New Strategies Support Global Securities Litigation

September 20, 2016

Recently, we are seeing major securities class actions being successfully settled for record amounts in places across the world like the Netherlands and Japan. These legal claims, often categorized as “entrepreneurial litigation,” represent major victories for American plaintiff law firms who have played integral roles in spearheading the actions.

The settlements are impressive given the fact that many jurisdictions, especially those in Europe, have not been completely welcoming towards American-style opt-out class actions which give the plaintiff and their attorney more control in shaping the scope of the class. In particular, European statutes have imposed restrictions such as prohibitions on lawyer contingent fees, requirements on “loser pays” fee-shifting, and other conditions.

Innovative Strategies for Global Securities Litigation

In a thorough and well-written article, Columbia Law School Professor John C. Coffee Jr. has identified three ways in which U.S. plaintiff attorneys have used creative litigation strategies to provide relief for institutional investor clients despite these restrictions. These are: 1) “broad claim aggregation;” 2) third-party financing; and 3) protection against fee-shifting.

In effect, the use of these strategies has resulted in a “synthetic class action” structure that has allowed American plaintiffs firms to obtain record-setting awards for their clients abroad, amidst seemingly unfavorable statutes.

Perhaps the best example of this synthesized approach is the Fortis case, structured by Kessler Topaz Meltzer & Check and Grant & Eisenhofer . With regards to the three points mentioned above, the two American firms:

  • Created two stichtings (Dutch for “association”), which provided their clients with limited liability and gave central control over the litigation to each stichting’s board of directors. This eliminates the need to list each plaintiff separately, thus creating an equivalent of an “opt-in” class action.
  • Obtained financing from a hedge fund that specializes in third-party funding. This allows the case to move forward while conforming to European rules, which bar lawyers (but not third-parties) from receiving contingent fees.
  • Purchased insurance from a liability insurer using financing from the hedge fund; this has the effect of insulating against “loser pays” fee-shifting that is common in many European jurisdictions. They were also able to account for absent parties by converting the action into an effective “opt-out” class action under the Netherlands’ Act on Collective Settlement of Mass Claims (the "WCAM" statute).

Global Securities Litigation Continues to Press Forward

As a result of these ground-breaking securities litigation strategies, the firms were able to reach a settlement in March 2016 for an amount of $1.337 billion. This is a record amount for European securities litigation, and is quite the feat given Europe’s overall resistance towards American-style opt-out lawsuits.

The use of precisely tailored and engineered strategies for global securities litigation continues, as the two firms are also bringing a large-scale securities suit in Germany in a suit against Volkswagen involving 277 institutional investors. Thus, the tenacity and innovation of U.S. law firms are making efficient and thorough recovery possible for shareholders in spite of rigorous jurisdictional challenges. Contact Kessler Topaz if you have any questions or concerns regarding global securities litigation issues.