By Andrew Cohen
Berkeley Law’s faculty has turned an impressive triple play by authoring three of last year’s top 10 corporate and securities law articles according to Corporate Practice Commentator (CPC).
Steven Davidoff Solomon’s two entries on the list explored the rapid increase in merger litigation—a trend his papers helped reverse. Robert Bartlett’s article revealed a surprising gulf between institutional investors advocating for shareholder class actions and their actual trading decisions.
It’s not the first time these two faculty co-directors of the school’s Berkeley Center for Law and Business (BCLB) have appeared on the annual top ten list—but both at the same time is a first.
“Our faculty’s three entries equaled or surpassed any other law school,” said Adam Sterling ’13, the center’s executive director. “It’s great to see Berkeley Law continue to establish itself as the Pacific Rim’s leading center for the study of corporate law and capital markets, and BCLB is proud to be the school’s hub for rigorous and relevant research on the interrelationships of law, business and the economy.”
With more than 540 articles eligible for consideration, Solomon was “very much humbled” by making the top 10. Author of the weekly “The Deal Professor” column for The New York Times, he spent a decade as a mergers and acquisitions attorney in the United States and Europe before joining Berkeley Law’s faculty in 2014. He is also the youngest member on a list of the 20 most-cited corporate and securities law scholars since 2010.
“Until recently, we saw a huge explosion in merger-objection litigation for about 10 years, with suits being filed in more than 90 percent of all mergers,” Solomon said. “I wanted to study the dynamics of that litigation and how it affected the law.”
Both of his papers tested the relationship between merger litigation and shareholder voting by analyzing more than 1,000 corporate takeovers since 2003.
Challenging conventional wisdom
In A Great Game: The Dynamics of State Competition and Litigation, written with Matthew Cain of the U.S. Securities and Exchange Commission, Solomon found that competition among states for corporate litigation sparked a notable shift in how such litigation was decided.
The data showed entrepreneurial plaintiffs’ attorneys fueling this competition by filing suits in jurisdictions that had previously awarded more favorable judgments and higher attorney fees. States wanting to attract more corporate litigation responded by adjusting their rulings—awarding higher fees and dismissing fewer cases.
In his follow-up paper, written with current Berkeley Law visiting scholar Jill Fisch and Fordham law professor Sean Griffith, Solomon tested the relationship between merger litigation and shareholder voting.
The purpose of settlements compelling supplemental disclosures, he noted, is to produce new, unfavorable information about the merger—which should lead to a lower percentage of shares voting in favor of it. But an examination of large public company mergers revealed that disclosure-only settlements do not affect shareholder voting.
“The prevailing legal analysis—that these suits protect shareholders—was misguided,” Solomon said. “If supplemental disclosures don’t constitute a substantial benefit, courts should reject disclosure settlements as a basis for awarding attorney fees.”
In response to his team’s research, courts are now cracking down on these settlements, with merger litigation filing rates dropping from more than 90 percent to about 30 percent overall, Solomon said. “Ideally, you want your work to combine a high level of academic rigor and a meaningful real-world application,” he added. “When that happens, it’s very gratifying.”
Bartlett’s paper questioned whether pension funds truly value the right to sue for securities fraud under Rule 10b-5 of the Securities Exchange Act. In the 2010 case Morrison v. National Australia Bank, the Supreme Court limited investors’ ability to sue non-U.S. corporations based on shareholders’ stock purchases on foreign exchanges.
Many investors, especially public pension funds, claimed this ruling would force them to switch from investing in foreign firms’ locally-traded securities to their U.S.-listed American Depository Receipts (ADRs). Yet Bartlett’s research showed no such shift—even though investors with ADRs in foreign companies could still bring fraud class actions in U.S. courts.
“ADRs tend to have higher trading costs and other fees associated with them than locally-traded securities,” he said. “So, if investors really did switch to purchasing ADRs, it would suggest the perceived benefits of being able to bring a 10b-5 lawsuit outweighed these higher trading costs.”
Studying proprietary trading data from 378 institutional investors, Bartlett found that the vast majority of investors maintained their trading preferences after the court’s ruling.
“Given how investors were talking about Morrison, I was surprised by the complete absence of any change in trading behavior,” he said. “While skeptical that investors would switch en masse to purchasing ADRs rather than locally-traded securities, I thought I’d find at least some segment of investors in my sample making this switch—particularly for foreign firms trading in jurisdictions with weak antifraud protection or weak shareholder rights.”
Instead, Bartlett’s findings served to bust yet another trading myth.