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Posts Tagged ‘International Class Action Law’

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.

Litigation Funding

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.

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According to an article in the Korea JoongAng Daily, a Korean court has issued the first ever judgment in a collective action arising out of a data breach caused by alleged mismanagement of the data, as opposed to intentional conduct.  The Seoul Western District Court’s judgment in favor of 2,882 petitioners against SK Communications was for a total of approximately USD 534,200.   Although the amount may be insignificant by U.S. standards, the judgment reflects a key development in the development of both collective litigation and privacy law abroad.

Postscript: for more on the case, see this story published February 19.

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For those of you interested in the forthcoming book, World Class Actions, here’s a quick update.  The page proofs should be ready by the end of next week, and barring unexpected delay, we are still on pace for an early summer publication date.  For those that haven’t yet heard about the book, it is a guide to class and collective action litigation around the world.  Here’s a link to the Oxford University Press web page for the book where you will find a more detailed synopsis.  I’ll continue to post updates as the publication date approaches.

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Those of you who attended last month’s 5th Annual Conference on the Globalization of Class Actions (or followed my series of posts summarizing the conference) will know that the Netherlands has been on the forefront of global mass dispute resolution as a result of its statute allowing for collective settlements.  Today, the Amsterdam Court of Appeal issued a ruling dismissing two objections to a collective settlement and declaring it binding even though the defendants, and most of the plaintiffs, were domiciled outside of the Netherlands.  Here is a synopsis of the ruling from Daan Lunsingh Scheurleer and Ianika Tzankova of NautaDutilh N.V.

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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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For those of you interested in trends in class and collective actions in other parts of the world, check out the recent article by Manuel A. Gómez, Associate Professor at Florida International University College of Law, entitled Will the Birds Stay South? The Rise of Class Actions and Other Forms of Group Litigation Across Latin America (available for download at SSRN).  Professor Gómez’s article discusses the common features of collective action regulations across Latin America and surveys the unique features of the collective action procedures in several key Latin American countries.

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