As reported this morning on NPR’s Morning Edition, the New York Times, and the Wall Street Journal’s Deal Book blog, among other news sources, the firm of Coughlin Stoia Geller Rudman & Robbins, recently named as lead counsel in a securities class action against French bank Société Générale, has sent a group of lawyers across the pond to build publicity, recruit plaintiffs, and collect potential evidence in France. The lawsuit arises out of the highly publicized trading scandal earlier this year involving unauthorized trades totaling billions of Euros by one of its traders, Jérôme Kerviel. Coughlin Stoia is no stranger to scandal itself. Formerly Lerach Coughlin Stoia, it is the former firm of the recently convicted William Lerach.
The PR campaign in France is part of a growing trend to increase the pool of potential plaintiffs in U.S. securities class actions against multinational companies. As the WSJ article aptly describes the dynamic:
Lawyers have an incentive to maximize the number of plaintiffs because it increases their fee payments. And non-American plaintiffs are attracted by the potential of enormous damage payments in the United States and a common provision protecting them from paying legal fees even if they lose.
The incentives underlying this trend are not hard to understand. These attempts to create transnational plaintiff classes, however, raise complex issues of due process, choice of law, preclusion or res judicata, and full faith and credit. Last year, a federal judge in New York entered an order allowing investors in France, England, and the Netherlands to be included in a securities class action against French conglomerate Vivendi. A copy of that order is available on the Milberg website. In deciding whether to allow foreign investors to be included, Judge Richard J. Holwell analyzed whether courts in each country would recognize a final judgment in the U.S. lawsuit as preclusive and binding on its citizens. The court, relying on expert testimony and scholarly works discussing the law of the recognition of foreign judgments and res judicata of the various countries, determined that the plaintiffs had shown that it was more likely than not that courts in those three countries would recognize a U.S. class action judgment as preclusive as to absent class members. With respect to England, the court admitted that the applicable law was unclear, but stated (on page 54):
While the issue is hardly free from doubt, based on the affidavits before it, the Court concludes that English courts, when ultimately presented with the issue, are more likely than not to find that U.S. courts are competent to adjudicate with finality the claims of absent class members and, therefore, would recognize a judgment or settlement in this
The court went on to find that the plaintiffs had not shown by a preponderance standard that courts in Germany and Austria would not recognize a U.S. class action judgment as preclusive as to absent class members. Therefore, the court allowed investors in England, France, and the Netherlands to be included in the class, but rejected certification as to investors in Germany and Austria. The 68-page opinion addresses a whole host of related issues and is worth a careful read.
According to the New York Times and WSJ articles, the court in the Société Générale case is expected to address in 2009 the issue of whether absent French investors should be included in a shareholder class.