Securities Class Action Trends in 2022

April 20, 2022

Read the original article on Daily Journal

As we enter the third month of 2022 amid swirling uncertainty in many aspects of professional and personal life, legal practitioners must keep a keen eye on how developments across the economic, health and political landscape, along with the unpredictable and evolving situation in Eastern Europe, will impact clients, industries and practices. There are several key trends and developments to navigate for securities class actions — and the broader class action and legal space. Below are several insights to help prepare for what's next.

Increased litigation
The performance of the market, if good, can keep an influx of litigation at bay — but a drop-off could open the door to a new wave of filings. Here, the uncertain future of special purpose acquisitin companies — aka “SPACs” — may take a leading role. 

The pandemic's start and wind down led to a boon for companies specializing in products and services either compatible with or created for the "new normal," including COVID-19 testing and treatment products. This reaction to both the remote lifestyle and health concerns resulting from the pandemic set the table for increased securities class action litigation, including challenges to company statements about consumer demand for pandemic-related products, as well as questions around the accuracy of testing and treatment products. ¬-Yet there was a decline in filings, with a strong market as the most significant contributor. 

When the markets are performing well, it can mask potential issues for investors. As we enter precarious times on the global stage, we have seen market declines. If the market continues its downward turn, there could be a substantial uptick in the number and scope of securities class actions as investors' optimism fades. And, they take a closer look at the health of the companies they have invested in. For example, SPACs have been the hottest investment vehicle during the pandemic but could soon be cooling off. 

SPACs on alert
SPACs exploded during the pandemic for myriad factors — their attractiveness anchored by their ability to go public significantly faster than a traditional IPO, after which the SPAC would acquire a target company making that company automatically public (a "de-SPAC"). SPACs became part of the financial lexicon quickly, and investors took notice. 

However, with so many SPACs created in such a short time, the process from inception to investment to de-SPAC could get messy — not to mention attracting additional SEC scrutiny. Many SPAC-related cases began after a SPAC announced a merger but before transactions were completed. Given the SPAC boom, uncertainties about the investment vehicle itself and the success rate in the de-SPAC process, these companies might have unforeseen issues at hand, which could lead to a new era of SPAC filings. As even more SPACs emerge, companies announce mergers and take actions to go public, the scrutiny will also increase — along with the potential for more litigation. 

A balanced approach to hearings
After the pandemic changed U.S. daily life in early 2020, the remote working environment caused the legal process to change dramatically as well — speaking with clients, colleagues and judges via video conferencing was a stark change and one that we had no choice but to adjust to, troubleshooting along the way until it started to feel normal. Some courthouses have reopened; others continue handling most hearings with restricted in-person access (for now).

Even as more and more states open up, there are benefits to using remote tactics and virtual hearings in some situations — the ideal hybrid approach—including lower costs and increased productivity. In many status hearings or unopposed proceedings, often there is no need to travel to be in person at a court since doing these virtually is sufficient. No matter what, you're still missing the human connection, which is vital for other aspects of a case — when it's more important to be in court in person to utilize the communication aspects that are only possible when looking at someone directly — particularly in front of the judiciary. 

Breaking through the backlog 
Another lingering pandemic impact is the ongoing case backlogs in courts across the country, with criminal and other time-sensitive civil litigation taking priority over many class action cases. It's a complicated issue to solve, and the courts are working as fast as possible. Still, they do not have experience dealing with this type of situation. 

However, challenges spur innovation, and the legal industry is making adjustments and improvements to help clear the docket. For example, the Eastern District of New York will send settlement approvals to a magistrate judge. This approach is promising — even with the need for hearings and class members' rights to be heard in those situations (as outlined in Rule 23). It can make the process efficient for all stakeholders.