Archive for June, 2009

The Korea Times reported today that South Korea’s first ever class action has been given a preliminary approval to move forward, as a local court selected a private equity fund as representative plaintiff.  According to the article, the suit is the first filed under a South Korean securities class action law that was passed in 2005.  The use of the class action device in a shareholder lawsuit reflects that South Korea doesn’t just recognize class actions as a tool to combat public protest (see previous CAB entries dated August 29September 8, and November 3, 2008).

For more on today’s story, see this entry from Securities Docket.

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CBC business columnist Michael Hlinka has this modest proposal for how to prevent class action abuse in Canada: make unsuccessful plaintiffs’ class action attorneys pay the defendant an amount equal to the amount of the contingent fees that they stood to earn if they had won.  It’s  not an idea that is likely to catch on among policymakers, but it’s sure to be popular among those who think that lawyers are the only ones who win in class actions.

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This month’s edition of BNA, Inc.’s Class Action Litigation Reporter (available by subscription) tipped me off to three interesting class action-related cases pending before the United States Supreme Court:

1) Morrison v. National Australia Bank, No. 08-1191 (cert pending).  The Court invited the Solicitor General to submit a brief expressing the U.S. government’s views on a petition for certoriari to review the Second Circuit Court of Appeals’ well-publicized “foreign-cubed” class action decision.  (For more on the lower court’s decision in Morrison, see this October 28, 2008 CAB entry).

2) Herz v. Corporation v. Friend, No. 08-1107 (cert granted).  This case involves an issue that is the subject to a split among the Circuit Courts of Appeals regarding the proper test for establishing a corporation’s principal place of business for diversity purposes under 28 U.S.C. 1332, as amended by the Class Action Fairness Act (CAFA). 

3) Merck & Co. v. Reynolds, No. 08-905 (cert granted).  This appeal involves the standard for triggering the statute of limitations in a securities fraud case and the question of whether, for purposes of “inquiry notice” sufficient to trigger the limitations period, an investor has a duty to investigate prior to receiving actual knowledge of both a misrepresentation and the defendant’s wrongful intent.

The cert petitions and briefs for these cases are available for download at the SCOTUSblog.

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According to a story on NPR this morning, the Obama administration is pushing to turn over regulatory power currently within the jurisdiction of the Federal Reserve. One has to wonder whether the creation of a new consumer protection agency will have the effect of reducing class actions, either by preventing corporate misconduct or provoding an administrative process for redress. On the other hand, maybe increased govermental oversight will merely raise awareness of possible theories of relief for civil lawsuits. We shall see.

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Senior U.S. District Court Judge Jack B. Weinstein (E.D.N.Y), has become well known for his often-cited and sometimes controversial opinions in mass tort and class action cases.  He recently authored a commentary in the Cardozo Law Review’s new online journal de novo on some of his key decisions in cases involving subjects ranging from Agent Orange, asbestos, and tobacco to breast implants, hand guns, and pharmaceuticals.  Judge Weinstein describes the article, entitled Preliminary Reflections on Administration of Complex Litigations, as a brief summary of

my view of the federal courts’ appropriate role in bringing mass litigation to resolution as quickly and with as few transactional costs as possible while allowing reasonable satisfaction to the litigants and the public weal.

Excerpts of the article are available on the publication’s website, where you can also download a pdf version of the entire article.  Judge Weinstein openly expresses dismay over what he sees as a “general hostility” in the federal courts against the certification of Rule 23 class actions in mass tort and securities case, and muses that the law and the courts have failed to provide the consuming and investing public with adequate remedies for mass harms.  As possible approaches for remedying these perceived failings, he suggests an ALI study into “relevant procedures” and challenges administrative agencies to do more to protect the public from illegal and tortious conduct.

For additional discussion on the article, see this post from Ben Hallman at the Am Law Litigation Daily.

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According to this article by Anindita Dey of the Business Standard yesterday, an Indian securities regulator has announced plans to fund a program to reimburse litigation expenses actions brought on behalf of investors for alleged illegal securities practices.  The fund would be available to a group of registered investor associations who could apply for reimbursement for legal expenses from the fund, but only after those expenses have been incurred and only after a showing that at least 1,000 investors are affected by the alleged practices. 

The representative securities litigation described in the article is characterized as similar to class action litigation in the U.S., but it appears to differ in at least two important respects.  The first difference is the use of litigation fundingto support group litigation.  In the U.S., the funding of a lawsuit is usually accomplished by law firms who pursue the case and often advance costs in the hopes of recovering a portion of the judgment through a contingent fee or a fee award.  In other parts of the world, such as in Australia, private litigation funding firms provide funding for class actions in exchange for a portion of any recovery.  The funding scheme described in the article appears to differ slightly from that prevalent in Australia in that it is state-funded rather than private. 

The second difference is the method in which the representation is being achieved.  In the U.S., an individual investor or small group of investors typically seek appointment as class representatives to represent a larger class of investors.  By contrast, the type of litigation being described in the article contemplates that an association would bring the action on behalf of its members.  Associational representation is a procedural vehicle that has been used in the U.S., but is far less common in securities litigation than true class actions.

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As reported by various news sources today and summarized in this entry from Ben Hallman at The Am Law Litigation Daily, a Dutch court has approved a settlement of claims of a class of institutional investors against Royal Dutch Shell.  The settlement was approved under a 2005 Dutch law that allows collective settlements on an opt-out basis, although it doesn’t allow class action suits outside the settlement context. For more detail on the law, the Dutch Act on Collective Settlement of Mass Damages, see this 2008 American Lawyer article by Michael Goldhaber, also cited in Hallman’s post.  The settlement resolved claims of European investors who originally had been included in a would-be international class of investors in a New Jersey federal court in a “foreign cubed” class action–a class action filed on behalf of foreign investors who bought a foreign company’s stock on a foreign exchange.  Rather than settle with the plaintiffs’ attorneys who had filed the U.S. case, however, the company agreed with a separate firm to settle the European investor’s claims in a European forum.

Goldhaber’s article describes the facts and history of the case and legislation in a fair amount of detail, so I will simply refer anyone interested in the details to that article.  As described in the article, however, the Dutch settlement came about as a result of a series of events that may or may not continue to be repeated into the future: 1) a class action filed in the U.S. that included European investors; 2) the Dutch company’s agreement to settle in Dutch court with attorneys representing non-U.S. investors; 3) a decision by the U.S. court to decline to exercise jurisdiction over the claims of the non-U.S. investors; and, finally, 4) approval of the European settlement by the Dutch courts.

It would seem that whether the Dutch Act on Collective Settlement of Mass Damages becomes a common vehicle for resolving potential liability for European companies is contingent, at least in part, on how long the viability of “foreign cubed” class actions remains unsettled in the U.S.  The Second Circuit Court of Appeals’ recent Morrison decision (discussed in this October 2008 ClassActionBlawg entry) was a setback for plaintiffs seeking to pursue foreign-cubed claims in U.S. courts, but did not foreclose the possibility of foreign-cubed claims entirely.  If it became widely established that foreign-cubed cases have little or no likelihood of success in U.S. courts, then plaintiffs’ lawyers would be less likely to pursue those claims in the U.S. in the first place and defendants would presumably face less pressure to settle under the Dutch law, which does not support class liability in a contested case.  However, until the law surrounding U.S. federal court jurisdiction in foreign-cubed cases does become more well-defined, Royal Dutch Shell’s strategy could signify a trend.

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