October 8, 2019

“Blackmail”-Style Securities Lawsuits Continue Unabated, Author Says

Kevin LaCroix, author of the D&O Diary, said the “extraction of blackmail payment” by plaintiffs’ lawyers via mootness fees in securities lawsuits “continues unabated.”

The practice, which has moved from state to federal court in the wake of the Delaware Chancery Court’s 2016 Trulia decision, works when plaintiffs’ lawyers voluntarily dismiss a lawsuit for extra disclosures in potential mergers and are paid a “mootness” fee for dismissing the case. A study by three law professors discussed in the article found that lawyers made more than $23 million in these fees in 2017.

Earlier this year, an Illinois federal judge dismissed such a suit and called the mootness fee request a “racket.” However, the trend has continued. LaCroix said this type of litigation, which has helped fuel the rise in securities litigation “must be eliminated” because it “has absolutely no socially redeeming value and does nothing except enrich a very small number of plaintiffs’ lawyers.”

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