As an alternative to participating in a class action, investors may opt-out of the class and seek to recover losses on their own behalf. By bringing an individual action, the investor is generally not bound to the outcome of the class litigation and has a right to prosecute its own case independent of the class action.
Advantages of an opt-out case include the ability to chart one’s own litigation course and determine the settlement terms. In some cases, claimants may also bring state law claims that are often prohibited in a securities class action. An opt-out action also allows a claimant to proceed without having to obtain class certification or issue class notice, and without requiring a court approved settlement.
Financial stake in a case and the potential for a higher settlement value is a leading consideration when evaluating whether to file an opt-out action. On a per share basis, opt-out actions often result in a recovery that is multiples of those obtained by class participants. For example, Girard Gibbs obtained a $45 million opt-out action settlement on behalf of a large state fund, amounting to 30 times what the fund would have received as a class participant.
Pitfalls to Avoid
Foregoing possible recovery as a class participant involves some risk. An opt-out action may serve to bar participation in any future class settlement or judgment, and it is generally an irreversible decision. Opt-out actions also require active participation in the litigation, including responding to discovery and appearance at depositions.
Opt-out actions may also give rise to unique defenses not present with class participation. For example, opt-out actions may be time barred while claims of class participants are “tolled” under judicial doctrine, and thus one may possibly opt-out of a class action only to then have the direct action case dismissed as time barred. Opt-out actions may also bring unique reliance defenses.
Whether to remain a class participant or commence an opt-out action requires a balanced perspective from a law firm with the experience, resources and creativity to offer highly tailored, client-centered advice. Having litigated several opt-out actions on behalf of large state pension funds, Girard Gibbs is uniquely situated to provide that perspective.
- CalSTRS v. Qwest Communications, et al.
Girard Gibbs represented the California State Teachers Retirement System (CalSTRS) in this opt-out securities fraud case against Qwest Communications, Inc. and certain of its officers and directors, as well as its outside auditor Arthur Andersen. Read More »
- In re Winstar Communications Securities Litigation
Girard Gibbs represented Allianz of America, Inc., Fireman’s Fund Insurance Company and 23 other affiliates of Munich-based multinational Allianz AG in opt-out securities litigation against Grant Thornton LLP, Lucent Technologies and other defendants arising out of plaintiffs’ investments in Winstar Communications, Inc. Read More »