Report Shows Increase In Subprime Class Action Lawsuits
In recent months, securities industry lawyers have claimed to be increasingly busy.
According to the Legal Times, a new report now backs up their claims.
Cornerstone Research and Stanford Law's Securities Class Action Clearinghouse have recently released a report showing that there has been significantly more subprime lending-related litigation in 2008 than there has previously been.
In fact, during the first six months of 2008, there were 63 class action lawsuit filings in the financial services sector. This is more activity than there was in the entire year of 2007.
The report also showed that the majority of the current class action lawsuits have a connection to subprime lending, the collapse of the industry and the mortgage foreclosure epidemic. Currently, more class action lawsuits are being filed in the financial sector than in all other areas combined.
The Legal Times reported that Stanford law professor Joe Grundfest said that most of the key players in the subprime lending market have already been sued. Grundfest says that the best advice he can give to lawyers is to brush up on their knowledge of credit markets.
Not only have there been more financial class action lawsuits filed recently, but the report also indicates that the amount of losses claimed in these lawsuits has also skyrocketed.
The average losses claimed in the class action lawsuits that have been filed so far in 2008 have reportedly shot up to $243 million. It was noted in the report that losses claimed in class action lawsuits have not been this extreme since the flurry of class action lawsuits that were filed between 2000 and 2002.
Some legal experts predict that the current wave of class action lawsuits will end differently than those that were litigated in previous years.
Due to a Supreme Court ruling in 2007, the standards of proof in class action cases are now higher.
In the decision of Tellabs v. Makor Issues & Rights, Supreme Court Justice Ruth Bader Ginsburg increased the standard that securities class action lawsuits must meet in order to make it through a motion to dismiss.
Despite the 2007 Supreme Court ruling, Professor Grundfest believes that strong class action cases will still be viable in court.
He does note that the plaintiffs in the current wave of subprime lending-related class action lawsuits may have more difficulty in proving that subprime lenders were deceptive and that the extreme financial losses were a result of such deception.
The fact that many subprime lenders went up in smoke during a brief time period may actually be beneficial to the defense lawyers in the current round of class action lawsuits.
No one can dispute that the collapse of the subprime market resulted in huge losses. However, proving that these losses were due to fraud, rather than mistakes, could be problematic.