European multinationals have been, and continue to be, faced with class action lawsuits in the US. Some recent examples include Vivendi, Ahold and Shell.
The presence of European multinationals in the US is substantial: UK companies are the largest foreign investors in the US, with Dutch, German and French companies third, fourth and fifth respectively (Japanese companies are second). Moreover, many of the European multinationals with investments in the US are also listed there.
When US lawyers file class action suits against European or US multinationals, they may wish to include foreign claimants in the class. US courts have numerous grounds for denying certification. The certification of an international or global class imposes additional burdens on both defendants and the US courts.
While the preclusive effect of a US class action judgment in the courts of another US state is clear, its preclusive effect in the courts of a foreign country is not. US courts and taxpayers run the risk of significant wasted effort.
A second issue, although of less concern than the first, is that of notice: giving notice abroad can raise difficult issues from both a legal and practical point of view, particularly when not all class members are explicitly identified. Many US courts consider the res judicata and notice problems introduced by foreign claimants to be valid reasons for denying class certification to those claimants.
Traditionally, an important argument for the inclusion of foreign claimants in a US class action has been the absence of class action devices in Europe, which means that the US legal system offers European plaintiffs access to justice on an almost exclusive basis. A second, related argument is that the exclusion of foreign claimants from class actions undermines the deterrent function of this type of lawsuit. Deterrence is seen as a global problem and as such demands a global approach.
A way to encourage such a global approach, particularly in the absence of the possibility to file class action suits in Europe in addition to US class actions, would obviously be to include foreign claimants in a US class action. These arguments can make US courts more likely to admit such claimants into a class. Although the European judicial landscape is changing, the consequences of these changes are still uncertain.
The changing European judicial landscape
An increasing number of European countries are developing their own kind of multi-party or collective action devices. Examples are the UK test case approach provided for in Part 19.III of the Civil Procedure Rules and the Dutch court-approved collective settlement.
The rules governing Dutch collective settlements are laid down in the Collective Settlements of Mass Damages Act 2005 (the Dutch Act), which provides for the court approval of collective settlements on an opt-out basis. If a defendant and a non-profit organisation of plaintiffs agree to settle the dispute out of court, they can apply to the court to declare the settlement fair and binding, even on non-parties to the agreement, on an opt-out basis.
The Dutch Act introduces the damage scheduling approach, under which compensation is awarded to claimants not on the basis of their personal characteristics, but rather on the basis of the characteristics of the class/group of which the particular individual claimant is a member.
The collective settlement agreement should describe the class and the various sub-classes and give information about: the number of class and sub-class members (an estimate); the compensation that will be awarded to these persons; the eligibility requirements for compensation; the procedure by which the amount of compensation will be established; and the method of obtaining payment.
The new legislation has already produced two court-approved collective settlements. A third one, which we will discuss later on, is on its way: the Royal Dutch Shell reserves recategorisation settlement was submitted for court approval on 11 April 2007.
The new rules were originally intended to apply only to the resolution of mass exposure and mass disaster personal injury claims. This was indeed true of the first collective settlement under the Dutch Act, but not the second: the Dexia settlement related to financial services and was approved in January 2007, while the Shell settlement relates to a securities action.
The result of all the national legislative initiatives is a patchwork of national legislation. Apart from those initiatives, initiatives at EU level are aimed at making private law enforcement easier in the fields of anti-trust and consumer litigation. We refer to the green paper on actions for damages of Dutch Competition Commissioner Kroes and to the plans of Bulgarian Consumer Commissioner Meglena Kuneva.
While the options for plaintiffs seem to be increasing, it can be asked whether they will be better off – and the answer is not necessarily. It remains to be seen whether the new legislation in the various European countries can grant European class members the same level of access to justice as the US class action can. It is also uncertain whether US courts will, in response to the growing availability of European alternatives, increasingly refuse to include European claimants in US class actions.
A March 2007 decision in the Vivendi case possibly suggests otherwise. In that case, the US District Court of New York ruled that claimants from the UK, France and the Netherlands could be included in the US class action on the grounds that their legal systems are “hospitable to the class action-style litigation”. Apart from the question of whether the legislators and courts of those countries would agree with this characterisation, it is unclear how other courts will respond to that argument in other cases involving claimants from those and other legal systems. This creates confusion and uncertainty for European plaintiffs.
What about the defendants?
It does not look much better for the defendants. As more EU countries develop their own kind of multi-party or collective action approach, there is a growing risk of multinationals having to battle on multiple fronts: in the US and in various jurisdictions within Europe. In a worst-case scenario, the multinationals could end up facing US class actions and a variety of European multi-party or collective actions, all involving both US and European claimants.
The EU is not a federal regime so a centralised, pan-European collective procedure does not seem to be a realistic option. At a certain point defendants may prefer to settle provided they can obtain ‘global peace’. They want finality. In the past their global settlement options were limited, but that situation seems to be changing.
The Shell re-categorisation settlement is a potential groundbreaker because it aims to achieve a worldwide settlement, excluding only US claimants, under the Dutch Act. Obviously, this new ‘global resolution option’ can only be applied if a Dutch court has jurisdiction, for example because the defendant multinational is a Dutch company.
continued ##continued We believe that a court-approved opt-out collective settlement has many advantages for European plaintiffs and defendants as a vehicle for resolving mass disputes, especially if it is implemented by other European jurisdictions as well.
All European mass disputes, not only the ones linked to the Netherlands, could then be resolved in Europe, where res judicata problems are easier to address due to the Brussels regulation on the recognition and execution of foreign judgments. There is no treaty on the recognition and enforcement of judgments between the US and the EU and it is not very likely to come about in the near future.
Another important factor is that the damage scheduling approach applied in the Dutch Act makes it possible, and this is especially important in personal injury cases, for a tailor-made settlement to be designed. Last, but not least, transaction costs in the EU are lower than in the US due to the absence of a jury system, extensive discovery and far-reaching no cure, no pay arrangements. Lower transaction costs are in the interest of both plaintiffs and defendants.
All this makes Europe an attractive forum for the settlement of mass disputes: it’s a win-win situation.
Daan Lunsing Scheurleer is a partner and Ianika Tzankova is a senior associate at NautaDutilh