After 12 years of litigation, a trial court in Germany has finally reached a decision in a landmark case for group actions in European civil law jurisdictions. The court decided that Deutsche Telekom did not make false or misleading statements of fact in a prospectus for a secondary stock offering in 2000.
The case was the first of its kind under 2005 German legislation allowing for special model proceedings in mass actions for certain types of securities fraud, which had been enacted as a direct result of the thousands of individual lawsuits that had been filed against Deutsche Telekom for prospectus fraud after the stock dropped following the secondary offering. The law that created the group action procedure under which the case was tried is known in English as the Capital Market Model Proceedings Act. Passed in 2005, the Act allows for the trial court to assign a representative plaintiff in a model proceeding that is to be tried first while similar claims are suspended. The purpose of the model proceeding is to resolve any generic or common issues for all of the cases, but unlike in a U.S. class action, the model proceeding does not have the legal effect of also resolving all of the individual claims. As a result, although today’s ruling is a victory for the defendant, it does not represent an end to the litigation even if it is upheld on appeal.
This article from Karin Matussek in BusinessWeek summarizes the decision and its potential implications. According to the article, the attorney for the model plaintiffs has stated that they do plan to appeal.
The case is a “model” proceeding for more than just the resolution of the claims against Deutsche Telekom. It has been followed by many academics and policymakers in Europe and elsewhere as a test case for the viability of group proceedings in common law jurisdictions. Time will tell whether the German experiment in group proceedings will be seen as a success. Concerns that the introduction of group litigation procedures in Europe will usher in a US-style litigation culture will no doubt be tempered by the fact that the defendant ultimately prevailed. On the other hand, the length of time that the it took for the model proceeding to be resolved raises legitimate questions about the long-term social utility and efficiency of the procedure. By comparison, class action litigation brought in the United States alleging prospective liability by U.S. investors against Deutsche Telekom arising out of the same offering was settled for more than $120 million more than seven years ago, in 2005.
The German Capital Market Model Proceedings Act and the Deutsche Telekom case are among the many cutting-edge topics addressed in the book World Class Actions, which is still on schedule to be on bookshelves early this summer. The German chapter is authored by Dr. Luidger Röckrath, attorney with the law firm Gleiss Lutz. Stay tuned here for more updates on the status of of the book.