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I’m pleased to announce that I will be chairing the ABA’s Western Regional CLE Program on Class Actions and Mass Torts, now in its third year, on May 27.  This year’s program will be held at the Bar Association of San Francisco’s offices at 301 Battery St San Francisco, CA 94111-3236.  The program starts at noon with lunch and concludes with a cocktail hour.  The event is co-sponsored by the BASF and presented by the Class Actions and Derivative Suits, Mass Torts, Insurance Coverage Litigation, and Securities Litigation Committees of the ABA Section of Litigation.  This year’s topics include:

  • Refuse to Defend at Your Own Risk? An Insurer’s Refusal to Defend and Settlement in Class Actions; When is Settlement Collusive?
  • Class Action Settlements: Trends, Lessons Learned, and Creative New Approaches
  • Takeaways on Forum Non Conveniens and Related Issues in Multi-District Litigation After Air France 447.
  • No Big Law? No Problem? How Small Firm Plaintiff and Defense Lawyers are Managing Some of the Largest Class Action Litigation Matters.

To register and to view the program agenda, click the link below.  Hope to see you there!

http://shop.americanbar.org/ebus/ABAEventsCalendar/EventDetails.aspx?productId=238718207&sc_cid=LTCAD15-G1

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BakerHostetler’s 2014 Year-End Review of Class Actions (and what to expect in 2015) was published on February 2, and is available for download at the firm’s website.  This annual summary is a joint effort of numerous attorneys throughout the firm, but for the second year in a row, the 2014 edition was ably edited by Dustin Dow in the firm’s Cleveland Office.

As the title suggests, the 59-page document provides a comprehensive update on the key decisions and trends in a variety of subject matter areas, including consumer protection, insurance, banking, data privacy, antitrust, securities, and labor and employment, as well the latest procedural developments impacting class action practice, both throughout the United States and abroad.

It’s free, so don’t miss it!

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This is the fifth in a multi-part post summarizing last week’s 5th Annual Conference on the Globalization of Class Actions and Mass Litigation.  Click these links to see the summaries for Session 1, Session 2, Session 3, and Session 4.

Who Has Jurisdiction in a Global Market?

This presentation was chaired by Professor Deborah Hensler, Stanford Law School/Tilburg University and co-founder of the annual conference on the globalization of class actions and the Stanford Global Class Actions Exchange.  The panelists were Mrs. Femke van ‘t Groenewout, Senior Advisor, Responsible Investment PGGM Investments, Mr. Daan Lunsingh Scheurleer, Mass Litigation Partner at NautaDutilh, and Professor Peter Cashman, University of Sydney Law School.

Professor Manual Gomez, Florida International University College of Law, presented the case study, which focused on the Lago Agrio (“sour lake”) litigation in Ecuador against oil company Texaco.  The toxic tort litigation arose out of allegations that Texaco’s dumping activities from the mid 1960s to the early 1990s caused severe degradation of a lake in the Amazon rain forest.  Ten separate proceedings were filed in Ecuador against the two companies.  A separate case was filed in the United States, but the United States District Court for the Southern District of New York, but that court dismissed the case on forum non conveniens grounds in 2002, a decision that was upheld by the Second Circuit Court of Appeals.  A court in Ecuador ultimately rendered an $18 billion judgment in favor of the plaintiffs.  This has led to additional litigation in the United States about whether the judgment was procured by fraud, whether the U.S. courts have the power to enjoin its enforcement globally, and whether agreements made by Texaco, before it was acquired by Chevron in 2001, bind the current corporate parent.  Most recently, the Second Circuit Court of Appeals vacated a lower court’s preliminary injunction against the enforcement of the judgment.  (For a recent update on the status of the Lago Agrio litigation in the United States, see this September 20, 2011 American Lawyer article by Michael Goldhaber).

The first panelist to comment was Femke van ‘t Groenewout, who provided an institutional investor’s perspective on the issue of global forum selection.  She started by making clear that institutional investors rarely look to litigation as a means to protect investments because it usually is not cost-effective.  Other strategies, such as regulatory engagement and excluding bad actors from the investor’s portfolio, are much more common.  In the few instances where litigation is necessary, institutional investors will look to joining existing class actions and will file opt out actions if necessary.  When asked during the Q&A portion of the presentation what factors dictate whether to take an active role in pursuing litigation, she pointed to multiple factors, including the amount of loss, the degree of misconduct, and the time an effort required to pursue reimbursement. 

To date, nearly all of the litigation that van ‘t Groenewout has been involved in has been brought in the United States.  However, she pointed to what she considers a negative trend in the U.S. courts to exclude foreign investors from the forum, a trend culminating in the Supreme Court’s decision in Morrison v. National Australia Bank, which barred so-called foreign-cubed securities class actions.  This, she observed, may lead other jurisdictions to open their courthouse doors to foreign investors.  As an example, she pointed to the Royal Dutch Shell settlement in the Netherlands.  In light of the decreased legal protection in the U.S. for foreign investors, she raised the question whether investors will consider whether they can continue to invest in the United States.  In addition to lobbying Congress, she discussed the alternative of pursuing litigation in other parts of the world.  However, there are two problems with this approach 1) there are signficant differences in the substantive securities law in other parts of the world, which makes litigation less efficient and therefore less appealing; and 2) institutional investors are unlikely to want to pay for counsel up front, as opposed to simply paying a percentage of recovery as is customary in the United States.  Van ‘t Groenewout summed up by stating that institutional investors have an obligation to protect their own investors in the case of severe fraud, and they cannot always count on regulators to remedy acts of investor fraud.  Therefore, in her view, institutional investors need more mechanisms for collective redress outside the United States.

Daan Lunsingh Scheurleer opened his remarks by challenging the notion that the Morrison case leaves foreign investors unprotected in the U.S. Courts, pointing out that foreign investors can still seek relief in the U.S. for securities purchased on U.S. exchanges, among other situations.  He then focused on barriers to the development of procedures for transnational litigation in Europe.  There is a prevailing reluctance to create procedures that would impose uncertainty about where a defendant may be sued.  For example, a general rule within European court systems is that a defendant should only be sued in the jurisdiction where it is situated.  There are some exclusions to this general rule, including where there are multiple defendants.  If so, there is a choice.  All of them may be sued in the country where one of them is situated provided that there is enough connectivity between the rest of the defendants and the forum.  In the case of tort law, a defendant may be sued where the tortious act occurred or where the damage is felt.  In a securities case, this means that you can only sue on behalf of investors that reside in a particular jurisdiction.  The challenge for Europeans, Lunsingh Scheurleer concluded, is to convince their lawmakers that they need a remedy in their home jurisdiction, but prevailing cultural norms will make it difficult to implement a system that allows all plaintiffs from multiple European jurisdictions to pursue relief in a single forum.

In his remarks, Professor Cashman pointed out some additional barriers to the development of transnational litigation procedures within any given country, including: 1) the problem of exercising personal jurisdiction over class members in other countries (he noted that this issue is still murky in both the United States and Canada); 2) uncertainty about whether the courts of another jurisdiction give preclusive effect to the judgment (as an example, he pointed to the Canadian courts, where even the judgment of a court in one Province is not enforceable in the courts of another Province); 3) forum non conveniens issues, such as those highlighted by the case study; and 4) other issues of comity, such as what one court does while the same issue is pending in a court within another jurisdiction.

Professor Hensler observed that there is a tension between finding a single forum versus taking into account the fact that there are differences in the substantive laws from one jurisdiction to another.  Cashman has a somewhat modest proposal to solve this quandary: create an international MDL process for the adjudication of transnational mass claims.  He suggested several existing mechanisms that could be used to establish an MDL process, including conventions, treaties, or simply a memorandum of understanding between courts.  He also pointed to protocols that are already being developed by the courts of the United States and Canada to assist with the cooperative management of cross-border litigation. 

When asked what he thought about the possibility of an international MDL process as a solution to the problem of transnational disputes, Lunsingh Scheurleer responded that it was hard to envision a framework that would apply to all sorts of claims in all situations.  He thought it might be possible to come up with different procedures for different claims that bore a “family resemblance” to one another, but that it would be hard to find a “one-size fits all” approach.  It might, however, be possible to come up with a set of simple rules that could help guide courts in some situations.  For example, a rule requiring that tort claims be moved to the corporate law umbrella might provide more predictability because it could permit a defendant to be sued in its home jurisdiction by all alleged victims, regardless of their country of residence.

Van ‘t Groenewout said that she favored the idea of an MDL process in principle, but noted that there are some cases where it is clearly more appropriate to litigate in a single jurisdiction. 

Hensler noted that one problem with the MDL concept is that discovery procedures differ so widely from jurisdiction to jurisdiction.

The panelists were asked whether international arbitration might be a solution.  Van ‘t Groenewout pointed out that fraud claims aren’t contract claims, so class actions often better fit than arbitration.  Lunsingh Scheurleer pointed out another practical problem to the idea, at least with respect to consumer claims: arbitration agreements with consumers are generally not enforceable in Europe.

There are a few interesting side notes in this presentation.  The first is that the Lago Agrio litigation has many interesting facets that overlap with all of the earlier presentations at the conference.  As Professor Gomez pointed out in presenting the case study, the litigation in Ecuador was the subject of mass public relations campaigns, a topic discussed in Session 1.  There were also significant case management concerns raised in the litigation both in Ecuador and the United States, a topic discussed in Session 3.  Finally, as discussed by Alison Frankel in this December 12, 2011 article, the litigation has been supported through investments from private litigation funders, a topic discussed in Session 2

Finally, someone (I believe it was Professor Tzankova) noted during this presentation that the conference had been the subject of a story that day in the local Amsterdam media in which the assertion was made that the conference was  contributing to a “claims” consciousness in the Netherlands.  I assumed that this was another way of saying that there was a fear that hosting a conference on the globalization of class actions was going to turn the Dutch sue-happy.  We shall see…

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David H. Kaye, Distinguished Professor of Law and Weiss Family Faculty Scholar at the Penn State School of Law, recently published a fascinating commentary in the BNA Insights section of the BNA Product Safety & Liability and Class Action Reporters, entitled Trapped in the Matrixx: The U.S. Supreme Court And the Need for Statistical Significance.  In the article, Professor Kaye applies his vast expertise in the areas of scientific evidence and statistics in the law to add some color to the U.S. Supreme Court’s March 2011 decision in the securities class action Matrixx Initiatives, Inc. v. Siracusano

For those not familiar with Matrixx, the case involved allegations that the makers of the cold remedy product, Zicam, withheld information from investors suggesting that the product may cause a condition called anosmia, or loss of smell.  At the risk of oversimplifying, the holding of Justice Sotomayor’s unanimous opinion can generally be summarized as follows: in a securities fraud action arising out of an alleged failure to disclose information about a possible causal link between a product and negative health effects, the plaintiff need not allege that the omitted information showed a statistically significant probability that the product causes the ill effects in order to establish that the information was material.  The decision reaffirms the applicability of the reasonable investor standard for materiality announced in Basic Inc. v. Levinson, which looks to whether the omitted information would have “significantly altered the ‘total mix’ of information made available” to investors. 

Thus, Matrixx eschews a bright-line rule (statistical significance) in favor of a more flexible “reasonable investor” standard.  Professor Kaye does not take issue with the Court’s rejection of a bright line rule requiring a plaintiff to plead (and ultimately, prove) statistical significance of omitted information in the securities context.  Instead, he is critical of the Court’s failure to articulate in better detail the technical shortcomings of using statistical significance as a bright-line rule, and he cautions against interpreting Matrixx as suggesting that something less than statistical significance would be appropriate to prove a causal link between a product and disease in other contexts.  In other words, it is one thing to say that the causal link does not have to be statistically significant in order for information about an association between the product and disease to be meaningful to investors or consumers.  It is another thing to say that statistical significance is unimportant when it is necessary to actually show evidence of a causal link itself, such as in the toxic tort context.

Although I followed and generally agreed with Professor Kaye’s article from a legal perspective, there were some technical concepts discussed in the article that were admittedly a bit over my head.  Fortunately, I knew just who to ask for more insight, having recently worked with Justin Hopson of Hitachi Consulting on two CLE presentations discussing the use of statistics in class actions.  Here are some of Justin’s observations after reading the article:

  • The article is well-written.  Professor Kaye would make a good expert witness.
  • Kaye identifies studies showing that zinc sulfate caused anosmia.  He does not comment on zinc acetate, nor zinc gluconate, the active ingredients in Zicam.  It sounds like the causal link may have been known, and available to use.  So, this was not a case about “arbitrary statistics.”  Instead, the issue had to do with the measurement of an understood, causal relationship.
  • Kaye describes the standard applied in Matrixx as looking to whether a reasonable investor would find the omitted information “sufficiently extensive and disturbing” to induce him to make a different investment decision.  Nonlawyer experts may be tempted to ask for a formulaic definition for this phrase, and it may not be obvious without explanation that the standard would leave the question about what is “sufficiently extensive and disturbing” to the factfinder.
  • Kaye talks about the historical treatment of .05 as the threshold “significance level” that makes something statistically significant.  I’ve often thought of “significance level” associated with the relative degress of the “risks”.  If the risk of being wrong is death, then is 1-in-20 OK?  You really have to think through: What does Type I and Type II error look like in my experiment?  What are the implications?
  • If one were really attempting to compute the potential causal connection between Zicam and anosmia, it might help to understand why the FDA suggested a background rate in “all cold remedies”.  If the causality is related to zinc sulfate, then isn’t that the common population?
  • The point that the 0.05 “convention” is somewhat arbitrary is an important one.  Kaye observes that “[a] useful rule of complaint drafting must avoid inquiries into the soundness of expert judgments about the population, the test statistic, and the model.”  Hmm…so how do we get a useful rule if you cannot attack the fundamentals?  Indeed, Kaye’s next point is that Bayesian analysis should be used sometimes.  All inferential statistics have assumptions, and any appropriate standard of pleading or proof should be flexible enough to allow the opposing lawyer to challenge every single assumption. 
  • The observation that “the p-value, by itself, cannot be converted into a probability that the alternative hypothesis is true” is also very important.  This is a common misunderstanding in beginning stats because we teach, “I fail to reject the null hypothesis.  Or I reject the null, and accept the alternative hypothesis.”  It becomes very important to correctly specify null/alternative in exhaustive and exclusive terms.  Otherwise some other non-specified conclusion should be reached.
  • The one thing I might challenge is the assertion that adverse event reports (AERs) are “haphazardly collected data”.  I’m not sure why Kaye chose this phrase.  The AERs should be observations.  It is only their cause that is in doubt.  It is not their function to establish the causal link.  Instead, the link would have to be established with other data, such as through a clinical trial using a well-organized data collection process.

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