Litigation

Vive les Class Actions


Like two ships steering past each other on the Atlantic Ocean, the United States and Europe appear to be headed in different directions on the issue of class action litigation.

In the United States, President Bush signed a bill in February that will give federal courts broader jurisdiction over class action lawsuits that previously would have been filed in state courts. The federal courts are widely seen as less amenable to class actions than state courts. Many in the business community have urged Congress to expand federal jurisdiction as a way of removing cases from state courts that are more inclined to grant them class action status.

At the same time, however, a growing number of European nations are moving to adopt rules allowing American-style class actions to proceed in their courts.

Experts view Europe’s newborn interest in class action litigation as a significant development on two fronts. First, many say it reflects a stronger commitment to protect consumer rights more effectively by following a single legal model pioneered primarily by the United States since the 1970s.

With the exception of the United Kingdom, where legal mechanisms for bringing class actions have been in place for about a decade, multiplaintiff litigation really is a foreign concept in Europe.

By and large, the legal structure there does not emphasize consumer rights, says Margaret E. Tahyar, a partner in the Paris office of New York City-based Davis Polk & Wardwell. Laws in most European nations tend to protect the rights of individuals as workers but leave them to fend for themselves as consumers, she says.

“In Europe, hiring and firing is much more difficult [than in the United States], but the consumer very much remains a serf,” Tahyar says. “One is a worker first and a consumer second, so that consumer rights are very underdeveloped here. There is pressure for more consumer rights and protection.”

William M. Hannay III, a past chair of the ABA Section of International Law and current member of the House of Delegates, agrees that European laws are not structured to encourage class action litigation.

“If you are in Europe and you are not getting treble damages and you risk getting hit with attorney fees if you are the plaintiff and lose, those are two disincentives for bringing a lawsuit,” Hannay says. The Chicago lawyer now serves as one of the association’s representatives to the Union Internationale Des Avocats.

“If there is an Enron or WorldCom or Tyco situation, shareholders in Europe have no mechanism to do it in an efficient manner,” Hannay says. “Presumably, one guy could bring a lawsuit. But the costs of bringing a lawsuit by one guy—only if you were a multimillionaire could you afford to bring your own lawsuit.”

Arbitration Eyed

Hannay and others view the growing European interest in class actions as part of a larger movement to adopt litigation techniques and mechanisms that have long been standard operating procedure in the United States. Related approaches to dispute resolution that are common in the United States also are becoming more popular in Europe. Arbitration, for instance, has gained a significant foothold.

“There is a growing amount of international arbitration because parties want a neutral venue under neutral rules,” notes Peter J. Fitzpatrick, a solicitor in the Howrey law firm’s London office.

There also is growing European interest in adopting at least some elements of U.S. antitrust law.

Since 1962, only 60 antitrust lawsuits have been filed in the courts of the 25 nations that make up the European Union, according to a recent survey by the Ashurst international law firm. That compares to 752 antitrust suits filed in U.S. courts in 2004 alone, according to the survey.

The European numbers are likely to change, say experts, following the adoption of procedures by the EU in 2004 that encourage parties to pursue antitrust cases in the courts rather than through regulatory agencies. News reports indicate that more than 700 judges in various EU member nations are being trained this year to handle antitrust matters.

Observers say a case filed recently in Slovenia could serve as a test of whether litigating antitrust cases will take hold under the EU’s new procedures.

In the case, Western Wireless Corp. sued state owned Mobitel, alleging anticompetitive practices. Western Wireless, based in Bellevue, Wash., alleges that Mobitel is seeking to unfairly drive out competitors by imposing excessive fees on Mobitel users who call a cell phone operated by another company. The cost can be 14 times higher to call outside the Mobitel network, the lawsuit alleges. Western Wireless filed its suit in the Slovenia courts pursuant to the new EU procedures, instead of pursuing a regulatory remedy. Hannay sees little chance for the company to prevail, even under the new EU rules. “You can’t go around suing the country,” Hannay says, although Western Wireless could gain leverage to seek a larger market share.

Plea Bargaining

Some European nations have even adopted U.S. legal principles in changing their criminal law procedures. For example, France has adopted American style plea bargains in criminal cases, says Tahyar of Davis Polk.

“They did not have a plea bargain, but within the last 18 months, they have put the concept of a plea bargain into their law,” she says.

Then in January, French President Chirac announced that the government would study implementation of a law to allow consumer cases to be brought on a class action basis. In April, a government panel began drafting the new law.

France’s strongest consumer advocacy group, UFC-Que Choisir, has been lobbying for the government to consider a law that would allow one or more plaintiffs to sue on behalf of other similarly situated customers of a company, especially in the wake of recent decisions by French courts.

One such case involved a cell phone company that overcharged customers the equivalent of $9.4 million. In 2001, UFC-Que Choisir sued on behalf of two of those customers. Although the court ruled the fee hike was illegal, the phone company refused to pay the 400,000 or so overbilled customers who were not named individually in the lawsuit. Similarly, a case in Germany involving telecommunications giant Deutsche Telekom could well take 15 years to litigate because German law requires individual judgments for each of the 2,100 claims filed by 754 law firms on behalf of clients, says Mark Wegener, a lawyer in Washington, D.C., who chairs the global litigation practice group at Howrey. Meanwhile, however, the German parliament is considering legislation that would afford increased protection to investors who sue companies. The proposed law would permit the resolution of test cases to be binding on similar filings, thus allowing plaintiffs to share the costs of litigation.

The Netherlands parliament has taken similar legislative action to make settlement in one representative case binding on all plaintiffs. Spain already allows consumer groups to sue on behalf of a given class, and Sweden allows a form of class action that requires individuals to opt in as plaintiffs.

Ripples or Waves?

International law experts say it’s hard to measure the reach of Europe’s interest in adopting U.S. legal principles for civil and criminal litigation.

“I would hesitate to describe it as a sea change,” Hannay says. “It’s more like a small pond change. It is extremely scattered, with small changes here and there.” So far, Wegener says, class actions are one of the most distinct elements of the U.S. litigation system making their way to Europe. It’s impossible to tell how many others will follow, he says.

“I think this is going to be a very slow and deliberate process,” Wegener says. “The fact of the matter is that you still have sovereignty, and a view that various countries and government regulators are entitled to independ ence, and a body of laws that make sense. I think countries carefully guard their own sense of wanting to do things in a way they deem most appropriate, not only for the companies that are located in their countries but also ones that want to do business in their countries.”

The demands of an increasingly global business community could be a key factor in determining how much Europe borrows from the U.S. justice system, according to R. William Ide III of Atlanta.

“Globalization is more and more having its impact,” says Ide, a past ABA president who chairs the association’s Central European and Eurasian Law Initiative, which advises developing legal systems in the emerging democracies of the former Soviet bloc. “We’re going toward a harmonization of law. We don’t know when it will all start clicking together. That could be five, 10, 15 years. But it’s going to happen because the economic forces are going to demand it.”

Wegener agrees that business forces will be an important factor in how far the legal rules of various nations move closer to each other.

“We’re not moving toward a single set of laws by any stretch of the imagination,” Wegener says. “It has a very long way to go before we ever have anything that would be considered uniformity, assuming it could ever happen.”

Nevertheless, he says, “I think there is a desire for global companies to operate in an environment where there are not extreme, sharp differences between substantive law among nations. There is a recognition on the part of companies that they want to do things in an efficient and cost-effective manner, and anytime you’re dealing with rules and regulations on both sides of the Atlantic that are not consistent or otherwise compatible, it adds to your cost and uncertainty.”

Wegener maintains there is a growing recognition that neither regulatory structures nor courts in most European nations are equipped to adequately handle disputes in which hundreds or thousands of plaintiffs are pursuing similar claims against a company or group of companies.

“A lot is driven by administrative efficiency” in handling cases, Howrey’s Fitzpatrick says. “It’s a lot easier to have one big case than thousands of smaller cases. It’s also driven by the question of cost. One action of multi parties is a lot cheaper than if you have 5,000 separate actions.”

Another factor that shouldn’t be overlooked, Fitzpatrick says, is the simple presence of growing numbers of U.S. litigators in Britain and the rest of Europe who are used to handling cases the American way.

In London, at least, there are more U.S. litigators than there were even three years ago, Fitzpatrick says. “Before that time, there were U.S. law firms in London, but they were carrying out corporate work.”

Mixed Signals

Experts say the business community may have mixed feelings about Europe embracing class action litigation at a time when recent federal legislation is reining it in somewhat in the United States.

It is ironic, then, that the U.S. business community may have mixed feelings about a greater embrace of class actions in Europe at the same time.

But such concerns are understandable, Hannay says. “In the U.S. there is general support for class action litigation,” he says. “Defense attorneys like myself believe it’s a valid procedural device. If companies have done something that is improper, those victims should have a forum where they can get relief.”

But at the same time, he says, “What drove the whole anti class action movement that led to the Class Action Fairness Act was a concern that in all too many circumstances the cases were brought in courts where plaintiffs always win. In a handful of jurisdictions there seemed to be an unusual pro-plaintiff orientation that led to unfair results.” Hannay and others note that, while more European nations are adopting laws that permit class actions, they have not so far been inclined to change other rules that have helped make class action lawsuits practical in the United States. In Europe, including the U.K., for instance, there have been no major efforts to eliminate prohibitions against contingency fees or rules that require the losing party in a case to pay the attorney fees of the prevailing party.

“We have all the tools in place, certainly in England and increasingly in Europe, to handle class actions,” Fitzpatrick says. “Whether there will be a surge is a question of cost,” especially to plaintiffs and their attorneys. For that reason, he says, “I can’t predict if we will see the same level of class actions in Europe as in the States.”


Siobhan Morrissey is a lawyer and free-lance writer in Miami.


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