Texans for Lawsuit Reform

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In the News

Class action lawsuits hit innovative companies the hardest

Chicago Booth Review, October 4, 2018
By: Alex Verkhivker

Corporate America has long complained that many class action suits are frivolous and an unfair tax on business. Lawyers have a financial incentive to file meritless suits because companies are often willing to settle—even when allegations are false—to save time, money, and public image. Lawmakers in Congress have wrestled with this issue for years without resolution.

But research suggests more reason to address it: the costs of such litigation weigh disproportionately on the most innovative US corporations, according to Chicago Booth’s Elisabeth Kempf and Tilburg University’s Oliver Spalt. Using data on more than 40,000 lawsuits filed between 1996 and 2011 against 6,111 companies, the researchers find that frivolous lawsuits tended to focus on highly innovative businesses, which represented juicy targets—and cost the average company in this group $1.1 million a year, or about 4 percent of annual profit gains.

To sort companies by innovation level, the researchers used a scale developed by MIT’s Leonid Kogan, Northwestern University’s Dimitris Papanikolaou, Stanford’s Amit Seru, and Indiana University’s Noah Stoffman. It measures how a company’s stock responds in the days following a patent grant, a gauge of how valuable the innovation of the company is.

Kempf and Spalt counted a lawsuit as meritless if it was dismissed by a federal court and wasn’t settled. Their study finds that when such a lawsuit was filed, the targeted company experienced a 2 percent drop in market value from three trading days before to three trading days after the filing. While this is a significant drop, Kempf and Spalt argue that it understates the true cost of a frivolous suit because a company’s stock often started to fall in advance of a lawsuit filing. Expanding the window to 30 days before and 30 days after a suit was filed, the researchers find an even greater average share-price drop: 18 percent.

These results are for the average company in the study’s sample. When the researchers broke out businesses that ranked in the top third of their industry peer group based on the corporate-innovativeness gauge, the results were even more dramatic. “The corresponding dollar losses in the seven days around a meritless lawsuit filing are $148 million for the average successful innovator, but only $12 million for the average nonsuccessful innovator,” the researchers write.

And as frivolous suits target the most advanced companies, the resulting costs may affect corporate decisions about whether to innovate and list their shares. The current US securities class action system, they argue, poses a threat to economic growth and competitiveness.

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Texans for Lawsuit Reform

13 hours ago

Texans for Lawsuit Reform

When 30-year-old Quinnton Allen violated his parole for possession of a firearm, a Houston judge not only allowed him to stay on parole but granted him a PR bond for a felony. Unfortunately, the decision to release him on bond may have cost a man’s life. Read and share: bit.ly/3OvDU5z ... See MoreSee Less

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29-year-old man murdered after judge grants felony PR bond to armed robber recently paroled from prison

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HOUSTON – “I’ve never had any of these defendants we’ve profiled on Breaking Bond on parole and on a felony PR bond charged with murder,” said Andy Kahan with Crime Stoppers. “This is a fi...
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That judge should be held accountable

His family should get a good lawyer & sue the city & the judge…

The judge should be held as an accomplice to the murder before the fact and sued in civil court for his contribution to the death of the citizen.

Texans for Lawsuit Reform

1 day ago

Texans for Lawsuit Reform

Texas ports are thriving today, but in the early 2000s, abusive personal injury lawsuits threatened to shut them down. As the Port of Houston begins a long-awaited expansion, read more about the common-sense lawsuit reform in 2007 that saved our state’s shipping industry in this week’s TLR blog, For the Record: bit.ly/3aeTy6n ... See MoreSee Less

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Texans for Lawsuit Reform

3 days ago

Texans for Lawsuit Reform

Wishing everyone a very happy Fourth of July! ... See MoreSee Less

Wishing everyone a very happy Fourth of July!
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Happy Independence Day America Today we celebrate our Republic 🇺🇸


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Join us in pursuing our mission of creating a fair, balanced, and predictable legal system! #lawsuitreform #stoplawsuitabuse

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lawsuitreform avatarTLR@lawsuitreform·
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When 30-year-old Quinnton Allen violated his parole for possession of a firearm, a Houston judge not only allowed him to stay on parole but granted him a PR bond for a felony. The decision to release him on bond may have cost a man’s life. Read & RT:

29-year-old man murdered after judge grants felony PR bond to armed robber recently paroled from prison

HOUSTON – “I’ve never had any of these defendants we’ve profiled on Breaking Bond on parole and on a felony PR bond charged with m...

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