John O'Brien Oct. 22, 2014, 10:30am

WASHINGTON (Legal Newsline) – Fee-shifting, a sort of “loser pays” for securities class action lawsuits, is part the future of that area of litigation thanks to a recent ruling in Delaware, a Skadden Arps lawyer said Tuesday.

Allison Land was part of a panel at the Legal Reform Summit – held by the U.S. Chamber Institute for Legal Reform – that discussed the future of securities class action.

Land explored the impact of the Delaware Supreme Court’s ruling in ATP Tour Inc. v. Deutscher Tennis Bund.

In that ruling, the court answered a certified question from a federal court by ruling a fee-shifting provision that forced unsuccessful shareholder plaintiffs to pay the winner’s legal fees was enforceable.

“Delaware follows the American Rule, under which parties to litigation generally must pay their own attorneys’ fees and costs,” the court ruled. “But it is settled that contracting parties may agree to modify the American Rule and obligate the losing party to pay the prevailing party’s fees.

“Because corporate bylaws are ‘contracts among a corporation’s shareholders,’ a fee-shifting provision contained in a non-stock corporation’s validly-enacted bylaw would fall within the contractual exception to the American Rule. Therefore, a fee-shifting bylaw would not be prohibited under Delaware common law.”

At least 24 public companies have adopted some form of fee-shifting provision since the May ruling. Legislators in Delaware even proposed a response that would have limited the impact of the decision to non-stock corporations, but the bill was deferred.

Carol A.N. Zacharias, deputy general counsel for Ace Insurance, presented facts and figures regarding filing trends.

From 1997-2012, 3,050 securities class actions have been filed and $73.1 billion has been recovered. From 2012-13, public pension funds have been the lead plaintiff in 47 percent and 43 percent of cases, respectively.

When that occurs, the average settlement jumps from $3 million to $23 million.

Also, for each merger, there is an average of five lawsuits filed.

Securities lawsuits against pharmaceutical and technology companies are the costliest, with an average settlement of $10.3 million for pharmaceutical companies and $12 million for technology companies.

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