Nothing strikes fear in the hearts of corporate management, both in Michigan and nationwide, like a shareholder class action. On June 23, the Supreme Court has handed down a ruling that imposes new requirements on class-action fraud lawsuits by shareholders. The decision was closely watched and was not quite the sweeping decision that some advocates had been seeking because it only curbs the suits without eliminating them altogether.
According to a writer for Bloomberg News, Congress has been attempting to rein in securities fraud litigation, which has been thriving recently. And, according to Nera Economic Consulting, 4,000 plus class action lawsuits have been filed since 1996 and produced settlements that total close to $80 billion. Shareholder litigation continues to be big business, but the Supreme Court decision may turn it into a much smaller business for the future.
Stock price continues to be at the center of any ruling regarding securities fraud litigation ever since a 1988 Supreme Court decision saying that courts are expected to presume that shareholders take into account any management misstatements when they buy shares in a company. This theory is called ‘fraud on the market”.
When members of a company’s management are facing business litigation, the dilemma is whether to fight the suit or put together a legal settlement. An attorney who has a background in business litigation could help by exploring the options with them, so that they can make an informed decision. Then, based upon their decision, that attorney could help them to build a strong legal case or negotiate a settlement agreement that would avoid lengthy litigation.
Source: Bloomberg Businessweek, “Supreme Court Curbs, but Doesn’t Kill, the Shareholder Class Action“, Paul M. Barrett , June 23, 2014