Class Action Nuisance Suits: Evidence from Frequent Filer Shareholder Plaintiffs

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.