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Archive for December, 2011

This is the fourth in a multi-part post summarizing last week’s 5th Annual Conference on the Globalization of Class Actions and Mass Litigation.  Click these links to see the summaries for Session 1, Session 2, and Session 3

Giving Away Money: Calculating Damages & Allocating Damages

Professor Francis McGovern, Duke University Law School chaired this panel of authorities on the management of compensation funds.  A pioneer in the development of mass compensation programs, Professor McGovern has assisted with the administration of similar mass tort settlements in the United States, as well as reparations involving international disputes, such as the United Nations Compensation Commission, through which he is currently assisting in developing a framework for handling approximately 2.6 million reparations claims against Iraq.

Professor Jasminka Kalajdzic, University of Windsor, Canada, presented the case study and offered her insights into practical aspects of the case study.   The case study focused on a $1.9 billion fund for victims of abuse within the notorious Canadian Indian Residential Schools (IRS) program, in which aboriginal children were forced to attend Christian schools in an effort to force assimilation into white culture.  The purposes of the program had been described as “killing the Indian in the child” and turning native populations into English-speaking farmers and Christians.  The children were forced to attend the schools were subjected to harsh corporal punishment, psychological, physical, and sexual abuse.  By the early 2000s more than 50,000 individual claims and a number of class actions had been filed by victims of the IRS programs.  In 2005, following an alternative dispute resolution process, the Canadian government set up a $1.9 billion fund to compensate victims.  Compensation schedules established monetary award amounts based on a variety of factors, such as the amount of time spent in the schools, and the number of specific instances and types of abuse that a claimant had been subjected to.

Each of the panelists had been responsible for administering compensation funds, but the funds themselves had a variety of sources and purposes.

Dr. Norbert Wühler, Director of Reparations Programmes, International Organization for Migration, directs international claims facilities that provide reparations or other compensation arising out of international conflicts.  They include the Iranian Claims Tribunal, which provides compensation to U.S. citizens and companies who were harmed or displaced from Iran following the revolution of the late 1970s, and a program to compensate victims of Iraq’s invasion of Kuwait in the early 1990s.

Mr. Pieter van Regteren Altena, Partner, Van Doorne NV, administered the DES fund in the Netherlands, a fund established as a result of a mass tort settlement of claims against the pharmaceutical companies who manufactured DES, a synthetic hormone given to pregnant women prior to the late 1970s.  A collective settlement of DES claims was approved in 2006, resulting in the establishment of a 38 million Euro fund for the benefit of people who suffered adverse consequences from the use of DES, such as infertility, cancer, and birth defects.

The final panelist, and also the Keynote Speaker at the dinner held later that evening, was Kenneth Feinberg, who has been charged with administering some of the most high-profile compensation funds in history.  They include the September 11 Victim Compensation Fund established by Congress in 2001, the Gulf Coast Claims Facility established by BP following the 2010 Gulf of Mexico oil spill, and a settlement fund arising out of claims by victims of the use of the compound Agent Orange during the Vietnam war.

Professor McGovern opened the discussion with the observation that what all of the panelists had attempted to do in administering monetary funds was “rough justice.”  He then led a discussion on the similarities and differences between different compensation programs and the various issues and themes that can arise in the process of administering compensation funds.

Several of the obvious ways that compensation programs can differ are the source of the assets to be distributed and the sources of authority for the distribution and management of the compensation fund.  In a mass tort case, such as the DES case in the Netherlands or the Agent Orange case in the United States, the source of funding is a corporate defendant, but the source of authority for the settlement is a court.  In many international disputes, the source of authority can be an international tribunal, the United Nations, or a treaty among nations, and the source of funding can differ significantly from case to case.  For example, in the Iranian Claims Tribunal, the source of funding was frozen Iranian assets from outside Iran.  In the case of the fund established for victims of the Iraqi invasion of Kuwait, the funds came out of a percentage of oil sales that were permitted as an exception to a trade embargo.  Other funds have had sources of authority and funding that are unlikely to be repeated again in the future, including the 9/11 fund, which was established and funded by Congress only weeks after the terrorist attacks occurred, and the Gulf Coast Claims Facility, which was established and funded voluntarily by BP following what was essentially a handshake agreement with President Obama.

The structure of a compensation program is dependent on a number of factors.  Feinberg and Wühler both made the point that the volume of claims has a large impact on the structure of the compensation scheme.  In the Iranian Claims Tribunal, there were only 2700 claims, so individual claims could be handled more like a commercial arbitration, whereas with the reparations from the Iraqi invasion of Kuwait, there were many more claims, so the structure had to have a very different composition.  In the case of the 9/11 Victims’ Compensation Fund, the task of determining individual recoveries was handled mainly by accountants, whereas in the case of BP, distribution of benefits also required the work of claims adjusters.

Organizational systems for compensation funds are also influenced by other factors.  The need to prove causation is a factor.  For example, in the DES case, one of the main issues in determining who should receive compensation was the causal link between the drug and adverse health consequences suffered by the individual.  There, van Regteren Altena explained, the fund administrators fell back to the law of evidence, and an individual assessment procedure was implemented.  By contrast, Feinberg explained that in the Gulf Coast Claims fund, the level of evidence needed to prove an adverse impact resulting from the oil spill differed depending on how far removed the claimant was located geographically from the site of the spill.

The issue of causation highlights a common difficulty in administering settlement programs.  That is, the problem of efficiently distributing the funds while maintaining a sense of fairness and proportionality among individual claimants.  As Feinberg pointed out, although the goal of the program may be “rough justice,” there is a big tension between rough justice and individual compensation in any settlement program.  Success in a compensation program requires the administrator to walk a fine line between the efficient and speedy distribution of limited resources and paying enough attention to individual claims so that the claimants as a whole perceive the settlement as fair.  To achieve this goal, allowing claimants an opportunity to be heard makes an enormous difference.  Many of the structures described by the panelists had multiple levels of individual assessment.  For example, in the IRS settlement, claimants were paid according to a schedule but also had the opportunity to request an individual hearing.  Many mass tort settlements, such as the DES settlement, allow individual members to opt out and pursue their own claims individually.  Where individual hearings are impractical due to the number of claims, providing claimants with different options can help resolve the tension.

As a final thought, I would add a personal note that although many of the programs discussed during the presentation involved unique situations that most of us as practitioners are never likely to encounter, the themes and concepts discussed by the panelists are likely to be applicable in fashioning a wide variety of class action and mass tort settlements.  I have been involved with several not-so-high profile class action settlements that involve many of the issues and tensions discussed during the program.  So, as a practitioner, a key question from the Q&A portion of the program that piqued my interested was whether there are any resources or guides available to assist with the development or implementation of compensation funds.  Several of the panelists pointed to a comprehensive guide published by the Center for Public Resources, the Master Guide to Mass Claims Resolution Facilities.

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Fellow class action blogger and defense lawyer Andrew Trask has posted some key insights from his notes of the 5th Annual Conference on the Globalization of Class Actions, on his excellent blog, ClassActionCountermeasures.  I had the pleasure of finally meeting Andrew in person at the conference, and he was every bit as engaging in person as he is online.

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This is the third in a multi-part post summarizing last week’s 5th Annual Conference on the Globalization of Class Actions and Mass Litigation.  Click these links to see the summaries for Session 1 and Session 2.

Session 3: Managing the Mass: Judicial Case Management

As the title suggests, this presentation focused on strategies for judges in managing class and mass actions in different jurisdictions.  Professor Axel Halfmeier, Frankfurt School of Finance and Management presented the case study.  Professor Ianika Tzankova moderated the panel, which consisted of three highly esteemed judges from three very different jurisdictions: The Honorable Lee Rosenthal, U.S. District Court, S.D. Texas, Sir David Steel, High Court of Justice, England & Wales (ret.), The Honorable Ivan Verougstraete, Former President of the Belgian Court of Cassation and Visiting Professor of Law Georgetown University.

Professor Halfmeier’s case study focused on ongoing mass litigation in Germany involving Deutsche Telekom arising out of alleged acts of securities fraud in the late 1990s and in 2000.    The thousands of individual shareholder claims brought by investors in Germany led to the enactment of a new law, roughly translated as the Capital Investors Model Proceedings Act, that provides for the creation of a test case that will be binding on all other similar claims.  Proceedings even under the new law have been slow, due in large part to bureaucratic court procedures in Germany, such as the requirement that the documents in each of the thousands of individual cases have to be hand marked by court clerks.  The last hearing in Telekom case was held in 2010, and the next hearing is not scheduled to occur until 2012. Meanwhile, securities class action litigation involving the same alleged acts had been brought on behalf of U.S. investors in the early 2000s and was resolved in a global settlement in 2005.

Sir David Steel did not pull any punches with his blunt criticism of the German system, commenting in summary that the “German courts need to join the modern world.”  He pointed out that the prospectus fraud claims in the Telekom case are not very complicated and that it should be possible for the courts to deal with them in a much shorter period of time.  He pointed to a number of simple procedural reforms that might have sped up the Telekom litigation, including reform of cumbersome clerical requirements, the imposition of a time bar for claims (he pointed out that the German proceedings had not even been commenced until 2005, roughly 5 years after the event), and rules relating to case assignments (by the time the case was ready for a ruling, the initial judge assigned to the case had reached retirement age), and discretion to impose reasonable pleading deadlines (the plaintiffs were allowed to introduce new claims as recently as 2010). He concluded by likening the Telekom case to the fictitious decades-long Jarndyce v. Jarndyce will contest in the Dickens novel Bleak House, which had spurred judicial reforms in the UK in the Nineteenth Century.  It should be noted (although not discussed specifically during his remarks) that Justice Steel himself has a proven track record of efficient management of mass litigation in a jurisdiction that does not permit class actions.  As an example, he presided over the Buncefield case, a mass tort action arising out of gas pipeline explosions in December 2005.  The case reached a judgment in March 2009, only three years and three months after the explosions giving rise to the claims. 

Judge Verougstraete offered a counterpoint to Justice Steel’s criticisms by pointing out the significant cultural differences between the common law system in the UK and the civil law jurisdictions in Continental Europe.  He went on to point out various constitutional, cultural, and practical barriers to significant judicial case management reforms in European civil law jurisdictions, including: 1) the individual’s right to his day in court is of paramount importance in European jurisdictions and cannot be discarded in the interest of judicial efficiency; 2) discovery reforms are not a solution in Europe because most European jurisdictions do not allow parties to engage in discovery anyway (he noted, however, that judges do have some level of control over the speed with which court-appointed experts and masters complete their investigations and findings); 3) while settlement and alternative dispute resolution procedures are theoretically possible, they haven’t worked yet in speeding the resolution of many mass actions.  Judge Verougstraete also pointed to two possible alternatives to collective litigation in civil law countries: 1) use of the criminal law complaint, which places the financial cost of redress on the State but also cedes control over the litigation; and 2) bundled litigation, although even in bundled litigation, the requirement to provide individual notice to litigants often minimizes the judicial efficiencies created by joining claims together, as was seen in the Telekom matter.  In closing, although he agreed with Justice Steel that civil law jurisdictions in Europe could benefit from legislative reforms streamlining judicial procedure in mass litigation, he warned that there was still the problem of legal tradition and culture, which cannot be changed overnight.

United States District Court Judge Lee Rosenthal focused her remarks on what jurisdictions with developing complex litigation procedures can learn from the experience of the United States.  While the United States has a well-developed body of rules governing case management of complex litigation, U.S. Courts still have problems in managing complex litigation, and we “haven’t gotten there” in terms of perfecting efficient management of complex litigation.   Judge Rosenthal agreed that there is a divide between civil and common law jurisdictions but argued that there are a lot of things that a judge can do in either type of jurisdiction manage cases.  She provided examples of key areas where courts and policymakers need to focus in evaluating effective case management techniques: 1) early and effective court supervision; 2) cooperation by counsel; 3) development of a case management plan cooperatively between the court and counsel; 4) communication between counsel, the court, and both representative and absent parties; 5) effective management of electronic discovery issues (notably, Judge Rosenthal is one of the foremost thought leaders on e-discovery issues in the United States); 6) management of attorney’s fees awards (this is a topic addressed by Judge Vaughn Miller in Session 2); 7) effective trial planning; 8) if there is a settlement, an effective plan for assessing and administering the settlement.  She went on to point out that although many judges are much more comfortable in a passive role (decision maker) rather than active role (manager), effective case management requires a judge to carry out both of these roles at appropriate times.  In other words, a judge must be both a neutral decider and an effective case manager.  An effective case manager also has to be both flexible and pragmatic.  Despite having the tools for effective case management, Judge Rosenthal admitted that many judges in the United States are still viewed as being ineffective case managers.  In summarizing the experience of the U.S. judiciary, Judge Rosenthal opined that the United States has the tools in place for effective case management, but U.S. courts are still far from institutionalizing effective case management techniques.

As one member of the audience observed during the question and answer portion of the presentation, the three panelists represent the cream of the crop in their respective judicial systems, both as case managers and as jurists.  Judges from around the world have a lot to learn from their pearls of wisdom.

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I have to put in a little pitch for one of the many worthy blogs nominated for the ABA Journal’s Blawg 100 awards this year.  I must admit my bias.   TheRacetotheBottom.org is edited by one of my favorite law school professors, Jay Brown, and the contributors are students and other faculty from my alma mater, the University of Denver Sturm College of Law.  However, it is also one of the best sources on the Web for information on corporate governance and securities class actions.  You can vote for TheRacetotheBottom and many other fine law blogs on the ABA Journal’s Blawg 100 page.

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This is part II of a multi-part post summarizing last week’s 5th Annual Conference on the Globalization of Class Actions and Mass Litigation.  For the introduction, see part I posted yesterday.

Who’s Paying? New Developments in Funding

Professor Christopher Hodges, Centre for Socio-Legal Studies, University of Oxford/Erasmus University (and a co-sponsor and co-founder of the conference) chaired this panel.  Professor Camille Cameron, University of Windsor/University of Melbourne presented the case study.  The other panelists were The Honorable Vaughn Walker, Chief Judge (ret.) U.S. District Court for the Northern District of California, Dr. Gerrit Meincke, Foris AG, Mr. Till Schreiber, Cartel Damage Claims, and Mr. Wieger Wielinga, Omni Bridgeway.

This session examined an intriguing issue in international class and mass litigation: the emergence of private litigation funders who finance litigation in exchange for a share of the recovery. This is a development that may be unfamiliar to many U.S. practitioners, who are used to a system where class actions are mainly funded by well-financed law firms who can recover a contingent fee in a successful case.  In other parts of the world, however, ethical prohibitions on contingent fees, loser pays fee-shifting rules, and the lack of an organized plaintiffs’ bar have led to the emergence of alternative methods of funding litigation.

Professor Cameron opened the session by introducing three themes relevant to the study of litigation funding: 1) access to justice; 2) the impact of private litigation funding on public regulation; and 3) ethics.  Litigation funders do provide access to justice for litigants who would otherwise not be able to afford to bring their claims.  In Australia, for example, most law firms do not have the resources necessary to fund class action litigation, so the existence of private litigation funders expands access to justice.  On the other hand, Cameron pointed out, the existence of litigation funding institutions has turned law firms away from funding cases that they used to take, and the pool of cases that litigation funders will take on is very small and includes most only securities cases, so cases that used to be brought are now falling through the cracks.  On the regulatory front, the question arises whether the cases that are being brought by private litigation funders would be better left to government regulators.  On the one hand, remedying or deterring wrongful conduct is traditionally a public rather than private function in many parts of the world.  On the other hand, increasing globalization is causing cases involving mass wrongs to become larger and more common, and government regulators are becoming increasingly underfunded and ill-equipped to keep up.  The ethical issues implicated by private litigation funding are somewhat apparent.  Because they have a financial stake in the outcome, there is a strong incentive for funders to take on an active role in the management and strategic decision making in a case.  This can, although it does not necessarily have to, lead to potential conflicts of interest and questions about improper influence over the professional judgment of counsel.  These concerns may be decreased in jurisdictions where the funder can receive outright assignments of claims than in jurisdictions where they merely assist other litigants with financing in exchange for a fee.

The case study for this presentation was an examination two private litigation funders that had funded securities class actions.  The two funders, IMF and ILF used different models.  IMF took a hands-on approach in which it was actively involved both with the selection of counsel and the day-to-day management of the litigation itself.  ILF’s approach was to choose its counsel carefully and let the attorneys handle the management of the lawsuit.  Several litigation funders were asked to compare and contrast their firms’ approach with these two models.

Garrit Meincke is a litigation funder with Foris AG, a small firm that has been involved in litigation funding in Germany for more than 13 years.  It is the oldest and leading litigation funding firm in Germany and has historically had very few competitors.  Recently, three new companies have formed and have generally copied Foris’s approach.  Foris has modified its fee structure over time.  Initially, it charged a 50% fee, but its average fee has been adjusted over time and is now between 20 to 30%.  The firm is very selective about the cases it will fund, funding only about 5% of the total cases it reviews.  Foris is more of a passive rather than an active funder.  It leaves it to the lawyers to run the case.  However, it remains involved in monitoring a case throughout all proceedings.  Litigation funding is not regulated in Germany.  Germans are distrustful of U.S.-style class action litigation and do not have a representative action procedure.  Claims can be bundled by assignment, but there is a risk that bundled claims will be unbundled because German judges are evaluated in part based on the number of cases, which creates a disincentive to allow claims to be joined together.  Litigation costs are relatively low in Germany, attorney’s fees are regulated by a structure of tariffs which increase based on the amount at stake, and private litigation insurance is prevalent.  Hodges commented that these factors make litigation funding a natural development there.

Till Schreiber’s firm, Cartel Damage Claims, funds cartel litigation in Belgium.  It is an active litigation funder that buys assignments in cases rather than financing litigation for a fee.  Obtaining an outright assignment allows the firm to actively manage the litigation and outside counsel without creating conflicts of interest.  Buying cases and aggregating them for litigation also creates economies of scale that allows the firm to be profitable despite the risks of loss and having to pay an opponent’s litigation expenses in unsuccessful litigation.  Schreiber pointed out that aggregating cartel litigation in Belgium has a benefit for defendants as well as plaintiffs.  Because defendants who commit anti-competitive violations can be held jointly and severally liable for damages, aggregation of claims decreases the risk of inconsistent rulings and duplicate recoveries.  Schreiber also pointed out that firms are looking at the possibility of funding end-consumer claims, but the viability of funding mass consumer claims is dependent on the technology available in the judicial system, such as the ability to handle electronic access to files and signatures.

Weiger Weilinga’s firm, Omni Bridgeway, started in the litigation funding business as a recovery specialist in the mid-1980s.  It did not become involved in funding litigation on the merits until recently.  As a recovery agent, the firm handles the recovery of money judgments from defendants in high-risk jurisdictions, such as in war zones or countries with unfriendly or unstable governments.  The firm still handles mostly political risk claims, but has recently branched out into providing litigation funding for cartel cases.  It has not yet taken on any consumer cases.  Omni Bridgway is active in both hiring lawyers and in managing the litigation.  Case management is usually a cooperative effort between the firm, the client, and outside counsel, but Omni Bridgeway gets a full power of attorney from the client and therefore has ultimate decisionmaking authority.  The firm takes only cases with a minimum value and is selective about what it will fund.  The percentage fee ranges from case to case.  It is typically around 30% but has been as high as 60% in a case involving recovery from a North Korean defendant.

Retired U.S. District Court Judge Vaughn Walker talked about the primary method of class action litigation funding in the United States, namely contingent fees.  In particular, he discussed the problem of deciding between competing groups of lawyers vying to represent a class of plaintiffs in order to earn the contingent fees that can be recovered in the event of a settlement or favorable judgment.  During the first 25 years of the modern class action era in the United States, the decision was made using two approaches: 1) the first group to file a class action; or 2) nomination of lead counsel from a group of plaintiffs.  Fees themselves were historically determined by the lodestar method, which involved the court determining an appropriate hourly rate, multiplied by the reasonable number of hours expended by the firm on behalf of the class.  However, the lodestar method had drawn criticisms, including that 1) it encourages firms to churn hours that might not be reasonably necessary for the prosecution of the claim; 2) it created an incentive to generate sub-optimal recoveries because it gave the firm an incentive to wait until late in the case to engage in settlement discussions; and 3) there was no adversarial presentation of the fees requested, as fees were usually requested by agreement in the context of a settlement.  In 1985, the Third Circuit Court of Appeals created a task force on attorney’s fees, which recommended that a percentage fee be used rather than the lodestar method, and many courts adopted this approach in the years that followed.  However, percentage fee awards created other problems, including that the optimal recovery for the client or class occurs after the marginal cost of litigation meets the marginal recovery for the lawyer, which it the point at which the lawyer is incentivized to settle.  Judge Walker was one of several judges to adopt an innovative approach to selecting lead counsel in class actions that both resolved the dispute over who should be lead counsel and encouraged more favorable fee structures.  He asked competing class action firms to submit competing proposals on the fee that they would request in the event of a successful outcome.  Ultimately, this resulted in the winning firm agreeing to a fee that was half the customary rate.

Judge Walker offered a framework for identifying cases in which a reverse-auction selection process works in assigning lead counsel in U.S. class action litigation, which he observed also provides lessens to litigation funders in assessing cases to fund: 1) there has to be a clear identification of both the claims and the defendants (securities and certain employment cases are good candidates); 2) the relief has to be quantifiable in monetary terms; 3) the selection methodology should be simple.  One example of a simple methodology that U.S. courts have adopted is the “X factor” methodology, where counsel is asked to propose an amount X that it will agree to recover for the class at no cost, and the percentage recovery at which the firm will do all additional work.

The Q&A portion of the presentation generated a list of interesting observations from both the panelists and members of the audience.  (Unfortunately, my notes do not allow me to give proper acknowledgement for the specific source for each of these comments.)

  • In Australia, litigation funding has had the practical effect of turning an opt-out regime into an opt-in regime, as litigation funders are reluctant to represent the interests of litigants who do not share in the cost and risk of an unsuccessful lawsuit.  One issue currently being tested in Australia is whether a litigation funder can collect a percentage of all funds recovered on behalf of a class, including those claimants who have not contracted with the funder.  The answer to this question could impact whether class actions are brought as opt-in cases or opt-out cases in the future.
  • The lack of contingency fees in Europe is an important factor in litigation funding, as is the loser-pays cost-shifting rule.
  • There is a common mythology in Europe that litigation funding will lead to U.S.-style class action litigation, which is commonly perceived as synonymous with “ambulance chasing.”  Perhaps Europeans can learn a lot from U.S. litigation rather than being afraid of it.
  • The European civil law system can be criticized for encouraging “book building” activity, because litigation funders and consumer associations are required to sign up claimants in order to create economies of scale that make pursuing mass claims worthwhile.
  • Expect a ruling early next year from the Amsterdam Court of Appeal in a case involving objections to a collective settlement on the grounds that U.S. lawyers would be paid out of the settlement fund, something that would not be allowed for Dutch lawyers under Dutch law.

Finally, an observation of my own.  After listening to this panel presentation, it struck how much corporate, rather than consumer, interests have driven reforms and innovations in procedures allowing access to mass litigation in Europe.  Many of the parties seeking funding from third parties, and many of the parties pushing for access to collective action procedures, are institutional investors who are looking for an inexpensive vehicle for recovering funds on behalf of their clients.  This is a theme that came up in a later presentation titled Who Has Jurisdiction in a Global Market?  Stay tuned for a summary of that presentation…

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The 5th Annual Conference on the Globalization of Class Actions and Mass Litigation was even better than advertised.  It was an engaging and enlightened gathering of the world’s top experts in the areas of class, collective, and mass litigation.  And what better environment to have a conference on developments in international law than at the beautiful and historic Raad van State in the Hague.  I can’t say enough about the great job that Professors Deborah Hensler, Christopher Hodges, and Ianika Tzanokova did in putting this year’s conference together.

The individual sessions all followed a similar general presentation format, which was very effective.  Each panel presentation was focused around a case study based on the facts of a real case or set of cases.  An academic would present the case study and generally introduce a set of issues flowing from that case study.  A panel of practitioners, judges, and industry or consumer experts would then discuss the application of the problem in different geographic regions, political or judicial frameworks, or other contexts.  The idea was focus the discussion on what is actually happening “on the ground” in the areas of class actions and mass litigation, which was a welcome perspective to those of us for whom what’s happening on the ground is what matters the most.  The panels were diverse enough to offer a variety of viewpoints, but the topics were well-matched to the experiences of the panelists so that the presentations had continuity and a clear focus. 

In the interest of not having to wait another week to post my thoughts on all of the sessions (and in not having a single post of such length that it will put some of you to sleep), I’ll be posting them separately over the next week or so.  Here are my notes of the first session:

Session 1: The Challenge of Mass Communications: Problem or Opportunity?

The case study for this session was presented by Professor Ianika Tzanokova of Tilburg University, who also hosted the conference.  The panel was chaired by Mr. Michael Seymour, International Director of Crisis & Issues Management, Edelman, and the panelists were Mr. Arnold Croiset van Uchelen, Senior Partner AllenOvery LLP, Mr. Ben Knüppe, Trustee of DSB Bank/Former CEO of Dexia Bank, Mr. Jan Maarten Slagter, Director Dutch Retail Shareholder Association (VEB) and Mr. Stephan Holzinger, Holzinger Associates Nederland.

The case study was of the Dexia investment products litigation in The Netherlands, mass litigation that was influenced greatly by media exposure.  The litigation involved financial products called securities lease products, in which customers of Dexia’s predecessors in interest would loan money to consumers to fund investments, a scheme that worked well until the market downturn of the late 1990s.  Dexia had been the subject of a TV program in Holland that resulted in tens of thousands of angry customer calls to the station that broadcast the program. Ultimately multiple special purpose consumer associations were set up for the purpose of aggregating, and ultimately settling, claims.  Throughout the course of the litigation, both the defendant and the competing plaintiffs’ groups had to deal with complex and challenging public relations issues.

Understanding the panel’s discussion requires a basic review of how mass or collective actions are litigated in The Netherlands (and other European civil law jurisdictions).  Dutch law allows consumer associations to represent the interests of consumers, but only to the extent that individual consumers affirmatively consent to the representation.  Essentially, as Arnold Croiset van Uchelen explained, the system is one that relies on assignments and powers of attorney.   When mass claims arise, as they did in the Dexia case, this means that consumer or plaintiff groups compete to round up members, and then compete for the court’s and the defendant’s attention based on the number of claimants that they purport to represent.  One of the practical problems tends to be that victim’s advocates make claims to the media about how many of the claimants that they represent, in the interest of attracting attention to their cause.  Certainly, many of these claims are legitimate, but the opportunity exist for a particular advocacy group to exaggerate the number of claimants that it represents in the hopes of gaining media attention and, ultimately, negotiating leverage.

Speaking from the industry perspective, former CEO of Dexia, Ben Knüppe presented a simple and direct argument about how to deal with the problem of media communications in European mass actions.  The media is always looking for the simple message.  The most radical position tends to get the most press, and as a result, the media often presents the view of fringe groups rather than the more reasonable views of the majority (as an aside, it stuck me how apt this commentary is in describing American politics).  However, it is impossible to regulate how the media will portray the litigants’ competing messages.  So, in Mr. Knüppe’s view, the system is in need of reform to regulate who should be permitted to represent plaintiffs’ interests in mass litigation.

Jan Maarten Slagter offered the unique perspective of someone who represents consumer interests but who has also been a member of the media.  He defended the media by saying that the media always tries to get to “a truth” but pointed out that there are always multiple truths to a story due to differing perspectives.  He then offered some specific guidance to organizations representing plaintiffs’ interests:  A plaintiff’s organization has to play a difficult and subtle game.  It’s important to be the first out of the gate in getting media exposure.  You must show strength in the position of your argument, but you have to be careful to manage expectations.  And when a consumer group achieves a settlement with the defendant, it often has to deal with competing groups and objectors.  In this context, he noted that it is important to take the “wind out of the sails” of these competing interests by showing to the media, and ultimately the public, that you have negotiated the best deal.

Arnold Croiset van Uchelen talked about the roles of different types of media in mass litigation.  Commenting on the role of social media, he noted that it plays an important role in modern litigation because unlike traditional media, it allows for two-way conversations between the media and the public.  However, echoing one of Ben Knüppe’s points, he cautioned that it also tends to allow the most radical elements to come to the forefront.  After commenting that the media tends to side with the plaintiffs in mass litigation because the media “loves misery,” he focused on the potential positive role of traditional media in mass litigation.  He argued that the traditional media could play a stronger role in pointing out distinctions between competing plaintiffs’ groups in order to better serve the public about their choices in obtaining representation.  Later in the presentation, one of the panelists gave an example of a TV station asking consumer groups to provide information about their organization and financing.

Stephan Holzinger had some good advice for those who represent defendants in mass litigation.  Most fundamentally, he remarked on something that should be obvious but that may not be the first instinct for many defendants, “you run best with the truth.”  He also counseled for the need for defendants to engage the media proactively in high-profile litigation as a way to head off problems with other interests, such as employees, suppliers, shareholders, and competitors.  As a specific example, he pointed to Taco Bell’s successful public relations campaign in response to a would-be class action suit accusing it of consumer fraud for not using 100% beef in its tacos.  Ultimately, Taco Bell was able to turn the lawsuit into a successful advertising campaign.

Public relations expert Michael Seymour anchored the panel with some comments about the dynamics of media impact on public perception.  He found it interesting that several of the other panelists had commented about “using” the media in the context of litigation.  He noted that in understanding traditional media, you have to consider that it must always move fast and that it always has only the partial attention of its audience.  He added that social media tends to be effective because people have the most trust in “someone like myself” and that social media creates the impression of a more intimate, one-on-one communication (in case you’re wondering, I wrote this post just for you, seriously).  Seymour offered a few specific points that a party to high-profile litigation should consider in developing an effective PR strategy.  The first is to walk the fine line of advocating your position in the case without going too far in vilifying your opponent, since you may well find yourself sitting across the negotiating table later.  Slagter echoed this point counseling plaintiffs to always be mindful of the “end game” in litigation in developing their media strategy.   Seymour’s second piece of advice to litigants is to understand the “shape” of the case, i.e. how the case will develop and how long each phase will likely take. 

There were several interesting questions posed during the Q&A portion of the presentation.  One question involved what happens in the middle of the case, after the initial media exposure has died down but before a final resolution.  Knüppe noted that in the Dexia case, opposing counsel was very good about not leaking information to the press during negotiations that led to a final settlement.  However, in order to maintain a flow of information during the negotiations, periodic newsletters were sent to concerned shareholders to advice them on the status of the case.

Another series of questions asked about the relationship between media and the judiciary.  First, the panel was asked to what extent courts in different jurisdictions may take into account media publicity about a case in their decision making.  The general consensus was that the media should not impact judicial decision making, but panelists provided examples of instances where courts either commented on media exposure in their judgments or admitted after a case that media exposure had been on their minds at the time of the decision.  Second,  the panel was asked to what extent it is appropriate for a judge to make use of media in case management.  This question generated a discussion about a key distinction between truly representative class actions in the United States and mass actions in Europe.  In the United States, the court has an obligation to ensure that absent class members are provided information about the case and to take on an affirmative role in managing the delivery of that information.  In Europe, by contrast, the role of communicating with individual consumers is left to the firm or association that the consumer selects as his or her representative, and if the court has any role at all, it is merely to ensure that attorneys represent who they say they represent. 

Oxford Professor Christopher Hodges had an interesting observation to wrap up the session.  He talked about the media’s social responsibility in seeking an ultimate truth with regard to high-profile litigation rather than simply reporting on the allegations being made.  He pointed as an example to litigation claiming that infant vaccinations caused autism.  He noted that although the litigation had been based on a medical hypothesis that was later debunked, the initial media attention that had been given to the plaintiffs’ claims generated among some segments of the public a fear of vaccinations that continues to have serious negative public health consequences, long after the litigation.

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I am just about set to head overseas to the Netherlands to attend the Fifth Annual Conference on the Globalization of Class Actions and Mass Litigation, which starts on Thursday, December 8.  At last count, there were more than 150 registrants for this year’s conference, including yours truly and Andrew Trask of the blog ClassActionCountermeasures.  The faculty includes the world’s top authorities among academics, policymakers, and practitioners on global class and collective litigation.  I’ll be sure to post a summary of my notes following the conference.  If you happen to be attending, please drop me a note so that I can look out for you there.

On a related note, I’m excited to announce that the manuscript of a book of collective works that I’ve been editing on the topic of global class action litigation is finally complete and set to go out to Oxford University Press tomorrow.  The book, currently titled World Class Actions, is a practitioner-focused guide to international class and collective action litigation.  The list of contributors includes many of the world’s top practitioners in global class action litigation, in addition to authorites on local class and collective action litigation in every corner of the globe.  I’ll be posting more about the book in the coming months.

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Ok, just a bit further…

Mark Herrmann, former contributor to the wildly successful Drug and Device Law Blog, sent me a note the other day that his book co-authored with Jones Day Partner David B. Alden entitled Drug and Device Product Liability Litigation Strategy (Oxford Univ. Press 2011) is now available.  Here is a link to the book’s page on OUP’s website, where you can get more information and order a copy.

The following is a slightly edited version of the summary that he sent me:

The book is generally a reference work, so big chunks of the book simply bring a beginner up to speed on the defense of drug and device product liability cases. But we say a few things in the book that are new and different. Some of the interesting stuff includes:

1. At pages 181 to 186, we analyze every motion to centralize drug or device cases filed with the MDL Panel from the Panel’s creation through the end of 2010. We count the number of motions granted and denied, and we break down the percentages by time period, showing that the Panel has become slightly more likely to centralize cases as time has passed.

2. At pages 219 to 222, we analyze the use of “direct filing provisions,” which allow plaintiffs to file their complaints directly in the MDL transferee court, rather than being required to file in their home courts and then asking the MDL Panel to transfer the cases. If litigants are not careful, direct filings provisions can alter the applicable choice-of-law analysis, change the identity of the court that tries the case, or alter the trial court’s personal jurisdiction over third-party defendants.

3. Finally, our discussion of the scope of preemption for prescription drugs after the Supreme Court’s decision in Wyeth v. Levine may be noteworthy. At pages 339 to 343, we identify five situations in which claims against prescription drug manufacturers may be preempted even after the Supreme Court’s restriction of preemption in Levine.

We’d love to start a conversation on these issues. And, if we’ve taken the time to write the book, we’d sure like interested folks to know that the book exists.

I have not had a chance to read it yet, but given Herrmann’s body of work on Drug and Device Law Blog, it is guaranteed to be of the highest quality.  It sounds like the quintessential guide to the very specialized area of mass tort and class action litigation, authored by two of the world’s foremost experts on the subject.

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