The New Professional Plaintiffs in Shareholder Litigation

In 1995, Congress solved the problem of professional plaintiffs in shareholder litigation—or so it thought. The Private Securities Litigation Reform Act (PSLRA) was designed to end the influence of shareholder plaintiffs who had little or no connection to the underlying suit. Yet it may have failed to accomplish its goal. In the wake of the PSLRA, many professional plaintiffs simply moved into other types of corporate lawsuits. In shareholder derivative suits and acquisition class actions across the country, professional plaintiffs are back. They are repeat filers involved in dozens of lawsuits. They are the attorneys’ spouses, parents, and children. They may even be entities created for the primary purpose of filing litigation. These new professional plaintiffs have flown almost entirely under the radar of corporate law scholarship. This Article pulls back the curtain on professional plaintiffs, examining court filings and other public records in the first comprehensive study of professional plaintiffs’ role in corporate law. In most instances, professionalism is a good thing—but not when it comes to choosing plaintiffs. INTRODUCTION 1090 I. THE OLD PROFESSIONAL PLAINTIFFS 1094 A. Historical Critique 1094 1. Repeat Plaintiffs 1095 2. Lawyers and Their Families as Plaintiffs 1097 3. Entities as Plaintiffs 1098 B. The Problems with the Old Professional Plaintiffs ..... 1099 C. Legislative Attack 1101 II. THE NEW PROFESSIONAL PLAINTIFFS 1104 A. Repeat Plaintiffs 1105 1. Empirical Data 1105 * Professor, University of Richmond School of Law. B.A., Amherst College; J.D., Harvard Law School. This article benefitted from suggestions made at the Vanderbilt Law & Business Workshop, the Law & Society Annual Conference, and faculty colloquies at Temple Law School and the University of Richmond School of Law. I also thank Stephen Choi and Adam Pritchard, as well as Cornerstone Research and Stanford Law School, for generously sharing their data on securities class actions. Finally, I thank Randall Thomas, Robert Thompson, Adam Pritchard, Jill Fisch, David Hoffman, Steven Haas, Corinna Lain, Jim Gibson, and Noah Sachs for their helpful comments and suggestions. The views in this Article are mine alone and do not represent the views of Cornerstone Research, Stanford Law School, or others. 1 Erickson: The New Professional Plaintiffs in Shareholder Litigation Published by UF Law Scholarship Repository, 2013 1090 FLORIDA LAW REVIEW [Vol. 65 2. Concerns about Repeat Plaintiffs 1107 a. Little Involvement in Litigation 1108 b. Alleged Payments to Plaintiffs 1109 B. Lawyers and Their Families as Plaintiffs 1112 1. Empirical Data 1112 2. Illustrative Examples 1114 C. Entities as Plaintiffs 1117 1. Illustrative Examples 1117 2. Extent of These Practices 1119 D. Dead Plaintiffs and Other Problems from the Filing Graveyard 1120 1. Dead Plaintiffs 1121 2. Plaintiffs Who May Not Own Stock 1122 3. Plaintiffs Who May Not Know They Are Plaintiffs 1123 III. TOWARD A NEW PROFESSIONALISM IN SHAREHOLDER LITIGATION 1124 A. The Problems with the New Professional Plaintiffs .... 1124 1. Lax Ethics 1124 2. Missing Monitors 1126 a. The Need for a Monitor at the Settlement Table 1127 b. The Role of Shareholders Versus Other Monitors 1129 B. A Disclosure-Based Solution 1134 CONCLUSION 1137