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Posts Tagged ‘collective action’

A new civil procedure code has come into force in Brazil, and Larissa Clare Pochmann da Silva, Law Professor at Candido Mendes University and long-time friend to ClassActionBlawg.com, has prepared a summary of some of the new procedures that could impact multi-party and collective proceedings in that country.  Co-authored by Aluisio Gonçalves de Castro Mendes, Professor of Complex Litigation and Civil Procedure at Rio de Janeiro State University, the article is entitled Incident of Resolution of Repetitive Demands (IRDR) and Repetitive Appeals in the New Brazilian Civil Procedure Code.  Click the following link to download the article: Repetitive Pleas in the Brazilian New Civil Procedure Code.

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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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After years of debate, France has finally passed its first “class action” law. Act No. 2014-344 of 17 March 2014 (relatif à la Consommation) went into effect on March 18. Chapter One of the new law introduces a new collective action procedure to adjudicate claims arising out of anti-competitive behavior and certain other consumer protection claims. Like the group action laws of many other civil law countries in Europe, the new procedure is very different from consumer class actions as they are known in the United States and other common law countries. The law creates a simplified opt-in collective action procedure that can only be enforced by an approved consumer association, not by individual litigants.  However, it is a significant development for a jurisdiction that has long resisted implementing collective action procedures of any kind.

Here is a link to the google translation of the Act in English.

Thanks to friend of ClassActionBlawg Larissa Clare Pochmann da Silva for tipping us off to this new development.

For a more detailed summary of the various aspects of the new law, see this Lexology article authored by Jérôme Philippe, Maria Trabucchi, Stephane Benouville, Dimitri Lecat and Alexandra Szekely of Freshfields Bruckhaus Deringer LLP.

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In recent years, academics outside of the United States have made some of the most valuable contributions to the development of legal theory of class actions and other collective litigation.  Here are two examples of recent works by thought leaders in this area:

INDIVIDUAL STANDING IN CLASS ACTIONS (A LEGITIMIDADE DO INDIVÍDUO NAS AÇÕES COLETIVAS)

Author: Larissa Clare Pochmann da Silva (Master in Law in UNESA, Doctorate in Law student at UNESA and Professor of Complex Litigation and Civil Procedure at UCAM – Rio de Janeiro, Brazil)

Abstract (translated from Portuguese):

Individual Standing in Class Actions offers an important and interesting approach to the question of standing, one of the most important themes relating to the development of Brazilian class actions.

The first part the book summarizes research on foreign law, inquiring into the state of the art of collective protection throughout Latin America (Brazil, Argentina, Chile and Mexico), in the United States and Canada, in the European Union (Germany, France, England and Italy) and in Australia.  Part two offers a comparative analysis of these jurisdictions’ various approaches to standing.

Part three organizes the main objections to representational standing and argues for laws recognizing the standing of individuals to sue in a representative capacity, demonstrating the reasons for its relevance, and the important role to be played by lawyers in class actions.

Finally, the book addresses the question of the participation of the individual from various perspectives, seeking to offer a systematic framework for the standing discussion and proposals for the improvement of collective protection in Brazil.

The result is a work that contributes to the development and strengthening of collective action law in Brazilian and brings a new perspective of modernization and improvement of tools for access to justice and the effectiveness of the process.

Pochmann da Silva’s book is available at http://www.editoragz.com.br/produto.asp?prodId=199.

 

AN ECONOMIC ANALYSIS OF RELIANCE IN MARKET FRAUD AND NEGLIGENT MISREPRESENTATION

Authors: Alon Klement and Yuval Procaccia (Interdisciplinary Center (IDC) Herzliyah – Radzyner School of Law, Israel)

Abstract:

A deeply entrenched principle in the law of fraud and negligent misrepresentation provides that damages can be recovered only upon a showing of reliance. To prevail, plaintiffs must not only establish the mere falsity of a statement, but also show that they had acted upon the statement and sustained injury as a consequence.

Despite the intuitive appeal of this principle, this paper argues that the reliance requirement ought to be abandoned. Harm can be caused by a misrepresentation without reliance, and recovery for such loss should not be barred. When a firm misrepresents an attribute of a product, its price in equilibrium typically rises. The inflated price is an injury caused to all consumers, relying and non-relying alike. A rule restricting recovery to only relying consumers results in inadequate deterrence of the firm, which in turn spurs a host of inefficient effects: it may distort allocative efficiency; encourage investments by firms in the production of fraud; induce investments by consumers in self-protection efforts and in detrimental reliance investments; and prompt competing firms to invest excessively in signaling. Furthermore, it undermines deterrence by erecting a substantial barrier to private enforcement through class actions.

While the discussion focuses on consumer markets, it applies more broadly to other markets and other market structures. We explicitly discuss its extension to security markets, in which the requirement has been famously revoked. While the analysis supports existing policy in the domain of primary security markets, it does not do so in the context of secondary markets.

Klement and Procaccia’s article is available for download at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2372922

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Today, the Supreme Court issued its ruling in Genesis Healthcare Corp. v. Symczyk, No. 11–1059, which addresses the practice of “picking off” a named plaintiff in a FLSA collective action by making a full offer of judgment under Rule 68 for the amount of the named plaintiffs’ claim.  In a 5-4 majority opinion authored by Justice Thomas, the Court held that the relation back doctrine does not apply to save the collective action from mootness simply because the named plaintiff also sought relief on behalf of others.  The majority distinguished the case from other decisions applying the relation back doctrine in the Rule 23 context after class certification had been denied, pointing out that a certified class under Rule 23 has an independent legal existence from the named plaintiff.  However, the reasoning of the majority’s decision in Genesis Healthcare Corp. could potentially be applied to support the conclusion that an unaccepted offer of judgment moots even a Rule 23 class action if the offer is accepted or expires prior to a ruling on a motion for class certification one way or the other.

The majority’s decision comes with a major caveat.  The majority declined to address the issue whether a non-accepted offer of judgment actually moots an individual’s claim, despite recognizing a split in the circuits on that issue.  This prompted the following commentary in Justice Kagan’s dissent:

The decision would turn out to be the most one-off of one-offs, explaining only what (the majority thinks) should happen to a proposed collective FLSA action when something that in fact never happens to an individual FLSA claim is errantly thought to have done so. That is the case here, for reasons I’ll describe. Feel free to relegate the majority’s decision to the furthest reaches of your mind: The situation it addresses should never again arise. . . .  [T]he individual claims in such cases will never become moot, and a court will therefore never need to reach the issue the majority resolves. The majority’s decision is fit for nothing: Aside from getting this case wrong, it serves only to address a make-believe problem. 

Whether Justice Kagan’s cheeky prediction turns out to be prophetic will be up to the lower courts, who are left to decide the underlying question of mootness.  In the short-term, there is little doubt that the Genesis Healthcare decision will prompt a rash of offers of judgment in both FLSA cases and class actions.

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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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I’m pleased to announce that the BakerHostetler Class Action Defense Team has just released its 2012 Year-end Review of Class Actions, a joint project with the firm’s Employment Class Actions, Antitrust, and Data Privacy practice teams.  See below for a synopsis of the project.  Click the link above to access a copy of the report itself:

We are pleased to share with you the BakerHostetler 2012 Year-end Review of Class Actions, which offers a summary of some of the key developments in class action litigation during the past year. Class action litigation continues to persist in all areas of civil litigation despite the Supreme Court’s 2011 decisions in AT&T Mobility v. Concepcion and in Wal-Mart Stores, Inc. v. Dukes, which were seen by many commentators as marking the beginning of the end of class actions as we know them. But while the Supreme Court’s 2011 decisions have had a significant impact on class action litigation, they have not brought about its demise and are not likely to do so anytime soon. In the last two years, we’ve seen landmark decisions and the addition of important judicial gloss to those decisions. 2013 will be no different as the Supreme Court is set to weigh in on a series of key cases this spring.

We hope you find this Review a useful tool as you move forward into the new year. This comprehensive analysis of last year’s developments in class action procedure and jurisdiction, as well as developments by subject matter will hopefully provide context and insight as you look ahead to 2013’s expected trends in class action law, including the proliferation of privacy class action litigation and class action litigation relating to the LIBOR rate-fixing scandal.

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