BYU Law Review


Ryan Lewis


Class-action lawsuits have been used by private plaintiffs to enforce the federal securities laws since those laws were enacted in the 1930s. With the SEC retaining concurrent authority to enforce federal securities laws, a debate has emerged as to whether the private right of action helps or hinders public enforcement. The primary criticism of private securities litigation is that rent-seeking attorneys abuse the system by bringing frivolous litigation aimed at achieving a settlement and a fee. In the public merger context, the potentially disastrous consequences of failing to close an announced deal on time make corporations eager to settle potentially troublesome litigation. The government responded to the overabundance of securities lawsuits in the 1990s by tightening the reigns on class-action securities litigation, making what was once low-hanging fruit for plaintiffs’ attorneys more difficult to grasp. At the same time, there was a marked uptick in the number of class-action corporate lawsuits brought in state courts, in particular, in Delaware. These suits claim breach of fiduciary duty on the grounds that securities filings accompanying public merger announcements provided shareholders with insufficient or inadequate information. This Comment claims that the wave of merger objection class-action suits arising in the mid-2000s should be properly viewed as federal securities law claims masquerading as corporate law claims, thus avoiding the heightened securities class-action requirements of the 1990s. In a recent case from the Delaware Court of Chancery, In re Trulia, Inc. Shareholder Litigation, Chancellor Bouchard established a new “plainly material” standard for approving class-action settlements where deficient federal securities filings are at issue. Because Trulia is properly viewed as a state court’s response to deficient enforcement of the federal securities laws, it has the potential to serve as a bellwether for the state of health of private enforcement of the federal securities laws.


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