Minor Myers and Charles Korsmo have a new paper that compares fiduciary duty merger litigation to appraisal litigation to determine whether fiduciary duty claims add any value for shareholders. 

After scrutinizing takeover challenges between 2004 and 2013, they find that the larger the deal, the more likely it is to be targeted in a fiduciary duty class action.  By contrast, whether there is a smaller merger premium – regardless of deal size – does not appear to be correlated with class action litigation.  Appraisal litigation, however, works differently; plaintiffs who bring appraisal claims tend to do so when the merger premium is low, regardless of deal size.

They also found that fiduciary suits are not associated with an increase in merger consideration.  I.e., they do not generate statistically significant benefits to shareholders.

Myers and Korsmo conclude from this that fiduciary duty class actions are not usually based on merit, and that such actions are brought for their nuisance value.  They recommend changes to the structure of fiduciary litigation, such as allowing investors who acquire stock after the deal announcement to serve as lead plaintiff, and switching to an opt-in model.

But there’s a wrinkle that comes in the form of a paper by C.N.V. Krishnan, Steven Davidoff Solomon, and Randall S. Thomas.  That paper compares fiduciary merger litigation brought by different plaintiffs’ firms, and concludes that not all firms are created equal.  Specifically, the top plaintiffs’ firms target more suspicious transactions, and when the litigation is controlled by these firms, the class members are more likely to win an increase in merger consideration.  They also find that top firms prosecute actions more vigorously, in measurable ways.

Obviously, these two papers, put together, raise an interesting question: what would happen if the Myers/Korsmo study were conducted with a view to the identity of the lead plaintiff’s law firm?  Would they see the same results?  And if the problem here is just that there are better and worse law firms, is that something that can be addressed via more exacting standards for the award of attorneys’ fees?

(Okay, full disclosure – one of the top plaintiffs' firms in the Krishnan et al study is my former firm, BLBG.  But hey, I didn't do the study – I'm just reporting the results.)