The paper, being prepared for submission to a peer-reviewed publication, was written by Thomas along with C. N. V. Krishnan of the Weatherhead School of Management at Case Western Reserve University and Steven Davidoff Solomon from UC Berkeley School of Law.
THE RESEARCH The researchers examined 1,739 class actions that challenged the fairness of mergers and acquisitions transactions from 2003 to 2012. Plaintiff law firms were categorized into top 10 and non-top 10 firms based on various reputational measures. They were further pared to a top 5 list based on their popularity with informed plaintiffs and ability to obtain large attorneys’ fees awards.
LAWSUIT TARGETS In 2013, 97.5 percent of larger mergers and acquisitions transactions were targeted by a lawsuit.
Law firms that specialize in bringing shareholder class actions that challenge the terms of mergers and acquisitions deals are often characterized as “leeches” that have a strategy of filing lawsuits in hopes of generating a quick settlement and avoiding the expense of a trial. These settlements many times are believed to profit the law firms more than their clients.
But the top law firms in the study do not pursue that strategy, according to the study.
“We find that top plaintiffs’ law firms do engage in more vigorous litigation and produce statistically significantly superior results,” the study says. “Adjusting for … selection bias, we still find that topmost 5 law firms file more documents, have fewer cases dismissed, win more procedural motions and obtain more substantive settlements.”
REFORM The researchers suggest that their findings be “grist for pursing any reform effort of shareholder litigation generally, such as judicial involvement in the appointment of lead plaintiffs’ counsel in shareholder class action litigation.”
“In other words, not all plaintiffs’ law firms are alike and lawmakers, judges and regulators should act accordingly,” they say.