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Editor’s Note: The publication schedule for my notes of the recent international class action conference at the University of Haifa has suffered various setbacks due to staffing constraints.  Of course, since I have a staff of one, I only have myself to blame.  In any event, here is the third installment.  Expect additional installments in the coming weeks.

Panel 2: Enforcement of consumer rights by associations and regulators

CLICK HERE FOR THE FULL VIDEO REPLAY

The second panel presentation focused on the enforcement of collective rights by regulators and associations, a phenomenon that is the current norm for many types of collective redress proceedings throughout the world.  The panel discussed developments and case studies in Brazil, France, Germany, the UK, and other jurisdictions where regulatory and associational enforcement is more common, and juxtaposed those developments against the US collective redress regime, which focuses on private enforcement, particularly through the class action procedure.

The discussion touched on the pros and cons of private entrepreneurial litigation versus regulatory or nonprofit public interest enforcement, as well as the benefits and disadvantages of the US class action model as compared to public and associational regimes common in Europe and Latin America.  The panel repeated the theme that policymakers outside the US often believe that private enforcement easier creates an unacceptable risk of “letting the wolves in” and encouraging frivolous litigation.  On the other hand, there is a recognition that the US model can result in more frequent and higher recoveries for injured parties, oftentimes with lower overall transaction costs.

The panel discussed criticisms that regulatory/associational enforcement model may be illusory in many cases.  Regulators have the power to enforce in many EU countries by don’t often exercise it.  Many public authorities don’t like the idea of pursuing redress for individual consumers, preferring to act in more of a traditional regulatory enforcement role where they seek penalties or injunctive relief, but not individual damages for injured parties.  Nonprofit or special purpose associations often lack the financial incentive to pursue collective litigation, leading to a void in enforcement that is now being filled by emerging litigation funding models.  However, there is an ongoing debate about whether litigation funding should be limited to not-for-profit public interest organizations or whether for-profit, venture capitalist litigation funding should be allowed.

The panel also discussed the significant impact of the lower pays rule, where an unsuccessful plaintiff is responsible for paying the legal fees of the defendant, in discouraging private enforcement in jurisdictions outside the US. The loser pays rule creates a greater need for associational or public enforcement that is not generally present in the US, where the “American Rule” generally makes both sides responsible for their own legal costs despite the outcome, in the absence of a statutory cost-shifting provision.

Another factor discussed by the panel as impacting the effectiveness of a collective redress regime is whether the model allows for an opt in collective action or opt out class action.  In an opt-in proceeding an individual claimant has to take affirmative steps to participate.  In an opt-out proceeding, exemplified by the US class action rule, potential claimants can be passive beneficiaries to the litigation and reap the benefits of a successful case without taking any affirmative action at all, but risk having their rights barred if the action is not successful.   Panelists discussed situations in which opt-in regimes incentivized potential claimants hold back and await the outcome of regulatory or associational legal action before deciding whether to act at all, something US class action procedures have the practical effect of discouraging in most cases.

I found this presentation intriguing because it offered a summary of the key comparative differences between collective redress regimes available outside the US as compared to the US class action model, and offered key insights into many of the policy rationales underlying those differences.

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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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Berta Baz published this article yesterday in Money Market UK, which may be of interest anyone who tracks developments in class and collective actions abroad.  The article discusses the tension between a collective action notice procedure and the Spanish Data Protection Act.

According to the article, a Madrid court issued an order requiring the Spanish bank BBVA to produce electronic customer data to consumer association ADICAE so that the association could solicit customers to opt in to a collective action against the bank.  The bank produced the data to the court but asked that the data not be passed on to the association until a request for an injunction is considered by the Constitutional Court.  The question apparently to be raised there is whether Spanish data privacy law prevents an order requiring a company to produce private data to the plaintiff representative in a collective action so that the plaintiff can give notice of the opportunity to opt in the lawsuit. 

Like many civil law jurisdictions in Europe, Spain allows collective litigation only on an opt-in basis (would-be group members have to affirmatively opt in to be bound).  (For more on Spanish Collective Litigation, see this article by Pablo Gutiérrez de Cabiedes Hidalgo, available courtesy of the Stanford Global Class Actions Exchange).

Baz points out that there is a practical alternative to requiring the defendant to turn its customer data over to the plaintiff in a collective action that arguably does not violate privacy rights: requiring the defendant to give the notice to the class members directly.  It is unclear, under either procedure, who bears the cost of sending the notice.

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UK legal publication The Lawyer has an interesting article out today for anyone tracking trends in class and collective action reform across the pond.  According to the article, Which?, a consumer organization granted the right to pursue collective redress on behalf of consumers harmed by conduct declared to have violated antitrust laws, isn’t convinced that it would pursue another one after facing several practical barriers in pursuing a case against a sports merchandiser for allegedly selling overpriced replica soccer jerseys.  Among the challenges cited by a lawyer for the group was the fact that few consumers found it worth their while to pursue a claim in light of the relatively modest amounts they stood to gain (£20 per person), the fact that consumers had to provide proof of purchase, and the fact that years had passed by the time the opportunity to make a claim became available. 

The report notes that even after a highly publicized media campaign highlighting the case, only about 500 consumers decided to participate.  The total amount of the settlement payout was around £18,000, plus reasonable litigation costs, as compared to a multi-million dollar penalty imposed against the company for its anti-competitive actions in the first place.   An earlier article by The Lawyervalued those costs at many hundreds of thousands of pounds, dwarfing the amount of the payout.  That article quotes a lawyer for which as saying that the use of an opt-in versus an opt-out system contributed to the discrepancy.

The issue of the cost of litigation versus the actual benefit to victims, however, is one that arises whether the system is opt-in or opt-out.  Even in the U.S., which technically has an opt-out system, actual monetary redress to alleged victims happens as a result of some sort of claim-in process, either as part of a settlement or a distribution of a judgment.  Unclaimed funds are either distributed pro-rata to those class members who do file a claim, returned to the defendant, paid to the government, or distributed to charity as part of a cy pres remedy.  In any event, the system does not in any way guaranty redress to those who don’t have the means to prove their entitlement to relief or who don’t find it worthwhile to pursue a remedy.

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Fullbright & Jaworski International attorneys Antony Corsi and Ian Pegram authored an article published yesterday in the Times Online discussing whether proposed opt-out collective action procedures are likely to lead to huge increases in litigation costs for companies doing business in the UK and due to a rash of frivolous class actions. 

As I have noted in previous entries, the British reforms have been proposed by a quasi-governmental “Public Advisory Body” called the Civil Justice Council.  Following a report issued in February, the CJC held a conference in March and issued specific recommendations for reforms to collective action procedures in August.  Most recently, a conference was held to discuss those recommendations in September in which lawyers, judges, academics, and trade union representatives provided comments on the recommendations.  Reports on all of these events are available on the CJC’s main web page under “What’s New.”

The recommendations would make British collective action procedures more similar to U.S. class actions, but overall collective actions in the UK would still be different from the truly representative class action system in the U.S.  This August 28 ClassActionBlawg entry summarizes the proposed changes.  One of the most significant changes would be the adoption of a procedure allowing collective actions to be brought on an “opt-out” basis (where absent plaintiffs would be bound by the result unless they affirmatively excluded themselves from the litigation).  Currently, the current UK standard for collective actions is “opt-in”, where plaintiffs have to affirmatively join the suit in order to participate.  As examples in the Corsi and Pegram article illustrate, allowing cases to be litigated on an opt-out basis as opposed to an opt-in basis can make a huge difference to the legal exposure, since oftentimes only a very small percentage of the potential plaintiffs bother to participate in an opt-in case.

Corsi and Pegram conclude that despite changes that would add certain features of U.S.-style class action procedure to the UK, those changes are not likely to produce the “American-style excesses” that many in the business community fear.  They point out that the CJC has been particularly sensitive to these concerns and has proposed procedures, including strict oversight by specialist judges, to prevent abuse of the process.  Walter Olson of Point of Law, discussing the article in this entry, opines that other aspects of civil procedure in the UK–such as stricter limits on forum shopping and a loser-pays attorneys fee-shifting rule–are more likely reasons why we might not expect a flood of class action litigation if the reforms are adopted.  As other commentators have pointed out, Europeans have different societal attitudes toward litigation in general and toward the role of the courts in providing redress for private harm, which may also play a part in tempering the legal exposure to businesses that might otherwise be expected to result from an increased availability of collective redress.

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