Frustrated investors are not turning in large numbers to the legal system to make good their losses on Wall Street through shareholder class action lawsuits, attorneys and other experts in the field told SN.
In the supermarket industry, such suits have been filed this year against four publicly traded companies: A&P, Montvale, N.J.; Fleming, Dallas; Kmart Corp., Troy, Mich.; and Supervalu, Minneapolis.
Fleming and Supervalu have said they intend to fight the litigation, A&P declined to comment and Kmart could not be reached for comment.
Bill Ballowe, assistant vice president, Woodruff-Sawyer, a San Francisco-based insurance broker, closely tracks the number of shareholder suits and told SN that the current wave of shareholder suits, including well-publicized actions against WorldCom and Enron, "is not an epidemic."
He noted that until last year -- when there was a sudden spike caused by suits against brokers involved in initial public offerings -- the number of shareholder class action suits brought annually had held steady at about 200 since 1995.
In 2001, the number of suits nearly doubled, due mostly to a spike in shareholder suits against the brokerage houses that handled initial public offerings in the high-tech field, according to Ballowe. He added that he expected that there would be more than 200 suits this year, but not "anything like" last year's total.
Plaintiffs' attorneys representing clients in several of the supermarket industry cases also told SN there has not been an influx this year.
Fred Isquith, an attorney with Wolf Haldenstein Adler Freeman & Herz, New York, which has clients who filed suits against A&P and Fleming, said the number of cases his firm is handling "is either steady or increasing slightly."
Samuel Rudman, a partner at Milberg Weiss Beshad Hynes & Lerach, New York, and the lead counsel in the shareholder suit against Kmart, said, "There's been a steady stream of cases."
Both attorneys bristled at the suggestion that their firms invent these suits and then seek out shareholders to represent.
Rudman insisted, "The lawyers don't make up these cases. We simply react to what's happening."
Commented Isquith, "I can't speak for how others do their business, but almost all our cases are referrals by other counsel. These are the kind of cases that require a great deal of legal time and effort by the plaintiff lawyers as well by the counsels for the corporations. We turn down far more cases than we bring."
The four cases filed this year against supermarket companies are being brought under the 1934 Securities Exchange Act, according to announcements posted on the Internet by the various law firms involved. Rudman noted it is not significant that a half dozen or so law firms may file suits in a particular case. The filings are consolidated by the judge into a single suit, he explained.
For a case to succeed under this act, Rudman further explained, the plaintiff must show that the defendant either deliberately intended to mislead investors or was reckless in the preparation of financial statements.
According to Ballowe, these cases are almost never decided by juries. Since 1995, when the Public Securities Litigation Reform Act went into effect, only one case out of the more than 1,500 that have been filed, he said, has been decided by a jury.
The case, against an accounting firm, was won by the defendant, he noted. Of the other cases, Ballowe said, 415 have been settled, 151 dismissed, 20 were withdrawn by the plaintiff and the rest are still pending.
The PSLRA requires securities cases to be brought in federal, not state, court, and greatly toughened the standards for plaintiffs to bring such cases, according to plaintiffs' attorneys.
"There have been a substantial number of roadblocks placed in the way of plaintiffs, ostensibly to prevent meritless suits," said Rudman. "The theory was that many lawyers were engaging in fishing expeditions, but a lot of what the PSLRA did was to squelch meritorious suits."
The PSLRA also made the progress of cases through the legal system much slower, according to Isquith.
The Kmart case, first filed in February, has been consolidated, and an amended case was filed on Aug. 16, said Rudman. "We are awaiting motions to dismiss," he added.
The A&P case, first filed in June, is "now in the organizational stage," Isquith said. "I believe the applications for lead counsel were made in August, and I do not believe the judge has ruled on them yet. In other words, nothing has happened." He estimated that the plaintiffs will not have the opportunity to present their case in court until August 2003.
