly interesting area in which to explore both when and why law might fail to affect lawyer conduct and the complexity of the lawyer-entity relationship. By class action abuse, we have in mind three related problems: collusive settlements, inadequate representation of class interests, and payoffs to objectors and their counsel. The law condemns collusive settlements and the lawyers who make them.²⁰ It demands that class counsel adequately represent the class.²¹ Paying objectors and their counsel to drop their challenges to class settlements is, at best, legally questionable behavior and, at worst, evidence of …