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Posts Tagged ‘australian class action’

NOTE: The following is a copy of a post that I did for the recently-released Baker Hostetler Class Action Lawsuit Defense Blog. Be sure to check out the new blog for other fantastic class-action-related content!

Globalization has brought with it the growing problem of how to deal with mass disputes that transcend jurisdictional boundaries, as well as ever-increasing creativity among the members of the plaintiffs’ bar in bringing ever-larger class and mass actions. There is no single global court or other forum for bringing international or cross-border civil disputes, let alone disputes that involve allegations of mass harm. One of the key challenges for lawyers, policymakers, consumers, and businesses in the 21st century is how to efficiently resolve international mass disputes given the realities of globalization and the lack of any clear forum.

From the late 1990s through the first decade of this century, there were several trends favoring the U.S. courts as a global forum for litigating international disputes. However, recently, that trend has reversed, and the U.S. courts are becoming increasingly reluctant to entertain international class action litigation.

One of the hottest trends in securities litigation in the latter part of the last decade was what became known as foreign-cubed (or “f-cubed”) class actions, securities fraud class actions filed on behalf of foreign investors against foreign companies involving securities traded on a foreign exchange. The trend came to an abrupt halt, however, when the U.S. Supreme Court issued its decision in Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869 (2010), holding that section 10(b) of the Securities and Exchange Act does not have an extraterritorial reach and only applies to securities traded on a U.S. exchange or other transactions that occurs within a U.S. state or territory. Although lower court decisions following Morrison, including a recent Second Circuit Court of Appeals decision, may breathe some life back into the idea of litigating a small subset of primarily foreign securities disputes in the U.S. federal courts, Morrison has generally closed the U.S. courts to foreign-cubed class actions.

Another promising avenue for litigating global mass disputes was international arbitration. A developing strategy was for plaintiffs who had signed form arbitration agreements to seek to compel arbitration on behalf of both themselves and others who had signed the same form of agreement. (Several arbitration associations have implemented specific rules for how class arbitrations should be conducted. Here is a link to the AAA Supplemental Rules for Class Arbitration). The Supreme Court put an end to this strategy when it decided the international price-fixing case, Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758 (2010). In Stolt-Nielsen, the Court held that a party to an arbitration agreement could not compel class-wide arbitration unless the parties had expressly agreed to allow class, rather than individual, arbitration.

In the human rights area, the U.S. Alien Tort Claims Act has increasingly been used as a tool to litigate international disputes involving alleged violations of international law over the past two decades. Several circuit courts of Appeals have even allowed actions under the ATCA to be brought against private corporations, under the theory that those corporations aided and abetted a foreign government or foreign official in committing human rights abuses. However, the Circuits split on the issue, and the Supreme Court accepted certiorari to resolve the split in the case of Kiobel v. Royal Dutch Petroleum, No. 10-1491. Following an oral argument held last month, the Supreme Court issued an order directing the parties to submit supplemental briefing to address the extent to which the ATCA should permit the exercise of extraterritorial jurisdiction at all over acts that took place within a sovereign jurisdiction other than the United States. Questions posed during oral argument, especially by the conservative wing of the Court, suggest skepticism about the allowing U.S. Courts to adjudicate human rights disputes that have nothing to do with the United States.

At the same time that avenues for global mass redress in the U.S. Courts have been closing, doors have been opening in other parts of the world. Class action law continues to develop in Canada and Australia. Israel has a class action procedure that closely mirrors U.S. law. Dozens of other countries in all corners of the world now have procedures allowing at least some form of mass redress. A very recent example is a class action law enacted in Mexico that permits a form of collective litigation that, while quite different from class actions in the United States, provides express mechanisms for seeking collective redress. In 2006, the Netherlands passed a law that allows mass settlements of claims (although it does not provide a procedure for litigating contested class claims), and arguably allows residents of other EU countries to be included. In other countries, the lack of a specific class or collective action procedure has not kept courts from fashioning remedies for mass redress.

The continuing lack of a single global forum for litigating mass disputes and the proliferation of new procedures permitting collective litigation abroad, are likely to have at least one near term practical impact. That is, the development of areas of law dealing with the enforcement of foreign class or collective action judgments. This has already become a reality in a huge environmental contamination case involving the drilling operations of a formal Chevron subsidiary in Ecuador. In 2010, a court in Ecuador entered an $18 million judgment in the case, and proceedings are ongoing in both the U.S. courts and in international arbitration proceedings relating to the enforceability of the judgment.

In a related vein, U.S. courts increasingly find themselves adjudicating disputes under 28 U.S.C. § 1782, which allows litigants discovery in the United States for use in connection with foreign proceedings (see this recent Second Circuit Court of Appeals decision interpreting the statute).

What does this all mean for potential litigants in global disputes? For any company or even small business that does business internationally, these developments highlight the necessity of keeping up with the constant changes in local laws as well as international trends. The procedures that might have been applicable, and arguments that might have been persuasive a year before, may no longer be viable, but new avenues and theories will have almost certainly taken their place.

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Third party litigation funding has become intriguing development in the expansion of global class and collective action litigation over the past several years, particularly in Australia.  (For various previous CAB articles addressing third party litigation funding, click here).  The concept of third party litigation funding generally refers to financing of litigation by a private party or corporation that is not a party to the dispute, in exchange for a right to a portion of the recovery if the litigation is successful. 

In the U.S., the ethical rules prohibiting fee-splitting with nonlawyers made most types of third party litigation funding improper (see Model Rules of Prof’l Conduct, R. 5.4(a)), while the existence of law firm funding through contingent fee arrangements (Model Rules of Prof’l Conduct, R. 1.5(c)) made nonlawyer sources of funding unnecessary for the development of class action litigation.

However, in other parts of the world, where contingent fees are prohibited, third party litigation funding has developed as an alternative to provide a means for plaintiffs to pay for class action litigation and to avoid the risks associated with the English rule, or “loser-pays” rule, which requires the loser of a case to pay the other side’s costs and attorneys’ fees.

Sue Lannin, financial reporter for ABC (Australia Broadcasting Corporation) News, published this article on Wednesday discussing the impact that private litigation funding may be having on class action litigation in Australia.  The article quotes one Australian attorney who believes that private litigation funding is responsible for a recent increase in shareholder class actions and will likely continue to generate an explosion of class action litigation in that country.  However, the article also quotes an attorney with a contrary view, that the recent increase in shareholder class actions is simply the result of the financial crisis in the latter part of the last decade.

The combination of deep pockets and the legal ability to pursue class action litigation for profit would appear to be a good recipe for expanding class action litigation anywhere, but whether litigation funding in Australia actually creates a “US-style litigation culture with unregulated legal financiers shopping around for cases” remains to be seen.

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NERA Economic Consulting has published its first study on trends in securities class actions in Australia.  The study covers a variety of topics, including numbers of filings, industries targeted, and settlement amounts.  However, what I found to be of particular interest is the study’s focus on the impact of private litigation funding.

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Litigation funding by private corporations other than law firms or individuals who are not lawyers is generally prohibited here in the US, but the concept is catching on overseas, especially in jurisdictions that have a “loser pays” rule for allocating fees and costs.  This recent entry from The D&O Diary summarizes an article predicting that the ability to assign of securities claims in the UK to private equity firms and hedge funds will lead to an increase in securities filings in that country, by relieving some of the risks of the loser pays rule.

Today, Stuart Wilson of the Australian Shareholder’s Association published this op-ed in The Australian discussing private funding of shareholder class actions Down Under.  The article discusses the role of a listed litigation funding company, IMF Australia, which recently funded a successful class action and earned a healthy fee for its services.  Mr. Wilson discusses the impact of new companies and law firms moving into the “fledgling industry” of litigation funding and the possibility that they will drive the price of litigation funding down.  For the moment, though, he says that IMF’s “stranglehold” on shareholder class actions allows it to keep its fees high.  Even so, he defends third party litigation funding as a mechanism for providing access to justice for millions of shareholders who would otherwise not have any practical means of bringing their claims.

Addressing the possibility that third party litigation funding will open the door to the “frivolous shareholder actions” that he seems to concede are common in the US, Mr. Wilson says no, pointing to two factors.  First, he points out that losing plaintiffs, and in turn, the funder, can be assessed litigation costs.  Second, he argues that faced with the prospect of having to pay costs in losing cases, IMF takes a conservative approach in deciding which cases to pursue and that “only the strongest cases are considered.”

I guess time will tell whether this same conservative approach will prevail as the new players move into the securities class action litigation funding market and the competition increases.  The bigger question is, what happens if the officers or directors of a company that funds securities litigation make a false or misleading statements to their own shareholders about that litigation?

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For those of you interested in class action reform issues abroad, Jocelyn Kellam and Stuart Clark of the Australian firm Clayton Utz have a new article out today entitled Australia: Be Alarmed Be Very Alarmed: Class Action Reforms Mooted, available at www.Mondaq.com (free registration may be required).  The article is critical of several pro-plaintiff reforms being considered by the State of Victoria that the authors say would “make even more plaintiff-friendly than the United States.”

Some of the proposed reforms described in the article may raise a few eybrows even for the most jaded class action defense lawyers here in the U.S.  They include a measure to give judges discretion to award cy pres remedies (for example, an award requiring a defendant pay money to charity when absent class members cannot be located), the addition of a legal assistance fund that would, among other things, help defray adverse cost awards, giving absent class members the right to be included in the class only if they consent (it is not clear to me whether this is an opt-in provision or something different), and a provision allowing for the joinder of plaintiffs who have claims against different defendants, as long as each plaintiff has a claim against one defendant.

The article notes that the reforms have been criticized as “read[ing] like a wish list for plaintiff lawyers” and “would make Victoria a veritable nirvana for plaintiff lawyers.”

The Clayton Utz website has various articles, papers, and brochures discussing Australian class action issues.  Here is a link.

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I came across this article today from Australian news outlet The Age regarding proposed class action reforms being considered in the Australian Federal Court.  Among the possible reforms reportedly being considered is a measure “restricting an appeal on an interlocutory issue until the entire case is heard.”

The quoted statement is admittedly lacking in detail, but the article appears to be saying that interlocutory appeals are now allowed Australian class actions but would be prohibited if the reforms are adopted.  That would be an interesting change of direction considering that the trend in American class action reform has been to go from a prohibition on interlocutory (meaning before a final verdict or judgment) appeals in class actions to allowing them under some circumstances.

Rule 23(f), Federal Rules of Civil Procedure, for example, was amended in 1998 to allow interlocutory appeal of class action certification decisions.   (See my early entry here).  Changes to various U.S. state rules and statutes, including Colorado, regarding interlocutory appeal of class certification decisions have come even more recently.   For a summary of various states’ class action reforms, see this handy guide from the American Tort Reform Association.

For previous news and commentary on ClassActionBlawg.com regarding class action reforms being considered by the EU and several of its member countries, as well as Canada, see herehere, and here.

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