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The Root Cause of Skyrocketing Defense Costs

November 14, 2014 | Posted in : Article / Book, Coverage of Fees, Defense Fees / Costs

A recent article, “The Root Cause of Skyrocketing Defense Costs,” by Douglas W. Greene of Lane Powell’s blog, D&O Discourse, discusses the skyrocketing costs of defending securities class actions.  He writes:

Why do the costs of defending securities class actions continue to increase?  Because of my writings on the subject (e.g. here and here), I’m asked about the issue a lot.  My answer has evolved from blaming BigLaw economics – a combination of rates and staffing practices – to something more fundamental.  BigLaw economics is a consequence of the problem, not its cause.  I believe the root cause is a convergence of two related factors:

The prevailing view, fueled by defense lawyers, that securities class actions are “bet the company” cases and threaten the personal financial security of director and officer defendants; and

As a result of these perceived threats, the reflexive hiring of BigLaw firms, which companies and their directors and officers feel are uniquely equipped to defend them – in other words, they go to what they perceive to be the “Mayo Clinic” of defense firms.

But it simply isn’t necessary, and is often even strategically unwise to turn to a BigLaw firm for most securities class actions.  To be sure, securities class actions are serious matters that assert large theoretical damages.  But the vast majority of cases, if defended effectively and efficiently by securities litigation specialists, are easily managed and settled within D&O insurance limits, with no real risk of any out-of-pocket payment by the company’s directors and officers.

Click Here for the entire article.

Douglas W. Greene is a Shareholder at Lane Powell in Seattle and co-chairman of the firm’s securities litigation group.