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Posts Tagged ‘res judicata’

As reported this morning on NPR’s Morning Edition, the New York Times, and the Wall Street Journal’s Deal Book blog, among other news sources, the firm of Coughlin Stoia Geller Rudman & Robbins, recently named as lead counsel in a securities class action against French bank Société Générale, has sent a group of lawyers across the pond to build publicity, recruit plaintiffs, and collect potential evidence in France.  The lawsuit arises out of the highly publicized trading scandal earlier this year involving unauthorized trades totaling billions of Euros by one of its traders, Jérôme Kerviel.  Coughlin Stoia is no stranger to scandal itself.  Formerly Lerach Coughlin Stoia, it is the former firm of the recently convicted William Lerach.

The PR campaign in France is part of a growing trend to increase the pool of potential plaintiffs in U.S. securities class actions against multinational companies.  As the WSJ article aptly describes the dynamic:

Lawyers have an incentive to maximize the number of plaintiffs because it increases their fee payments. And non-American plaintiffs are attracted by the potential of enormous damage payments in the United States and a common provision protecting them from paying legal fees even if they lose.

The incentives underlying this trend are not hard to understand.  These attempts to create transnational plaintiff classes, however, raise complex issues of due process, choice of law, preclusion or res judicata, and full faith and credit.  Last year, a federal judge in New York entered an order allowing investors in France, England, and the Netherlands to be included in a securities class action against French conglomerate Vivendi.  A copy of that order is available on the Milberg website.  In deciding whether to allow foreign investors to be included, Judge Richard J. Holwell analyzed whether courts in each country would recognize a final judgment in the U.S. lawsuit as preclusive and binding on its citizens.  The court, relying on expert testimony and scholarly works discussing the law of the recognition of foreign judgments and res judicata of the various countries, determined that the plaintiffs had shown that it was more likely than not that courts in those three countries would recognize a U.S. class action judgment as preclusive as to absent class members.  With respect to England, the court admitted that the applicable law was unclear, but stated (on page 54):

While the issue is hardly free from doubt, based on the affidavits before it, the Court concludes that English courts, when ultimately presented with the issue, are more likely than not to find that U.S. courts are competent to adjudicate with finality the claims of absent class members and, therefore, would recognize a judgment or settlement in this

The court went on to find that the plaintiffs had not shown by a preponderance standard that courts in Germany and Austria would not recognize a U.S. class action judgment as preclusive as to absent class members.  Therefore, the court allowed investors in England, France, and the Netherlands to be included in the class, but rejected certification as to investors in Germany and Austria.  The 68-page opinion addresses a whole host of related issues and is worth a careful read.

According to the New York Times and WSJ articles, the court in the Société Générale case is expected to address in 2009 the issue of whether absent French investors should be included in a shareholder class.

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As defense lawyers, our instincts tell us to take our shot at a dispositive ruling on the merits if it might allow us to avoid a class certification hearing.  We know that the material facts aren’t in dispute and that we should win on the law, if we can just get the judge to ignore the plaintiffs’ attorneys constant spin and obfuscation and focus on the real legal issues.  The named plaintiff has no case, and consequently, the class has no case either.  We hardly ever answer until our motion to dismiss is denied.  If the motion to dismiss doesn’t work (which is almost always because the judge is overwhelmed and doesn’t want to take a chance at possible reversal by dismissing the case too early) we look for the first opportunity to file a motion to strike, a motion for judgment on the pleadings, a motion for ruling as a matter of law, or if all else fails, a motion for summary judgment.

But contrary to those instincts, filing a summary judgment motion before certification proceedings in a class action can be a lose-lose proposition.  If the defendant loses the motion, there is a good chance that the court won’t look seriously at the issue in another pretrial motion filed after certification, when the facts are likely to be more fully developed.  On the other hand, if the defendant wins, the victory may be a hollow one because the judgment is not likely to be given any preclusive res judicata or collateral estoppel effect as to absent class members.  Thus, winning a pre-certification summary judgment does not guarantee an end to the exposure.  Any other member of the putative class can simply file a class action under the same legal theory in a new case.

Some may consider the mere suggestion heresy, but there are situations where a defense lawyer might even consider counseling a client to stipulate to class certification in order to get a final resolution on the merits of a claim that is binding on all potential plaintiffs.  

Of course, it’s a rare case where the potential reward of guaranteed claim or issue preclusion justifies the risk of a classwide adverse judgment.  Usually, winning a dispositive motion against the named plaintiff promises to mark the end of the litigation for all practical purposes, either because the ruling is likely to dissuade the same or other plaintiffs’ attorneys from spending the time and effort pursuing a similar theory of liability, because the plaintiff is one of very few individuals willing an able to serve as class representative, or because a subsequent class action would be time-barred (this raises the issue of piggybacking of successive class actions, which is a subject for another day).

But even if it is likely in many cases that the potential benefits of filing a dispositive motion before pre-certification will ultimately carry the day, it is always a good idea to first consider the preclusive effect–or lack thereof–of a pre-certification judgment.

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