It appears U.S.-style “class action” justice is coming to Europe, even as the United States moves away from the pro-plaintiff model.

The new regime in the United States is exemplified by the Class Action Fairness Act of 2005 (CAFA), which moves large class action lawsuits (i.e., those involving more than $5 million in claimed damages) out of plaintiff-leaning state courts–where many judges are elected–and into the more conservative federal courts where judges are appointed by the President and confirmed by the United States Senate.

CAFA also empowers federal judges to review attorneys' fees awards in certain cases.

Just as the United States is attempting to reign in runaway class action litigation, European governments are moving in the opposite direction by enacting legislation allowing consumers to bring class action-type lawsuits.

Still, it appears that Europe has not completely embraced the U.S.-style class action model, which empowers a plaintiff to represent himself and all other similarly situated persons, unless the class members affirmatively elect to “opt-out” from participating in the litigation.

Yet, some European countries appear poised to move in that direction. Anticipating this new regime, U.S. class action lawyers are opening their own offices in Europe or affiliating with European firms that promote themselves as consumer advocates and solicitors.

In light of this developing situation, companies doing business in Europe should be cognizant of the concrete possibility that they could be subjected to protracted class action litigation venued in Europe, with millions of dollars in damages and expenses potentially at stake.

Germany provides a good example of European activism on the rise. There, provisional securities laws were enacted after plaintiffs' attorneys had filed over 15,000 individual claims against telecom giant Deutsche Telekom AG, following a dramatic decline in the company's stock price.

Shareholders alleged the company had made material misstatements concerning corporate assets, and the company was faced with the prospect of litigating each individual claim separately. To combat these inefficiencies, the new German securities law allows a total of 10 shareholders to file a single claim against a company for violations.

In Sweden, a private citizen may file a claim on behalf of himself and a consumer group, done on an “opt-in” basis. Individuals who want to be a part of the action must notify the court of their intent to “opt-in” to the class and be bound by the court's decision.

Sweden's neighbor, Norway, following a similar course, passed its Mediation and Civil Procedure Act, effective in 2007, which allows plaintiffs to “opt-in” to a class represented by a court-appointed advocate.

In the Netherlands, Dutch law allows associations to bring collective actions against companies on behalf of injured plaintiffs. Such actions may be combined with lawsuits brought by individual plaintiffs, thereby creating a de facto form of “class action.”

Still, it is noteworthy that the litigation outcome would not be binding on injured persons not involved in the proceedings, except in the circumstance where a litigation settlement is achieved and has been approved in the Dutch Court of Appeals. In that instance, the settlement outcome would be binding on all injured parties.

Italy does not currently allow for class action lawsuits. However, in July 2006, perhaps in response to the Parmalat and Cirio SpA collapses, Italian Prime Minister Romano Prodi passed a decree permitting class actions under Italian law. At present, the subject decree is pending before the Italian parliament, awaiting approval.

France also is moving toward a class action model. A draft bill was proposed in April 2006, whereby a French court would decide whether to permit an action brought by an association on behalf of consumers who have “opted-in.”

Finally, in England, “group litigation” has existed for some time, with individuals filing separate claims; however, an English court may later join similar claims sua sponte, or at the request of the litigants. Once joined, the court chooses a representative case or cases which it will use to decide all common issues. The court's ruling on those issues effectively binds all of the joined litigants, although liability is still decided on an individualized, case-by-case basis.

In view of this evolving trend, it would appear that Europe will become the next battleground for large scale class action litigation, particularly in the context of securities and consumer litigation. As such, companies doing business in Europe are becoming increasingly concerned that class action-like laws will bring with them a dramatic increase in the costs of doing business, if not large and expensive litigation.

Various cultural, legal and financial dynamics exist, however, which may, at first glance, work against large scale, future European class action lawsuits. Most notably, Europeans appear to be less litigious than Americans. In Sweden, for example, plaintiffs have rarely utilized the opt-in process that has been in place since 2003. At the same time, British institutions remain skeptical of large contingency fees charged by class action lawyers, despite the fact that they may stand to recover large sums of money in litigation.

There are also financial disincentives embedded in European legal systems which weigh against large class action lawsuits. Although the European Union is debating possibly introducing contingency fee arrangements as a way to fund class action litigations, European countries currently do not allow for these arrangements, which are a driving force in U.S. class actions.

Moreover, plaintiffs' damages in Europe are curtailed in various ways leading to smaller awards. Further, punitive damages are not prevalent, unlike in the United States.

An additional deterrent are the well-known “loser pays” rules, whereby some European countries' laws require the losing litigants to pay the prevailing party's legal expenses.

Advertising restrictions also limit the number of people an attorney might contact to join a class.

Still, at the end of the day, it would be careless to ignore the evolving European trend toward class or mass actions. At the least, corporate executives and their companies' insurers will want to keep abreast of developments within the countries where they have operations and may be subject to jurisdiction.

As local laws change, companies should factor in the likelihood and expense of class action litigation as a cost of doing business.

Special Reports /

European Class Actions: A Growing Movement?

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