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Posts Tagged ‘representative 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 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.

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Emerald Supplies Ltd. v. British Airways PLC is already being heralded as a rejection of US-Style class actions in the UK, but my reading of the opinion leaves the question far from settled.  The opinion falls far short of foreclosing the possibility of a representative action in every case where the plaintiffs’ interests are not literally identical.  In fact, the opinion appears to turn on two flaws that may very well have prevented class certification under US procedure.

In articulating the standard for what constitutes “the same” interest sufficient to justify treatment of a case as a representative action under Civil Procedure Rule 19.6, Lord Justice Mummery was careful to say that “[t]his does not mean that the membership of the group must remain constant and closed throughout. It may indeed fluctuate. It does not have to be possible to compile a complete list when the litigation begins as to who is in the class or group represented.”  Opinion ¶ 63.  Instead, he articulated two problems in treating the case as a representative action, both of which would also be potentially fatal to class certification under Rule 23. 

First, he observed that there were problems in ascertaining who was a member of the proposed class:

The problem in this case is not with changing membership. It is a prior question how to determine whether or not a person is a member of the represented class at all. Judgment in the action for a declaration would have to be obtained before it could be said of any person that they would qualify as someone entitled to damages against BA. The proceedings could not accurately be described or regarded as a representative action until the question of liability had been tried and a judgment on liability given. It defies logic and common sense to treat as representative an action, if the issue of liability to the claimants sought to be represented would have to be decided before it could be known whether or not a person was a member of the represented class bound by the judgment.

Id.  Second, he observed that certain defenses might be available as to some members of the would-be class, but not others:

A second difficulty is that the members of the represented class do not have the same interest in recovering damages for breach of competition law if a defence is available in answer to the claims of some of them, but not to the claims of others: for example, if BA could successfully run a particular defence against those who had passed on the inflated price, but not against others. If there is liability to some customers and not to others they have different interests, not the same interest, in the action.

Id. ¶ 64.  In conclusion, Lord Justice Mummery returned to his concern about the inability to determine class membership without first ruling on the merits:

In brief, the essential point is that the requirement of identity of interest of the members of the represented class for the proper constitution of the action means that it must be representative at every stage, not just at the end point of judgment. If represented persons are to be bound by a judgment that judgment must have been obtained in proceedings that were properly constituted as a representative action before the judgment was obtained. In this case a judgment on liability has to be obtained before it is known whether the interests of the persons whom the claimants seek to represent are the same. It cannot be right in principle that the case on liability has to be tried and decided before it can be known who is bound by the judgment. Nor can it be right that, with Micawberish optimism, Emerald can embark on and continue proceedings in the hope that in due course it may turn out that its claims are representative of persons with the same interest.

Id. at 65.

The primary concern raised by Lord Justice Mummery is the problem of a “fail-safe” class, a common obstacle to class certification in the U.S.    Even under the seemingly more liberal US Rule 23, a class cannot be defined in such a way that requires the case to be adjudicated on the merits before it can be determined who is in the class.  (See recent CAB review quoting Anderson & Trask’s, The Class Action Playbook, comparing fail-safe classes to Schrödinger’s cat).  Thus, classes consisting of “all consumers who were defrauded” or “all purchasers who paid inflated prices due to the defendant’s act of price fixing” are not sufficiently ascertainable to be certified under Rule 23.

The secondary concern could also prevent certification under US law.  The fact that a defendant’s defenses may vary from person to person is often a consideration in denying class certification under Rule 23.

In short, it appears to this outsider that it may be too early to tell whether Emerald Supplies is truly the death knell for US-Style class actions in the UK, or whether it is simply the first in a line of decisions defining the contours of a more robust law of representative actions across the pond.

One thing is certain, though.  There are very few US judges who could get away with using the word “Micawberish” in an opinion.

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(Editor’s note – Revised at 6:26 p.m. MST to include link to the decision.  See below)

As reported by Jane Croft and Pilita Clark at the Financial Times and Eric Larson at Bloomberg, the Court of Appeal of England and Wales ruled yesterday that an antitrust suit filed by two shipping businesses against British Airways may not go forward as a collective action on a representative basis.    Based on the description of the ruling in the media reports, the decision seems to reaffirm the conventional wisdom that opt-out representative actions are not viable in the UK under existing procedure and that new legislation will be necessary before US-style class actions come to the UK.

Here is a link to the text of the decision, courtesy of BAILII.org 

The law firm Ashurst LLP also has a summary of the decision and related commentary available for download at its website:

www.ashurst.com/page.aspx?id_content=5559 

Check back in a few days for more commentary on this decision…

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As someone who reads a lot of news articles about class action lawsuits, I see a lot of technical misstatements by the media in reporting on the mechanics of class action procedure.  To most casual readers, these errors may not be that important to the overall story about a particular lawsuit, so the distinctions that I will discuss below may seem a bit hyper-technical.  But, if you’re still reading this entry, you’re probably at least a little curious, so here goes…

One common mistake addressed in a previous entry is the identification of some cases as “class actions” when they are in fact mass tort cases or other types of representative actions.

Recently, I have come across quite a few articles and TV reports that describe a class action lawsuit or settlement and then discuss how affected people can “join” in the case.  That statement can be technically correct in describing certain employment actions, such as those filed under the Fair Labor Standards Act, that expressly require affected persons to affirmatively opt in to the suit.  It might also be correct in describing group lawsuits in many other parts of the world that have an “opt in” collective action procedure.  However, in reference to most consumer class actions filed in the US, the word “join” is a misnomer.  This is because a class certified under Rule 23, Federal Rules of Civil Procedure (and the similar rules of many states) automatically includes all members of the defined class unless they “opt out”.  So, to discuss how a person might “join” a class action is actually more than a technical error, it’s actually the polar opposite of what really happens in a class action.  What’s more, the right to opt out may not exist at all if the claim is not one for damages under Rule 23(b)(3).

So what do journalists mean when they talk about “joining” a class action?  It depends on the context, but there are a couple of possibilities.  First, they might be referring to the steps necessary to file a claim for benefits under a class action settlement.  In that situation, a person might be a class member but not be entitled to any settlement benefits unless he “joins” by filing a claim form.  Second and less likely, the word “join” could be in reference to a plaintiffs’ firm soliciting potential class representatives for a yet-to-be filed class action lawsuit or soliciting additional representatives or witnesses in an existing class action.  In that case, the word “join” would denote a much more active role than just taking part in the benefits of a potential windfall.

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I commented recently on the fact that the well publicized “class-action” trial against the United States Department of Veteran’s Affairs was never actually certified as a class action.  Instead, the case is being pursued by two nonprofit veterans’ advocacy groups who are pursuing the case on behalf of their members based on a concept called associational standing.  The popular media often uses the misnomer “class action” to define a wide range of lawsuits in which one or a few litigants prosecute a case on behalf of a larger group of interested parties.  Here is a partial glossary of them, along with some other terms often associated with representative actions:

Class Actions – Class actions are brought by one or more class representatives on behalf of a larger group of similarly situated people or legal entities.  Rule 23, Federal Rules of Civil Procedure, and similar state rules of civil procedure, govern whether a case can proceed as a class action.  A case does not become a true class action until the judge certifies a class.  Before a class is certified, lawyers and courts often refer to the case as a putative class action.

Derivative Suits – These lawsuits are brought by shareholders of a corporation on behalf of the corporation to pursue the rights of the corporation that the corporation itself has failed to enforce.  Derivative suits are governed by Rule 23.1, Federal Rules of Civil Procedure and similar state court rules.  A lawyer considering a lawsuit for corporate wrongdoing may face a choice between filing the case as a class action or a derivative suit.  See this recent WSJ Law Blog article for a recent example.

Collective actions – Some statutes, notably the federal Age Discrimination and Employment Act (ADEA) and Fair Labor Standards Act (FLSA), allow a court to certify a collective action as opposed to a representative action.  The key difference between these collective actions and representative actions like class actions is that in a collective action, absent parties are asked whether they want to opt in to the lawsuit.  By contrast, in a class action, absent parties are bound by the result of the litigation unless they opt out of the case after getting notice.  Many FLSA cases are brought as both collective actions and class actions.   The collective action procedure covers the FLSA claim, while the class action procedure governs any related state law claims.  Here’s a good article for more detail on the distinctions between collective actions and class actions.

Attorney general actions – State attorneys general and other governmental authorities (like the Federal Trade Commission) may, by statute, bring actions to enforce the rights of consumers and the public at large.  Here’s a link to the Colorado Attorney General’s consumer protection page.  See the Federal Trade Commission website for examples of consumer actions being pursued by the FTC.

Parens patriae actions – Parens patriae actions are a species of attorney general actions in which the government brings claims to recover monetary losses on behalf of its citizens.  In these actions, the government stands in the shoes of individual citizens and prosecutes the action to recover money for their benefit.  Here’s a link to a paper addressing parens patriae actions.

Private attorney general actions – Some statutes allow any person to bring an action to protect the rights of the public.  Until recently, an example of a statute allowing this type of action was the California Unfair Competition Law, Business & Professions Code Section 17200, which allowed a case to be brought on behalf of consumers injured by a defendant’s act of unfair competition, whether or not the plaintiff him or herself was harmed in any way.  This changed recently when the voter referendum Proposition 64 was passed, which requires a litigant to have lost money or other property as a result of the challenged practice, and must be able to satisfy the requirements for a class action in order to be allowed to pursue a UCL claim in a representative capacity.  A great resource for developments on the UCL is Kimberly Kralowec’s blog The UCL Practitioner.  Another example is California’s Labor Code Private Attorneys General Act of 2004 (PAGA), also called the Bounty Hunter Statute, which allows employees to pursue violations of the state labor code whether or not they had suffer injury, including the ability to pursue statutory penalties on behalf of the state and to share in any recovery of those penalties.  Here’s a link to an interesting California Court of Appeal decision addressing both PAGA and the UCL and the viability of an assignment of representative claims under those laws.

Qui tam actions – The federal False Claims Act is another example of a law that allows a private individual to pursue an action on behalf of the government.  An individual who has information about the misappropriate or theft of government funds may file an lawsuit under the Act known as a qui tam action.  The government has an opportunity to decide to take over the prosecution of the case, but if it declines, the person who filed the action may proceed and in the event of a recovery, he or she is entitled to a portion of the recovery.  Here is a link to an article summarizing the federal False Claims Act.

Associational actions – An association may, in some circumstances, bring an action on behalf of its members.  See this previous entry regarding the recent trial against the VA for more discussion on the requirements for associational standing.

Mass actions – Many lawsuits that people commonly associate with the term “class action” are really mass actions.  Mass actions are cases that involve the joinder of many individual claims for discovery, resolution of certain legal issues, or other purposes.  Unlike class actions, however, each claim ultimately has to be brought by an individual plaintiff, who must have some involvement in the proceedings.  Examples include many products liability cases, like those involving alleged injuries caused by tobacco, asbestos, or pharmaceuticals, where a common set of acts form the basis of a the claim for liability but where the effects are too individualized to establish all of the requirements necessary to support a true class action.  They may also be cases involving claims that arise from a single catastrophic event, like an airplane crash, toxic leak, or oil spill.  A well-known example is the Exxon Valdez oil spill case.  When numerous mass actions against the same defendant or group of defendants are filed in the federal courts, the cases are often transferred to a single district court under rules promulgated by the United States Judicial Panel on Multidistrict Litigation (MDL)

Bellwether trials – This is not so much a type of lawsuit but rather a procedural device to assist in resolving cases involving similar claims.  A bellwether trial is a essentially a sample test case, where one claim or set of claims are tried first to establish a precedent for the rest.  Bellwether trials generally cannot be used to bind parties in one case to the results of another, but they can be a useful tool for providing information to assist attorneys with valuing similar cases for settlement purposes.  Here are some good entries discussing bellwether trials from the Drug and Device Blog and the Mass Tort Litigation Blog.

Aggregator actions – For lack of a better phrase, this novel procedural vehicle involves the assignment of various plaintiffs’ right to pursue a lawsuit to a single person or entity, called an aggregator.  This procedural device is at issue in a case now pending before the United States Supreme Court.  See this entry at SCOTUS Blog.

Virtual representation – This is a concept applied in the trusts and estates area.  Under the doctrine of virtual representation, the participation in a proceeding of one heir or trust beneficiary can sometimes be deemed to be sufficient to protect the interests of unborn, unascertainable, or minor beneficiaries who could not otherwise appear.  See page 20 of this comprehensive summary of the 2005 Uniform Trust Code.

Non-mutual offensive collateral estoppel – The doctrine of collateral estoppel, or issue preclusion, provides that a party can be prevented from relitigating certain issues that were previously resolved against it.  Ordinarily, the concept applies to issues that were previously litigated between the same parties, but is sometimes possible for a plaintiff to bind a defendant to an earlier ruling in a case in which the plaintiff was not a party, if the earlier case involved a plaintiff with similar interests, and if the defendant had the same incentives to defend the lawsuit.  This doctrine has been applied only in very limited situations.  For a good analysis, see this Ninth Circuit Court of Appeals opinion

Reverse Bifurcation – Is a controversial procedure used in the West Virginia courts in which the punitive damages phase of a mass tort case against a defendant is tried before the liability phase.  See previous entries here, here, and here.

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