US Class Action Research Articles

Solving Investors’ Problems with Access to Evidence in Damages Litigation: Suggestions for a Future Issuer Liability Regime

AbstractPrivate enforcement’s role in the European secondary securities market is narrow. Issuer companies’ civil liability for violations of the inside information disclosure obligation is no exception. While trying to avoid the shadow of the US class action institution, European scholarship has long explored ways to increase the role of private enforcement in the securities market. Harmonising issuer liability is one of the suggestions to create a more prominent role for private enforcement. Even though harmonising issuer liability would be a welcome option for legal certainty and investor protection, it seems unlikely to happen in the near future. As an initial step towards potential harmonisation, this article analyses credit rating agencies’ (CRAs) liability and liability for competition law violations from the viewpoint of information asymmetry in litigation. It evaluates whether the legislative solutions in the CRA III Regulation and the Competition Damages Directive regarding plaintiffs’ access to evidence could be used as models for a potential issuer liability regime. The article finds that the choices made in the Competition Damages Directive could serve as viable models for issuer liability. The provisions in that Directive solve the information asymmetry between the plaintiff and the defendant by granting the plaintiff access to evidence in litigation through a court order.

Class Actions and Human Rights Litigation in Australia: Realising the Potential

Most commentary and, indeed, most controversy concerning class actions in Australia has concerned shareholder class actions and how they are funded. This paper consciously changes the focus of its commentary away from such debates and towards examining human rights class actions in Australia. As Australia is the only advanced country without national constitutional or statutory protections of human rights, attempts to legally protect human rights have manifested themselves indirectly in various areas of the law that might not at first glance seem to have much to do with human rights. Class actions has been one of those legal areas. Given the paucity of existing commentary on Australian human rights class actions this paper begins with an examination of the types of cases that have been bought as human rights class actions and provides examples of them. Drawing on literature concerning the effectiveness of actions undertaken to protect human rights and on class actions protecting human rights overseas, it uses publicly available information to undertake a qualitative analysis concerning the effectiveness of such litigation. After coming to some tentative conclusions about such effectiveness, it examines whether US class actions law might be a source of ideas that could be adapted to address any such limitations of effectiveness in the same way that US class actions jurisprudence was originally drawn upon by the Australian Law Reform Commission to recommend that class actions provisions be enacted in Australia. Given the relative absence of legal norms protecting human rights in Australia as well as the relative weakness of social movements seeking greater legal protection for human rights in Australia, the search by human rights advocates for ways to access courts and obtain greater legal furtherance of human rights is a task of some urgency. This paper attempts to contribute to that search as well as to advance the analysis of Australian human rights class actions and their effectiveness more generally.

The bonding hypothesis revisited: evidence from US class action lawsuits

PurposeConsistent with an “absolute bonding hypothesis,” the benefits of listing on US exchanges experienced by cross-listed firms are accompanied by an increased risk of experiencing a spillover effect due to negative news within their industry. The purpose of this study is to test this form of the bonding hypothesis by analyzing the spillover effect to cross-listed firms when class action lawsuits are filed against their industry peers.Design/methodology/approachThe bonding hypothesis is tested by analyzing the spillover effect to non-sued cross-listed firms of class action lawsuits brought against US domestic firms in the same industry. The spillover effect is identified using cumulative abnormal returns around lawsuit filing dates from 1996 to 2020. A sample of matched non-sued cross-listed and domestic peer firms is evaluated in a cross-sectional analysis to identify country and firm-level characteristics that mitigate the negative spillover effect to cross-listed firms.FindingsWhile US firms realize significantly negative abnormal returns when class action suits are filed against their industry peers, the impact to cross-listed peers is statistically insignificant. In multivariate analyses, we show that the ability of cross-listed firms to avoid this negative spillover effect is stronger for firms with greater profitability that are headquartered in countries with better shareholder protections and governance characteristics.Originality/valueResults suggest that cross-listed firms may have a level of immunization from the negative industry spillover effect of class action lawsuits and, thus, exhibit only “partial bonding” to the US market.

Risk Mitigation of Corporate Social Performance in US Class Action Lawsuits

We investigated the relationship between corporate environmental, social, and governance (ESG) performance and litigation risk by examining US class action lawsuits. We found that a 1 standard deviation improvement in the ESG controversies of an average company in the sample reduced litigation risk from 3.1% to 2.4%. Moreover, an average company with low ESG performance exhibited a loss in market value twice as large as that of a company with high ESG performance—an abnormal loss of US$1.14 billion. Implementation of our findings with a trading strategy yielded positive monthly alphas, suggesting that investors benefit from lower litigation risk and the insurance-like protection of high ESG performance.

The Boundaries of Law: Can US Private Enforcement Discipline Foreign Firms?

We examine whether US shareholder-initiated class action lawsuits can discipline foreign firms. Using an international sample of firms over the period from 1995 to 2013, we find that a US class action lawsuit against a foreign firm cross-listed in the US negatively affects the value of that firm’s home-country industry peers. We uncover two economic mechanisms underlying the disciplining effect of US lawsuits: information sharing and policy coordination between the US and other countries. We show that the loss of value for foreign peer firms’ prompts corrective corporate action to regain shareholder value by increasing the dividend payout and reducing cash holdings. Our findings confirm that private enforcement in the US can have worldwide consequences through US cross-listings.

Transcending the Collective/Individual Minority Rights Division: A Procedural Proposal

Violations of human rights often target minority groups. This paper argues, through the case of minority claims, that the right to effective remedy entails an obligation to provide non-individualized remedies where lack thereof would result in non-remediable rights violations. Using class action or a similar tool to aggregate claims in a court procedure will in itself fulfill certain embedded claims and, as a result, contribute to achieving the goal of providing adequate remedy. While many collective procedures can be cited as concrete examples for implementation, the US class action rule will be used here as an example through which the various challenges and possible benefits of a collective procedural tool are assessed. The article presents a conceptual proposal based on insights from the US experiences with class action and concludes that a right view of legal remedies might not only allow but also require accommodating certain collective claims, and such a move could benefit group members in a number of respects, providing for a more efficient and adequate remedy that is sensitive to the context and addresses symbolic claims as well as the problem of limited funds.

American ‘State of Mind’: Why do Class Actions Keep Failing Outside America?

Although in recent decades a number of countries have tried to establish collective litigation mechanisms, not a single one has developed a mechanism as successful as the one provided for in the US by Federal Rule 23. There are a lot of arguments, based on different perspectives, that could explain this. Nonetheless, the present essay exposes that class actions extraordinariness might be associated with the American pragmatic approach to procedural rights. To demonstrate this point, my matter of investigation, firstly, is the contemporary picture of collective litigation worldwide (explaining its central lines and its most important differences). After that, I connect such differences with the ideological perspective aforementioned, arguing that this is the point where the foreign experiences found their blind side. I conclude that this ideological background, responsible for the US class action effectiveness, is distant from the majority of the continental world, playing a key role to its failure.

Collective Redress in EU: Can Pitfalls of US Class Actions Be Avoided? At What Cost?

The article discusses the introduction of collective redress in the EU, with special emphasis on the comparison to the US class action suits in the field of competition law. After briefly overviewing EU’s approach to implementing collective redressing and a description of the history and nature of the class action suits, the article stresses the agency costs that arise in class action suits as the main inefficiency of class action suits and discusses ways to decrease the agency costs in class actions. It concludes with the overview of Slovenian legislation pertaining to the collective redress and the recommendations for the EU’s implementation of the collective redress.

US Class Actions: Promise and Reality

The US class action is the best-known tool of civil procedure for enforcement of mass private rights. It is intended to achieve judicial and procedural economy in civil procedure, and to exert significant pressure on corporate defendants to observe the law. This piece summarises the major empirical evidence on how the mechanism works. It confirms extensive enforcement of law. It also identifies issues of selectivity of case types (especially securities cases brought by investors), high transactional costs and reductions in sums received by claimants, the risk that high economic factors distort the legal merits of settlements, the limited evidence on evaluating the legal merits of outcomes, forum shopping, and aspects of conflicts of interest that have been criticised by European politicians as abusive. The piece notes that these features are predictable consequences of the policy of encouraging widespread private enforcement of law by incentivising intermediaries and reducing risk to claimants. Various questions are noted in relation to the future of collective redress in the different context of the European legal order.

Recognition of US Class Actions or Settlements in Europe

With the Morrison-judgment, access to US securities class actions is denied for non-US transactions. Granting preclusive effect to class settlements concluded with European investors should prevent re-litigation before European courts. Recognising US class action/settlement judgments under Dutch, French English and German law requires the following: (1) the US courts must have had jurisdiction; (2) the class must have been properly notified; (3) opt-out mechanisms must not be manifestly against public policy; and (4) interested parties must be sufficiently informed. Absent class members are bound unless they explicitly opt out. European jurisdictions (recently) allow for a similar binding effect. The Dutch WCAM and the English representative actions have opt-out features. The German Capital Market Model Case proceedings is based on the opt-in model; only persons bringing a claim before a (lower) court are bound to the outcome of the model case proceedings. The recently adopted French collective action proceedings are also opt-in, however, filing an individual (damage) claim is not required at the first stage in which a representative organisation requests the court to rule whether the defendant acted tortiously towards the represented group.

Winner of the SLS Annual Conference Best Paper Prize 2013: Bogeymen, lunatics and fanatics: collective actions and the private enforcement of European competition law

The European desire to ensure that bearers of EU rights are adequately compensated for any infringement of these rights, particularly in cases where the harm is widely diffused, and perhaps not even noticed by those affected by it, collides with another desire: to avoid the perceived excesses of an American-style system of class actions. The excesses of these American class actions are in European discourse presented as a sort of bogeyman, which is a source of irrational fear, often presented by parental or other authority figures. But when looked at critically, the bogeyman disappears. In this paper, I examine the European (and UK) proposals for collective action. I compare them to the American regime. The flaws and purported excesses of the American regime, I argue, are exaggerated. A close, objective examination of the American regime shows this. I conclude that it is not the mythical bogeyman of a US class action that is the barrier to effective collective redress; rather, the barriers to effective, wide-ranging group actions lie within European legal culture and traditions, particularly those mandating individual control over litigation.

Spillover Effects from US Class Action Lawsuits: Evidence from Foreign Firms Cross-Listed in the US

In this paper, we document that US cross-listed firms experience negative return spillovers in the three-day event window centered on the filing of US class action lawsuits launched against their country peers. This spillover effect is both economically large (-0.139%) and statistically significant at the 1% level. We find that firms domiciled in jurisdictions endowed with weak institutions, as well as firms monitored by weaker reputational intermediaries, are considerably more vulnerable to these adverse spillovers. Our evidence demonstrates that the mitigating power of external market monitors is especially high for firms domiciled in countries endowed with weak institutions. Foreign firms choosing to cross-list their shares in the US can reduce their vulnerability to this class action lawsuit spillover risk by selecting higher quality reputational intermediaries and by communicating with investors more effectively.

The German Capital Markets Model Case Act (KapMuG): a European role model for increasing the efficiency of capital markets? Analysis and suggestions for reform

In this paper, we analyze the German Capital Markets Model Case Law (KapMuG) enacted to reduce transaction costs in securities mass litigation. The KapMuG is often seen as a European role model trying to enhance investor rights without running the risk of frivolous claims known from the US class actions. We show that the current legislation is insufficient due to two main obstacles: first, shareholders need to file individual lawsuits before being eligible for participation in the model case, which leads to a rational ignorance of small shareholders. Second, for wrong and omitted capital market information beyond prospectus liability, it is unclear if shareholders need to prove the causal link between the wrong information and the investment decision, which is hardly possible. We suggest two major changes for the reform due in November 2012: a simplified opt-in mechanism without the prerequisite of individual lawsuits and extension of the reversal of the burden of proof for causation from prospectus liability to wrong or omitted ad hoc information. Besides, we argue that gross negligence is the appropriate liability rule in the substantive law underlying the KapMuG.

The integrity of the price: Issues for securities fraud plaintiffs and defendants in US class actions

Under US law, class actions are generally forbidden for fraud claims, because individual issues of reliance predominate over class-wide issues. In securities fraud cases, however, the US courts have permitted class actions by employing the ‘fraud-on-the-market’ doctrine. This paper focuses on one limiting aspect of the fraud-on-the-market doctrine, which is under-appreciated but potentially significant in many US securities fraud class actions.The fraud-on-the-market doctrine creates a rebuttable presumption that each investor indirectly relied on the allegedly misleading statements or omissions. The doctrine thus applies rebuttable presumptions; first, that each investor relied on ‘the integrity of the price’ of the security and, second, that in an efficient market any misleading information was impounded into, and distorted, the price.Defendants may reduce the size of the plaintiff class by developing evidence that many investors did, or were willing to, purchase the security despite known, substantial risks of undisclosed fraud — that is, that they did not rely on ‘the integrity of the price’. Such investors often include large index or quantitative investment funds and, in cases of multiple fraud disclosures, investors who buy securities between disclosures of possible fraud, while the issuing company remains under a cloud of suspicion.

The US Class Action Settlement Agreement in Cobell v. Salazar – An Adequate Redress for 120 Years of Mismanagement of Indian Lands and Funds?

In June 1996, five Indian beneficiaries filed a class action lawsuit on behalf of all present and past individual Indian trust beneficiaries against the US Department of the Interior and the Department of the Treasury for failing to properly manage and account for Indian trust assets, which have been held in trust by the US government for individual Indians since the end of the 19th century. On 7 December 2009, after thousands of court filings and over 80 published opinions, the parties settled the issue out of court by concluding the Cobell settlement agreement, which was subsequently endorsed by the US Congress and gained final approval from the competent court. According to the settlement agreement, the US government is obliged to pay USD 3.412 billion, thus making the Cobell settlement the largest settlement the US government has ever entered into.

Danish class actions - a European model?

The authors present the EU intentions to take legislative action in respect of class actions and outline the recent, national initiatives on class actions within the member States of the EU. Then, the main features of US class actions are outlined followed by a detailed examination of the new Danish provisions on class actions. The authors compare the US and the Danish provisions and conclude that the Danish provisions on class actions may serve as a model for future EU legislation given the Danish compromise between the opt-in and the opt-out model for class actions.

Die Us-Amerikanische Class Action: Struktur und Rechtsökonomischer Hintergrund

Abstract The article is dealing with the new German legal regulation concerning so called securities class actions. Th e author sees the new possibilites to bind together claims which arose from false information in capital market as a followor of the US class actions, therefore the article explains with the aim to simplify the intepretation of the new German legal rules the current American legal regulation of class actions. Th is means it analyses mainly the article 23 of the Federal Rules of Civil Prodecure and brings opinions of the author whether its particularities may function in Germany or not.

F3: Securities class actions around the world after Morrison

Institutional investors globally are increasingly recognising the need to monitor and respond to the now many different securities class action and group investor action systems around the world, to recoup investment losses arising from corporate (or adviser) non-disclosure, misrepresentation or fraud. Securities class actions started in the United States, still in volume terms the main home of class actions, but have spread quite rapidly to other jurisdictions around the world. The US Supreme Court's Morrison decision in 2010 that sought to exclude so-called ‘foreign-cubed’ investors from US cases has accelerated the export of the class action style process to other jurisdictions and increased shareholder class action activity outside the United States. Whereas the US class action process is somewhat familiar (at least to some investors), the variety of processes outside the United States is less well known and the landscape continues to change rapidly. This article looks at some of the selected non-US jurisdictions to give a brief introduction to the new evolving global class action landscape.

The German Capital Markets Model Case Act (KapMuG) - A European Role Model For Increasing the Efficiency of Capital Markets? Analysis and Suggestions for Reform

We analyze the German Capital Markets Model Case Law (KapMuG) enacted to reduce transaction costs in securities mass litigation. The KapMuG is often seen as a European role model trying to enhance investor rights without running the risk of frivolous claims known from US class actions. We show that the current legislation is insufficient due to two main obstacles: First, shareholders need to file individual law-suits before being eligible for participation in the model case which leads to a rational ignorance of small shareholders. Second, for wrong and omitted capital market information beyond prospectus liability, it is unclear if shareholders need to prove the causal link between the wrong information and the investment decision, which is hardly possible. We suggest two major changes for the reform due in November 2012: a simplified opt-in mechanism without the prerequisite of individual law-suits, and extending the reversal of the burden of proof for causation from prospectus liability to wrong or omitted ad hoc information. Besides, we argue that gross negligence is the appropriate liability rule in the substantive law underlying the KapMuG.

Administrative and Judicial Collective Enforcement of Consumer Law in the US and the European Community

In the consumer society, as it stands today in Western-type democracies, consumers have a far larger choice of products and services originating from all over the world than they did decades ago. Risks associated with products and services have also increased, as have mass problems and mass damages, often in a transborder dimension. The US and the European Community, though battling against common problems, maintain different standard setting and enforcement regimes. This paper focuses on enforcement regimes, thereby distinguishing between administrative enforcement via agencies and judicial collective enforcement via European collective actions and US class actions. The existing theoretical framework depicting administrative and judicial enforcement as alternative strategies is contrasted against modern developments in the US and the EC. In the field of consumer protection administrative control and judicial collective enforcement are being understood more as functional complements than alternatives. Enforcement covers negotiation, settlement, adjudication and arbitration. The analysis of the institutional variables determining the choice between administrative and judicial control - ex ante vs. ex post control, injunctive relief versus damages, personal injuries and economic losses, sector specificity vs. general instruments to protect consumers, public agencies vs. private organisations - provide the ground for preliminary thoughts on a revised theoretical approach.