After becoming one of the hottest trends during the latter part of the last decade, developments in international class action law have waned a bit over the past couple of years, but a new case may be changing that trend. An Austrian law student, Max Schrems, made news earlier this week (see examples here and here) when he announced a “class action” against Facebook Ireland, the subsidiary that offers the popular social networking service outside of North America. Schrems has filed a lawsuit in Austria seeking to pursue, on behalf of himself and other non-North American claimants, a variety of legal claims relating to Facebook’s use of consumer data as well as alleged illegal tracking and surveillance activity. As reported yesterday by Natasha Lomas at Tech Crunch, more than 25,000 individuals have “joined” the lawsuit so far, by signing up at a website set up for that purpose and assigning their claims to Schrems.
This is by no means the first data privacy lawsuit ever filed against Facebook, and it is difficult to say at this point whether the legal claims have any prospect of success. However, the case is intriguing from a procedural point of view because it is a suit seeking collective redress on behalf of thousands of non-North American consumers in a jurisdiction that is not known as a hotbed of class action litigation. Many features of the case serve to illustrate differences between US-style class actions and “class actions” as they are developing in other parts of the world. I’ve highlighted a few of them below.
Opt In Versus Opt Out
Outside common law jurisdictions like the United States, Canada, Israel, and Australia, collective action procedures generally follow an opt-in model, where each individual litigant has to take affirmative steps to participate in the lawsuit. This is a major distinction with the Rule 23 model followed in the United States, where a certified class binds all class members unless they expressly opt out of the case, and it creates a major limitation to the leverage created by grouping claims together.
Class Action through Private Contract and Novel Application of Existing Procedures
Many civil law countries lack an express mechanism for grouping large numbers of similar claims together into a single case except in very limited circumstances. Even when specific collective action procedures exist, they can often be pursued only by a consumer association or government regulator rather than by private litigants. Private litigants have filled the gap by entering into private agreements in which they group together on their own by assigning their individual claims contractually to a single plaintiff who will pursue the claims as a group. Aggregation of claims by assignment has become a popular practical vehicle for pursuing group litigation, especially in continental Europe.
In Austria, a July 12, 2005 decision by the Austrian Supreme Court set out a two factor test for deciding whether assigned claims can proceed in a single case. loosely translated, the standard requires that there be some central or significant question common to all claims, and that the factual and legal issues arising out of the individual claims be homogenous in nature as they relate to the common questions. The Commercial Court of Vienna has applied this standard in several cases to make an initial determination of whether to “admit” the action, or in other words allow the assigned claims to proceed in a single case. This initial evaluation does bear a resemblance to the class certification procedure applied under Rule 23 of the Federal Rules of Civil Procedure, applicable to class actions in the U.S. courts.
For a more detailed description of the “Austrian-style class action” procedure, see Christian Klausegger‘s chapter on the subject in the World Class Actions book that I have shamelessly promoted on this blog since its publication in 2012.
In Austria, as in many other parts of the world, contingent fees are prohibited. At the same time, however, court fees are often assessed based on the total amount in dispute, so the more money in dispute, the higher the fees are that have to be paid to the court, in addition to the hourly fees to be paid to counsel. These factors combined significantly limit the incentive to pursue collective litigation in these jurisdictions. They have also led litigants to have to look for alternative ways of funding litigation, the most prevalent of which is private litigation funding by a for-profit institution that is not itself a law firm. The litigation funder finances the litigation, including payment of court fees and hourly attorney fees, in exchange for a contractual right to earn a profit if the litigation is successful.
Litigation funding is also available in the United States, but it has been slower to develop, primarily because contingent fees and agreements to advance litigation costs do not typically violate rules of ethics or public policy. In fact, the opposite is true: rules prohibiting fee-sharing with non-lawyers can make private litigation funding a tricky proposition in the United States. As a result, private law firms have the financial means of funding litigation (either on their own or by associating with other firms) and are driven to pursue litigation without the need for financing through the promise of a percentage of the recovery if the case is successful.
The Impact of Morrison and Kiobel
The United States Supreme Court has issued two key recent decisions limiting foreign litigants’ access to the US Courts as a forum for pursuing class actions. Limitations on access to the class action procedures available in the US courts may lead foreign litigants to experiment more frequently with alternatives in foreign jurisdictions. Whether the Facebook class action in Austria is part of a trend in this direction remains to be seen.
What Drives Claims for Collective Redress?
In the United States, the promise of a large contingent fee can incentivize an entrepreneurial lawyer with a creative legal theory to pursue class action litigation even in the absence of widespread public awareness of a perceived wrong. The procedural and financial barriers to pursuing claims for collective redress largely prevent this phenomenon from occurring outside the United States, Canada, and a few other jurisdictions. Instead, “class actions” can be pursued as a practical matter only when there is enough public outrage or concern over a particular event or business practice that large numbers of individuals are willing to take the time to participate (or when there is a sufficient number of institutional plaintiffs with the financial resources and incentive to pursue the suit, such as in certain securities fraud and competition/antitrust cases). This means that both mainstream media and–somewhat ironically in the case of Facebook–social media have a necessary role in the success or failure of collective litigation abroad.