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
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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.
Consumers Don’t Benefit from UK Collective Actions. So How Exactly Does that Make them Different from US Class Actions?
Posted in Class Action News, Class Action Trends, Commentary, International Class Action Law, tagged antitrust, antitrust conference, class action reform, collective action, International Class Action Law, jjb sports, opt in, opt out, UK class action, UK collective action on December 1, 2008| 2 Comments »
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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