The future of mass litigation: Global class actions and third-party litigation funding

George Washington Law Review

Volumn 79, Issue 2, 2011, Pages 306-323

  Hensler, Deborah R ^a  

^a STANFORD LAW SCHOOL   (United States)

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EID: 79956111225     PISSN: 00168076     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (81)

1. FED. R. CIV. P. 23.
2. Deborah R. Hensler, the Globalization of Class Actions: An Overview, 622 ANNALS AM. ACAD. POL. & SOC. SCI. 7 (2009).
3. id. at 13.
4. Id.
5. generally id.
6. Id. at 16.
7. Some of the numbers on this chart are quite remarkable when one takes into account differences in population size: Israel's population is about 7 million, the Netherlands' about 17 million, Australia's about 22 million, and Canada's about 34 million.
8. generally CIA-THE WORLD FACTBOOK, https://www.cia.gov/library/ publications/the-world-factbook/ (select country, then select "People") (last visited July 5, 2010). I estimate that, in recent years, about 7500 class actions have been filed annually in the United States, with a population that tops 310 million.
9. Nicholas M. Pace, Group and Aggregate Litigation in the United States, 622 ANNALS AM. ACAD. POL. & SOC. SCI. 32, 40 n.9 (2009) (discussing the number of class actions filed annually in United States).
10. VINCE MORABITO, AN EMPIRICAL STUDY OF AUSTRALIA'S CLASS ACTION REGIMES: FIRST REPORT: CLASS ACTION FACTS AND FIGURES 2 (2009), available at http://www.law.stanford.edu/library/globalclassaction/PDF/Australia-Empirical- Morabito-2009-Dec.pdf.
11. National Class Action Database, CANADIAN B. ASS'N, http://www.cba.org/ ClassActions/ main/gate/index/default.aspx (last visited Nov. 16, 2010) (figure derived from lists of cases, by year, available from main page).
12. E-mail from Peretz Segal, Head of the Legal Counsel Dep't, Isr. Ministry of Justice, to author (Mar. 2, 2009) (on file with author)
13. MAS ACHMAD SANTOSA, GLOBAL CLASS ACTIONS EXCH., NATIONAL REPORT: INDONESIA 9 (2007), http://www.law.stanford.edu/library/globalclassaction/PDF/ Indonesia-national-report.pdf.
14. Ianika Tzankova, Prof., Tilburg Univ., Remarks at the Third Annual Conference on Global Class Actions (Dec. 11-12, 2009) (summary available at http://www.law.stanford.edu/library/globalclassaction/PDF/Event- 3rd%20Annual%20Conference%20on%20Global%20 Class%20Actions-2009.pdf). the Netherlands permits injunctive and damage class actions; there have been five damage actions but many more injunctive class actions.
15. PER HENRIK LINDBLOM, GLOBAL CLASS ACTIONS EXCH., NATIONAL REPORT: GROUP LITIGATION IN SWEDEN 2 (2008), http://www.law.stanford.edu/library/ globalclassaction/PDF/Sweden-Update-paper-Nov%20-08.pdf.
16. Jasminka Kalajdzic et al., Canada, 622 ANNALS AM. ACAD. POL. & SOC. SCI. 41, 46 (2009).
17. infra notes 57-58 and accompanying text.
18. George A. Bermann, U.S. Class Actions and the "Global Class," 19 KAN. J.L. & PUB. POL'Y 91 (2009).
19. In re Vivendi Universal, S.A. Sec. Litig., No. 02 Civ. 5571, 2009 U.S. Dist. LEXIS 110283 (S.D.N.Y. Nov. 19, 2009). In Vivendi, the defendant argued that the U.S. court could not assume jurisdiction over French class members on the grounds that a French court would hold class actions unconstitutional. Id. at *23-24. For discussion.
20. Stephen J. Choi & Linda J. Silberman, Transnational Litigation and Global Securities Class-Action Lawsuits, 2009 WIS. L. REV. 465, 471-72, 481-82.
21. Stb. 2005, pp. 340, 380.
22. Stb. 2005, pp. 340, 380.
23. On "futures" class actions, see Deborah R. Hensler, Bringing Shutts into the Future: Rethinking Protection of Future Claimants in Mass Tort Class Actions, 74 UMKC L. REV. 585 (2006).
24. Hof's-Amsterdam 29 mei 2009, NJ 2009, 506 m.nt. J.M.J. Chorus, M.P. van Achterberg en W.H.F.M. (Shell Petroleum N.V./Dexia Bank Nederland N.V.) [hereinafter Shell Petroleum] (English translation on file with author). Shell Petroleum is an example of what is termed an "Fcubed" case: Foreign investors versus foreign defendants trading on a foreign exchange. See Choi & Silberman, supra note 17, at 465. Subsequent to Shell Petroleum, the U.S. Supreme Court held that U.S. courts do not have subject matter jurisdiction over foreign investors trading on foreign exchanges suing foreign-domiciled defendants for securities fraud. Morrison v. Nat'l Austl. Bank Ltd., 130 S. Ct. 2869 (2010).
25. E.g., In re Factor VIII or IX Concentrate Blood Prods. Litig., 531 F. Supp. 2d 957 (N.D. Ill. 2008);
26. In re Bridgestone/Firestone, Inc. Tires Prods. Liab. Litig., No. 04-C-5812, 2007 U.S. Dist. LEXIS 98929 (S.D. Ind. Jan. 31, 2007).
27. Shell Petroleum, NJ 2009, 506, 6.22. Vivendi is of interest here as well. Recall that, in that case, Vivendi sought dismissal of French class members on the grounds that a French court would hold class actions unconstitutional. In re Vivendi Universal, S.A. Sec. Litig., No. 02 Civ. 5571, 2009 U.S. Dist. LEXIS 110283, at *23-24 (S.D.N.Y. Nov. 19, 2009). the Amsterdam court in Shell Petroleum relied in part on European Union law in holding that it had jurisdiction over the WCAM settlement, even though the Shell settlement included French share purchasers.
28. Fourteen separate securities class actions arising out of the disclosure of the reclassification (downward) of oil reserves were filed in the United States and consolidated in the District of New Jersey, along with the two individual suits filed by Dutch pension funds. Two European institutional investors also filed suits against Shell in U.S. courts, which were also transferred to the District of New Jersey. Shell was also the subject of SEC and U.K. securities regulators' enforcement actions, resulting in penalties of $120 million and ε17 million. Shareholders who participate in the WCAM and U.S. class settlements are also eligible to receive a portion of the $120 million SEC penalty fund. Shell Petroleum, NJ 2009, 506, 3.7, 3.22.
29. Royal Dutch Petroleum Company (Shell): American Depository Receipts (ADR's), STAN. L. SCH. SEC. CLASS ACTION CLEARINGHOUSE, http://securities. stanford.edu/1029/RD04- 01/ (last visited May 21, 2010).
30. Private Securities Litigation Reform Act of 1995, Pub. L. No. 104-67, 109 Stat. 737 (codified as amended in scattered sections of 15 U.S.C.).
31. In re Royal Dutch/Shell Transp. Sec. Litig. (Shell I), 380 F. Supp. 2d 509, 572 (D.N.J. 2005).
32. In re Royal Dutch/Shell Transp. Sec. Litig. (Shell II), 522 F. Supp. 2d 712, 715 (D.N.J. 2007).
33. Id.
34. Deed of Formation of the Stichting Shell Reserves Compensation Foundation (Apr. 10, 2007), http://www.shellsettlement.com/docs/ Exhibit%202%20Articles%20of%20association %20of%20the%20Foundation.pdf.
35. Press Release, Stichting Shell Reserves Comp. Found., Amsterdam Court of Appeals Declares Shell Settlement Binding (May 29, 2009), https://www. royaldutchshellsettlement.com/ Documents/ PressReleaseAmsterdamCourtofAppealsDeclaresShellSettlementBinding.pdf. According to interviews with case participants that I have conducted in the Netherlands, investors outside the Netherlands were solicited to participate in the Dutch class action after the foundation was established.
36. Ben Hallman, Dutch Court Approves Landmark Royal Dutch Shell Shareholder 'Class Action,' LAW.COM (June 1, 2009), http://www.law.com/jsp/article.jsp?id= 1202431105422. That the U.S. court was aware of these negotiations is reflected in the judge's decision on a subsequent fee dispute between the U.S. lead counsel and U.S. liaison counsel: The Non-U.S. Purchasers were represented by other counsel and they negotiated with Shell towards a settlement of their claims outside the confines of this putative class action. Clearly, lead counsel and liaison counsel, upon notification of Shell's settlement in principle with the Non-U.S. Purchasers, realized that their potential counsel fees were thereby put in jeopardy; if the Non-U.S. Purchasers' claims were resolved outside of this case, the value of the common fund toward which they had been working would be substantially reduced.
37. In re Royal Dutch/Shell Transp. Sec. Litig. (Shell III), Civ. No. 04-374, 2008 U.S. Dist. LEXIS 32040, at *11-12 (D.N.J. Apr. 17, 2008)
38. also Michael Goldhaber, 'Shell Model' Opens Door to European Class Actions, LAW.COM (Jan. 7, 2008), http://www.law.com/jsp/tal/PubArticleTAL. jsp?id=900005499991&hbxlogin=1.
39. Settlement Agreement 68 (Apr. 11, 2007), https://www. royaldutchshellsettlement.com/ Documents/Settlement%20Agreement.pdf.
40. Pels Rijcken & Droogleever Fortuijn N.V.
41. Diaz Reus Rolff & Targ, LLP (now Diaz, Reus & Targ, LLP) and Schiffrin Barroway Topaz & Kessler, LLP (now Barroway Topaz Kessler Meltzer & Check, LLP). Diaz Reus, based in Miami with affiliates in South America, describes itself as an "international law firm."
42. DIAZ REUS, http://www.diazreus.com (last visited July 1, 2010).
43. Settlement Agreement, supra note 33, at 68. Both Grant & Eisenhofer and Barroway Topaz list the Royal Dutch settlement on their websites.
44. Representative Cases: Securities & Complex Litigation, GRANT & EISENHOFER P.A., http://www.gelaw.com/securities.htm (last visited May 24, 2010);
45. Barroway Topaz Kessler Meltzer & Check, LLP Announces $352 Million Settlement with Royal Dutch Shell on Behalf of European and Other Non-United States Shareholders, Posting to News, BARROWAY TOPAZ KESSLER MELTZER & CHECK, LLP (Apr. 12, 2007), http://www.sbclasslaw.com/news.php.
46. Shell III, 2008 U.S. Dist. LEXIS 32040, at *13.
47. Earlier, the U.S. district court had intended to hold a "mini-trial" on the jurisdictional issues. According to the court, the mini-trial was abandoned after Shell announced that it had settled with claimant representatives in the Netherlands, and the parties then requested referral of the matter instead to a special master. Id. at *11, *13.
48. Shell II, 522 F. Supp. 2d 712, 716 (D.N.J. 2007).
49. Id. at 723-24.
50. Press Release, Shell, Amsterdam Court of Appeals Sets Date for Hearing with Respect to Shell Securities Class Settlement of Reserve-Related Claims with European and Other Non US Investors (Apr. 11, 2008), http://www.shell.com/home/ content/media/news-and-media-releases/archive/2008/court-appeal-date-reserves- 11042008.html
51. the class settlement was approved by the United States District Court for the District of New Jersey on September 26, 2008. See Bernstein Liebhard LLP Announces Final Approval of Royal Dutch Shell Securities Class Action Settlement, BERNSTEIN LIEBHARD LLP (Oct. 10, 2008), http://www.bernlieb.com/ featured-cases/royal-dutch-shell-settlement/index.html. On its website, Bernstein Liebhard LLP reports that the settlement was substantially higher: $89.5 million in cash benefits, nearly $41 million in fees and expenses (including expenses for administering the settlement), and "[p]otential additional relief" of $60.5 million. Id. the firm also says that it secured an "additional cash payment of $28.342 million ⋯ for the Non-U.S. Purchasers in the [Netherlands] settlement." Id. the website for the Netherlands settlement refers to a $28.4 million amount as intended to "align" the value of the Netherlands settlement with the value of the U.S. settlement. Press Release, supra note 31.
52. Shell III, 2008 U.S. Dist. LEXIS 32040, at *19-20.
53. According to the memorandum, "the Court and Shell recognize[d]" that the efforts of Lead Plaintiffs and lead counsel "in vigorously pursuing through litigation the Non-U.S. Purchasers' claims for more than three years, in satisfaction of their fiduciary obligations to the proposed class, were a substantial factor in Shell's decision to enter into a settlement agreement to resolve the claims of the Non-U.S. Purchasers."
54. Id. at *14
55. (alteration in original) (quoting Memorandum of Approval of Payment at 1, In re Royal Dutch/Shell Transp. Sec. Litig., No. 04-374 (D.N.J. Jan. 14, 2008)).
56. In the Dutch proceedings, U.S. experts testified that the WCAM settlement, compensating an estimated 9.79% to 12.46% of losses suffered, was "much better than the typical plaintiff could hope to recover" in U.S. courts. Shell Petroleum, NJ 2009, 506.
57. the distribution of the Royal Dutch settlement funds will be administered by Epiq, a U.S. firm with offices in the United States and London
58. Shell Settlement, EPIQ SYS., INC., https://www.royaldutchshellsettlement. com/ (last visited May 24, 2010);
59. About Us, EPIQ SYS., INC., http://www.epiqsystems.com/about.php? AboutusID=2 (last visited May 24, 2010).
60. Hallman, supra note 32.
61. theodore Eisenberg & Geoffrey Miller, Attorneys Fees in Class Action Settlements: An Empirical Study 32 (Cornell Law Sch. Legal Studies Research Paper Series, Research Paper No. 04-01, N.Y.U. Ctr. for Law & Bus. Research Paper Series, Working Paper No. CLB03-23), available at http://ssrn.com/ abstract=456600.
62. Id. at 63 tbl.7.
63. Hof's-Amsterdam 15 juli 2009, JOR 2009, 325 m.nt. Scholten en Van Achterberg (In de zaak van Randstand Holding, N.V.) [hereinafter Vedior].
64. Petition for a Declaration of Binding Force of a Settlement Agreement Pursuant to Article 7:907 of the Dutch Civil Code 17 n.5 (Oct. 6, 2008), available at http://www.vediorsettle ment.com/petition-for-a-declaration-of- binding-force-of-a-settlement-agreement-pursuant-to-article- 7907-of-the-dutch-civil-code.html.
65. Id. at 18.
66. A class action on behalf of U.S. investors against the same defendants and arising out of the same facts was certified in 2008, see In re SCOR Holding (Switz.) AG Litig., 537 F. Supp. 2d 556 (S.D.N.Y. 2008), and ultimately settled after foreign investors' claims were dismissed. At the same time, foreign investors' claims were settled as well, with an understanding that a petition for approval under WCAM would be filed with the Amsterdam Court of Appeals.
67. Notice of Pendency and Proposed Settlements of Class Action, In re Scor Holding (Switz.) AG Sec. Litig., No. 04 Civ. 7897 (DLC) (S.D.N.Y. Oct. 4, 2004), available at http:// www.scorsecuritieslitigation.com/cases/2008.08.11-NOTICE. pdf; In re SCOR Holding (Switzerland) AG Securities Litigation (F/K/A In re Converium Holding), SPECTOR, ROSEMAN, KODROFF & WILLIS PC, http://www.srkw-law.com/areas-of-practice/international/converium-scor.html (last visited June 14, 2010).
68. In mass litigation, judges may issue fee orders taxing all lawyers who have cases involved in the litigation to pay a share of pretrial costs. See, e.g., In re Air Crash Disaster at Fla. Everglades, 549 F.2d 1006, 1008 (5th Cir. 1977) (upholding order requiring "inactive" counsel to contribute to pretrial costs of class counsel).
69. One exception is patent litigation, where some hedge funds have begun to acquire patents for the purpose of bringing patent infringement suits. See generally Nathan Vardi, Patent Pirates, FORBES, May 7, 2007, at 44.
70. Ralph Lindeman, Third Party Investors offer New Funding Source for Major Com mercial Lawsuits, BNA DAILY REP. FOR EXECUTIVES, Mar. 5, 2010, at 1, available at http://www.bna.com/pdf/der-030510.pdf.
71. Multiplex Funds Mgmt. Ltd. v P Dawson Nominees Pty Ltd., (2007) 244 ALR 600, [2007] FCAFC 200, available at http://www.austlii.edu.au/au/cases/cth/ FCAFC/2007/200.html.
72. Brookfield Multiplex Ltd. (2009) 180 FCR at 40, [2009] FCAFC 114.
73. Federal Government Relief for Funded Class Actions, INSURANCENEWS.COM.AU (May 10, 2010), http://www.insurancenews.com.au/regulatory-government/federal- governmentrelief- for-funded-class-actions.
74. THE RIGHT HONOURABLE LORD JUSTICE JACKSON, REVIEW OF CIVIL LITIGATION COSTS: FINAL REPORT 334-35 (2009), available at http://www.judiciary.gov.uk/NR/ rdonlyres/ 8EB9F3F3-9C4A-4139-8A93-56F09672EB6A/0/jacksonfinalreport140110.pdf. the report also recommended experimentation with a public financing scheme funded by a tax against successful class actions, modeled after the Ontario class action fund.
75. Id. at 131.
76. New forms of legal service providers were authorized in England and Wales by the Legal Services Act of 2007. Certain provisions regarding alternative business structures for legal services provision are being brought online incrementally
77. FAQs: Legal Services Act and ABSs, SOLIC. REG. AUTHORITY, http://www.sra.org.uk/sra/legal-services-act/lsa-questions-faqs. page (last visited May 24, 2010).
78. Both of these questions are raised in Lord Justice Jackson's report. See JACKSON, supra note 60, at 118-21.
79. It is also possible that litigation funders might contract with class action defendants, perhaps offering to assume liability for legal defense costs and remedies, if any, in exchange for a large fee.
80. On the notion of "disruptive innovations," see CLAYTON CHRISTENSEN, THE INNOVATOR'S DILEMMA (1997)
81. Gillian K. Hadfield, Legal Barriers to Innovation: The Growing Economic Cost of Professional Control over Corporate Legal Markets, 60 STAN. L. REV. 1689 (2008).