BulletProofBlog the blog on crisis communications

In the wake of near-complete financial breakdown, an uptick in the volume of securities lawsuits is hardly surprising. But the numbers are still sobering.

In March 2009, for example, Navigant Consulting, Inc. released a ground-breaking report titled "2008: Seeking Relief" that showed a whopping 576 new litigation matters filed in federal courts in 2008 as a direct result of the severe market downturn. The subprime-related issues driving these increases were already in full play before the market meltdown later in the year. Yet the total number was already twice the filings in 2007. Securities was the big driver (38 percent), followed by borrower class actions (24 percent), and contract disputes (17 percent).

Now comes another study by Advisen, a company that collects information for the insurance industry. It reports that 169 securities cases were filed in the first quarter of 2009, up from 125 during the fourth quarter of 2008 and 134 from the same period a year ago. Bernie Madoff and other purported malefactors have, post-meltdown, added substantially to the total securities caseload.

It's heady activity, to be sure, but it's also reasonably predictable that the numbers will swell in 2009 and beyond. On the one hand, the total effects of last year's collapse are still to be felt. On the other hand, there is a full-scale effort by plaintiffs' lawyers and their increasingly numerous supporters in Congress to roll back the doctrine of preemption and litigate cases in friendlier state courts.

With a strong Democratic majority, many of whom are bankrolled by the plaintiff's bar, expect ever greater efforts to amend or rescind the Class Action Fairness Act of 2005 that makes access to state courts more difficult. (Similar efforts to reverse preemption affecting other industries are already in full throttle. The best example is the Medical Device Safety Act of 2009).

Courts are divided in their interpretation of the Class Action Fairness Act as the Ninth Circuit reached a very different conclusion in last year's Luther v. Countrywide than the Seventh Circuit in Katz v. Gerardi earlier this year. Imagine the impact of a preemption rollback on already beleaguered financial institutions once plaintiffs get the green light to forum-shop their grievances.

For many companies, survival itself may depend on winning the preemption fight against mounting political odds.