Forbes today reports that the investigations by San Francisco-based Cornerstone Research found that the 96 per cent challenge rate applied to public-company mergers and acquisitions worth more than $500 million last year, a leap from 53 per cent in 2007.

State courts

The research is based on cases in Delaware between 2007 and 2012.
According to the report, lawyers have turned their attention to M&A suits as it gets harder for them to earn fees in class actions attached to stock-price declines.
Lawsuits concerning mergers can be brought into state courts and are harder to dismiss.
Cornerstone found that lawyers filed 602 suits challenging 93 per cent of all transactions over $100 million, up from 90 per cent in 2010.
Lawyers have also become quicker to land the first punch, taking just 14 days from the announcement to launch legal action in compared to 17 days in 2011.

Settlements

Most of the cases settled or were dropped and most of the settlements provided little for clients. In 81 per cent of settlements, shareholders got nothing other than supplemental disclosures. But the bill for the valuable work the class-action lawyers did on their behalf averaged $725,000 in settled cases, the researchers found, dropping to an average of $540,000 in settlement-only deals.
Following several big money pay-outs in 2012 – including a $110m victory for lawyers in a challenge to the terms in Kinder Morgan‘s purchase of El Paso – the authors of the report say that the evidence shows plaintiff lawyers can win money for their clients.
Robert Daines of Stanford Law School, a co-author of the report and former Goldman Sachs investment banker, said that for ‘cases where there looks like real misbehaviour’, lawyers ‘should pursue them vigorously and not even settle. Take them to trial.’