Pace of US class-action filings well below average
By Martha Graybow
NEW YORK, July 10 (Reuters) - The number of new U.S. securities class-action filings remains well below average, as stock prices rise and the government takes a harder line on corporate wrongdoing, a study released on Tuesday shows.
The study comes as business groups are waging a campaign to rein in shareholder lawsuits, saying the claims are often frivolous and are harming the competitiveness of U.S. markets by discouraging international companies from listing their securities here out of fear of litigation.
The Supreme Court also has issued recent rulings that could make it tougher for investors to bring class-action claims against corporations. In one case, the court said that plaintiffs must show convincing evidence that fraud occurred or else a lawsuit can be dismissed at the pre-trial stage.
Fifty-nine federal securities cases requesting class-action status were filed in the first six months of this year, down 42 percent from an average mid-year filing rate of 101 from the 1996-to-2005 period, according to the study by legal research firm Cornerstone Research and Stanford University Law School.
Courts must certify lawsuits as class-actions. Many cases end up getting tossed out by judges before they reach that stage. If class-actions do get certified, the vast majority end up getting settled rather than going to trial.
The number of filings this year was up slightly from 53 cases in the same period in 2006, but it still marks the fourth consecutive six-month period with below average filings, the report found.
"We've now had two years worth of extremely low filing activity," said Joseph Grundfest, a Stanford University law professor. "This is starting to look like a permanent shift, not a transitory phenomenon."
Yahoo (YHOO.O), Macy's Inc (M.N) and Toll Brothers Inc. (TOL.N) are among the companies that have been sued in investor class-actions this year.
Grundfest said there was no definitive explanation for why class-action filings were dropping, but that increased enforcement activity by the Securities and Exchange Commission and the Justice Department likely was leading to fewer instances of corporate fraud.
The decreased level of filings over the past two years also has coincided with a strong stock market with low volatility, he said.
Still, the trend might not last, the study's authors said.
"If the market goes south, I would not be surprised to see the number of filings move back to the 200-per-year level," said John Gould, vice president at Cornerstone.
The report said that the travails of major U.S. class-action firm Milberg Weiss, which was indicted last year on charges it paid kickbacks to clients, was likely not a factor in the reduction of filings.
A former top partner at the New York-based firm pleaded guilty on Monday to a federal conspiracy charge in U.S. District Court in Los Angeles. His cooperation with prosecutors could help the government's case against the firm and its senior lawyers. The firm has pleaded not guilty.
(Reporting by Martha Graybow)
