United States: 2021 Securities Litigation Year In Review

During 2021, securities case filings fell for the second consecutive year and, for the first time since 2016, fewer than 300 federal securities class actions were filed. Despite the ongoing pandemic, the number of announced settlements of securities cases was up substantially in 2021, with 116 approved monetary class action settlements totaling $3.5 billion. The 2021 settlements include one mega-settlement of more than $1 billion and a number of other large settlements. Case filings involving COVID-19, SPACs, and cryptocurrencies continued to trend upward in 2021, and we address important developments relating to securities litigation in those sectors.

Our 2021 Securities Litigation Year in Review focuses on significant securities-related decisions from the U.S. Supreme Court and the federal appellate courts, including the much-anticipated decision by the Supreme Court in the Goldman Sachs case, which expands the arguments available to securities fraud defendants at class certification. There was also notable activity in the federal appellate courts on key issues involving scienter, loss causation, and opinion statements following the Supreme Court's landmark Omnicare decision. We have also noted select important decisions by state courts in litigation against companies and their officers and directors.

INTRODUCTION

During 2021, the second year of the global COVID-19 pandemic, securities case filings fell for the second consecutive year, and, for the first time since 2016, fewer than 300 federal securities class actions were filed.¹ There were 210 cases filed in 2021, down substantially from the 319 cases filed in 2020 and well below the historically high level of more than 400 cases filed in each of 2017 through 2019.² The decline in filings was largely driven by a substantial reduction in the number of merger challenge cases. New merger objection filings declined by more than 85% between 2020 and 2021.³ As has been the case for the last 10 years, new filings of cases alleging Rule 10b-5 claims were the vast majority of all filings in 2021. Notably, filings against non-U.S. companies also fell from the record high in 2020. Despite the intermittent disruption of federal and state courthouses as a result of the ongoing pandemic, the number of announced settlements of securities cases was up substantially in 2021, with 116 approved monetary class action settlements compared with 99 approved settlements in 2020—an increase of 17.2% year over year.⁴ Likewise, total settlement amounts increased by 7.6% to $3.5 billion from $3.26 billion in 2020.⁵ The 2021 settlement total includes one mega-settlement of more than $1 billion and two settlements that rank among the top 100 settlements of all times.⁶

Our 2021 Securities Litigation Year in Review focuses on significant securities-related decisions from the Supreme Court and the federal appellate courts. Perhaps the most significant decision of last year was the much-anticipated ruling by the Supreme Court in the Goldman Sachs securities case.⁷ A unanimous Court held that the generic nature of an alleged misrepresentation often is important evidence of price impact that courts should consider at the class certification stage. It also held that courts should take note of all record evidence relevant to price impact even if that evidence overlaps with materiality or any other merits issue. A majority of the Court also held that the defendant bears the burden of persuasion by a preponderance of the evidence to prove a lack of price impact at class certification. The decision expands the arguments available to securities fraud defendants to challenge price impact at class certification, which has proven to be an uphill battle for defendants in most cases. There was also notable activity in the federal appellate courts on key issues involving scienter, loss causation, and opinion statements following the Supreme Court's landmark Omnicare decision.

Case filings involving COVID-19, SPAC, and cryptocurrencyrelated claims continued to trend upward in 2021. We address important developments relating to securities litigation in those sectors, including the Delaware Chancery Court's decision of first impression allowing a fiduciary-duty challenge to a de-SPAC merger to proceed. We also address developments in the cryptocurrency space, which we expect to be a continuing source of lawsuit filings in light of market volatility and increasing regulatory and enforcement focus on the sector.

We also highlight important developments relating to federal forum provisions ("FFPs") enacted by many Delaware companies following the Supreme Court's decision in Cyan, Inc. v. Beaver County Employees Retirement Fund, ⁸ affirming the non-removability of claims under the Securities Act of 1933. This year, following the Delaware Supreme Court's decision in Salzberg v. Blue Apron Holdings, Inc., which upheld the validity of FFPs under Delaware law and federal and state public policy and expressly invited other state courts to undertake their own analysis, a New York appellate court has now done so. As we discuss below, in Hook v. Casa Systems, Inc., the court upheld an FFP under New York law and public policy, becoming the third state to do so.⁹ As we discussed in last year's Review, a California state court exercised its discretion to dismiss a securities class action based on an FFP after concluding that it did not violate California law or policy.¹⁰

The widespread adoption of FFPs is likely to accelerate as a result of these developments and given the continued uncertainty whether the PSLRA's discovery-stay provisions apply to cases alleging violations of the Securities Act in state courts. Since Cyan, state courts have split over the applicability of the PSLRA's discovery-stay provisions, and the issue was expected to be resolved by the Supreme Court after it granted certiorari in Pivotal Software, Inc. v. Superior Court of California in July 2021.11 In that case, plaintiffs filed parallel federal and state class action cases alleging violations of Section 17 of the Securities Act. After the federal complaint was dismissed for failure to state a claim, the state-court plaintiff asserted that the PSLRA's discovery stay does not apply in state court. Both the California Court of Appeal and the California Supreme Court denied defendants' request for a stay. It remains to be seen whether the U.S. Supreme Court will resolve the issue in another case or whether the continued adoption of FFPs will minimize the number of Securities Act cases in state courts.

To read the full article click here

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.