Largely due to the decline in the numbers of merger objection class action lawsuit filings and a decline in the number of Rule 10b-5 filings, the number of new federal court securities class action lawsuit filings declined in 2022 for the fourth consecutive year, according to the latest annual report from NERA Economic Consulting. The report, entitled “Recent Trends in Securities Class Action Litigation: 2022 Full-Year Review” also shows that aggregate, average, and median securities class action lawsuit settlements increased in 2022 relative to 2021. NERA’s January 24, 2023, press release about the report, with a link to the full report, can be found here.
According to the NERA report, there were 205 federal court securities class action lawsuit filed in 2022, down slightly from 210 federal court securities suits filed in 2021. (The NERA report counts multiple suits filed in different circuits against the same defendant as separate lawsuits, as a result of which the NERA count may differ from other published tallies. The NERA report also only counts federal court securities suits, it does not count state court securities filings.) The recent decline in the number of lawsuit filings relative to the years 2017-2019, when there were annual filings of over 400 new lawsuits, is largely due to “lower levels of merger-objection cases and cases with Rule 10b-5 claims.” The decline in the number of federal court securities suit filings in 2022 represents the fourth consecutive year in the decline in the number of filings.
Securities suit filings against companies in two industrial sectors collectively accounted for the majority of the securities class action lawsuit filings in 2022. Filings against companies in the Electronic Technology and Technology Services sector accounted for 27% of all 2022 securities suit filings, which filings against companies in the Health Technology and Services sector also accounted for 27% of filings. Together these filings against companies in these two sectors accounted for 54% of all 2022 securities suit filings.
Certain categorical types of cases also played a significant role in the number of 2022 securities suit filing. Thus, according to the NERA report, there were 25 crypto federal class action lawsuits filed, more than double the number of similar suits filed in 2021. The uptick was driven by the “increase in the number of crypto unregistered securities cases.” There were also 24 COVID-19 related securities suits filed in 2022, as well as 25 SPAC-related suits. These three types of cases collectively accounted for about 36% of all federal court securities class action lawsuit filings in 2022.
The number of cases “resolved” (that is, dismissed or settled) declined from 248 in 2021 to 214 in 2022. The decline in the number of resolutions was due to a decrease in the number of dismissed non-merger-objection, non-crypto unregistered securities cases. As of the end of 2022, of the cases filed since 2015 a larger portion have been dismissed than have been settled. More than half of the cases are resolved between one and three years, about 83% are resolved within four years, and 17% are resolved more than four years after the first complaint is filed.
Of the cases filed between January 2013 and December 2022, motions to dismiss were filed in 96% of cases. A number of these cases are voluntarily dismissed by plaintiffs (18% of cases) while 8% settled before a court decision has been reached. Of the cases in which a motion to dismiss decision is reached, the motion to dismiss is grated in 61% of cases (of which 7% of the dismissals are without prejudice). Dismissal motions are denied in whole or in part in 39% of cases, of which the dismissal motions are denied in full in 20% of cases.
Motions for class certification were filed in only 17% of cases filed between January 2013 and December 2022. Of the cases in which a motion for class certification was filed, the court reached a decision on the motion in 60% of cases (in the remaining 40% of cases, the cases were resolved through settlement). Of the cases in which the court reached a decision on the motion for class certification, the motion was granted in 86% of cases. About 65% of decisions on motions for class certification occur within three years of filing of the first complaint.
Aggregate, average, and median securities class action lawsuit settlements increased in 2022 relative to 2021. Aggregate settlements in 2022 totaled $4 billion, more than double the inflation-adjusted total of $1.9 billion in 2021. The average settlement in 2022 was $38 million, more than 70% greater than the inflation-adjusted average of $22 million in 2021; the 2022 average was the highest annual average since the inflation-adjusted average of $55 million in 2016. The median settlement in 2022 was $13 million, well above the inflation-adjusted median settlement of $8 million in 2021, although below the inflation-adjusted median settlement in 2020 of $15 million. The median settlement ratio of settlement to NERA-Defined investor losses was 1.8% in 2022, which is consistent with the 2021 and 2020 settlement years, in which the median settlement ration was also 1.8%.
Aggregate plaintiffs’ attorneys’ fees and expenses amounted to $1.046 billion in 2022, more than double the $512 million in 2021. 2022 represented the first year since 2018 that aggregate fees and expenses exceeded $1 billion. The long-term trend in plaintiffs’ attorneys’ fees as a percentage of settlement has been consistent, with the fees and expenses representing an increased percentage of settlement value as settlement value decreases. Thus, for cases settled during the period 2013-2022 with a settlement value of $1 billion or greater, fees and expenses accounted for 8% of the settlement value, whereas for cases settled during the same period with a settlement value of under $10 million, the average fees and expenses represented more than 30% of settlement value.