A Very British Coup For now, the UK is generally expected to be the most receptive jurisdiction in which to file collective actions against anti-competitive behavior. The government’s Office of Fair Trading, which enforces the competition laws, has come out strongly in favor of increased private enforcement. The third partner in Cohen Milstein’s London office, Vincent Smith, joined from the agency, where he was the director of its competition enforcement division. According to Smith, the agency does not have nearly enough resources to investigate and regulate all the cartel activity going on.
“One of the things I took away from working in public enforcement was that we needed a good bit of help from the private sector,” Smith says. “We saw that private enforcement of competition laws would be very welcome as an added deterrent.” In 2002, legislation created the Competition Appeal Tribunal, a specialized court to hear antitrust cases brought by the government. The law also gave consumer associations and related groups approved by the Secretary of the State the ability to file what are referred to as “follow-on cases” after government regulators determine that infringement of competition laws has occurred. In the first big case under the new regime, the consumer group “Which?” is suing JJB Sports in the tribunal court, claiming the company engaged in price-fixing of replica soccer jerseys. The London firm Clyde & Co is representing Which?, while DLA Piper is defending JJB Sports in the case. (Attorney Ingrid Gubbay recently left Which? to join Cohen Milstein’s London team as a consultant.) At the outset, the legislation only extended the right to a follow-on suit to groups filing claims for consumers, not to businesses. That may change, however. In April 2007, the Office of Fair Trading published a discussion paper entitled “Private enforcement in competition law: effective redress for consumers and businesses,” which stressed the importance of making it easier for cartel victims to file claims. The paper called for interested parties to respond; the agency is in the stages of incorporating that feedback and recommending reforms. The agency proposed allowing representative groups for both consumers and businesses to file collective actions in “stand-alone cases” – before a regulatory body has started or completed its investigation – in ordinary courts. The agency paper also proposes allowing claimants’ lawyers to earn bigger fees from competition cases. For now, the UK allows what are known as “conditional fee agreements,” under which claimants’ lawyers can earn a percentage increase on their normal fees if the case is successful. The percentage increase is limited to 100 percent of what the attorneys’ hourly rates were during the litigation. The agency paper proposes allowing lawyers to earn above this ceiling. Overall, the paper calls for a system “where public enforcement and private actions work alongside, and in harmony with, each other to the best effect for consumers and for the economy." Cohen Milstein’s London office also will handle securities fraud, human rights, employment and environmental cases. In the securities arena, a shift towards a more litigation-friendly culture was seen in the 2006 Companies Bill, which gave shareholders increased authority to sue directors and officers of public companies for negligence, default and breach of duty and trust. Despite the number of changes afoot, prominent members of the UK legal and business communities are not expecting a dramatic cultural shift in the next few years. Even sympathetic government agencies are fearful of opening a Pandora’s Box of litigation that overly compensates claimants’ lawyers and unfairly burdens businesses. The Office of Fair Trading paper takes pains to stress that it wants to foster “a compliance culture” among businesses and not “a litigation culture” among potential claimants. “The EU itself and individual jurisdictions have been trying to find ways of establishing what you might describe generally as class actions,” says John Heaps, the London-based head of the litigation and dispute management group at the global law firm Eversheds. “But they are trying hard to avoid what seem to be the worst aspects of American class-action litigation, such as huge contingency fees, jury trials and punitive damages. “While we are heading down the class action road, I think we are going to end up with models significantly different to the U.S. model. Whether it will provide firms like Cohen Milstein with the riches they have enjoyed in America remains to be seen.” Heaps doesn’t expect the UK to abandon its loser-pays system anytime soon. He also notes that conditional fee agreements, even if “loosened” to allow claimants’ lawyers to earn more, won’t come close to allowing what American plaintiffs’ lawyers can take in through contingency fees. Mike Pullen, a partner who specializes in EU competition and regulatory law at DLA Piper in London, shares Heaps’ semi-skepticism. He says there won’t be a switch to jury trials – which many Europeans see as a primary cause of outrageous damage awards – or a treble-damage provision, which in U.S. courts triples the compensatory damages for antitrust violations. It’s unclear whether upcoming UK reforms will eventually embrace an “opt-out” class-action system, as in America, which assumes that individuals with potential claims are part of the class. Most lawyers expect that the UK will use an “opt-in” system that requires individuals to apply to join a case. “Michael Hausfeld is not getting it wrong, but it’s not going to be the same as it is in the U.S.,” Pullen, whose London team is representing JJB in the jersey case, says. “There’s not a plaintiffs’ bar with the lobbying position it has in the U.S. Cohen Milstein may make a market, and good luck to them. But I think they’re probably looking at this longer term than short term.” With most of the loser-pays risks still intact, American plaintiffs’ firms are taking a wait and see approach before following Cohen Milstein. Nevertheless, while the strategy is long term, the London office does have immediate benefits. The office can help coordinate the claims and legal strategies of non-U.S. claimants in cases that the firm is pursuing in U.S. courts. While this task could be done from U.S. offices, a team of well-established and respected local attorneys will have greater success at finding and servicing European clients, particularly as the roster of foreign clients grows. The London office is presently performing that role in two large cases. One is the consumer class-action filed in New York federal court against British Airways and Virgin Atlantic alleging price-fixing of tickets on flights between the U.S. and the UK. The other involves claims in Washington, D.C., federal court against more than a dozen international airlines for alleged cartel activity tied to inflated fuel surcharges. In this case, the class of plaintiffs is made up of airfreight distributors from around the world that used the defendants’ airfreight services and claim they were overcharged for fuel. Stephen Susman, name partner of Houston-based Susman Godfrey, which like Cohen Milstein is an enormously successful litigation boutique handling plaintiffs’ cases, says that opening a London office doesn’t make any sense to him financially – though he does allow that it would help line up foreign clients for U.S. cases. “For the foreseeable future, our courts probably will provide the best system in the world for people to seek remedies for being hurt, and you’ll see Europeans and Asians seeking redress here,” Susman says. “That’s the only sense I can make out of what Michael [Hausfeld] is doing.” Litigating cases in U.S. courts prepares Cohen Milstein to file claims, or threaten to file claims, against the same defendants in the UK. As of late December, when this magazine was published, the London office had not filed any claims but was in the process of negotiating settlements in several competition-related cases. Settling cases before litigation is an important part of Cohen Milstein’s planned strategy that takes into account the anti-litigation culture. Lawyers cannot discuss the details of these cases because the talks are confidential. Press materials for the London office say that damages claims for these cases “are likely to total in the billions.” Maton says that it’s logical to bring this approach to corporate fraud cases, as well. “When you look at corporate collapses, inevitably that collapse straddles multiple jurisdictions,” says Maton. “You have companies listed on multiple exchanges from numerous jurisdictions in the U.S. and Europe. Investors in Europe are looking for a means by which they get redress on both sides of the pond.” Steven Toll, the firmwide managing partner of Cohen Milstein and the head of its securities practice, adds that foreign parties are not always able to successfully sue in U.S. courts. In some securities cases, federal judges have ruled that they do not have jurisdiction over foreign claims. This summer, for example, U.S. District Judge Lewis Kaplan in New York dismissed the claims of foreign buyers of Parmalat stock against a group of auditing and bank defendants, finding a lack of culpable actions by the defendants in the United States. The ruling has been appealed. If upheld, Toll says, the case illustrates how foreign investors will have to pursue claims in European jurisdictions if they want some compensation for their losses. “Clearly, in some of the big cases foreign investors will have no real recourse here,” says Toll, who is based in Washington, D.C. “That’s another reason we were wise in our judgment to [expand to London].” For cases filed in the UK, Cohen Milstein is prepared to go forward with conditional fee agreements. The firm also will consider after-the-event litigation insurance to take some of the risk out of the loser-pays provision. Another possibility for claimants and their lawyers is the increasingly popular third-party funding strategy, in which an outside fund finances the litigation in return for a portion of the verdict or settlement. The litigation funding and insurance market is growing as a result of the anticipated reforms. Insurance giant Allianz recently launched a fund called Allianz ProzessFinanz to provide these two services. It’s also important to keep in mind that Cohen Milstein’s London office has a huge inventory of prospective cases that pose relatively little risk. Government regulators have found liability against dozens of companies that have yet to see the statute of limitations run out on private claims. The lack of private enforcement has left cases other than JJB for the taking. Cohen Milstein is in the process of deciding which cases it wants to pursue. “Even absent changes in collective actions or the costs of bringing a case, the landscape to bring these claims exists already,” Maton says. While the initial focus is on the UK, Cohen Milstein’s strategy is pan-European. Because much of its recent litigation has been international, the firm has existing relationships with many European firms. The firm will not have to open up more offices as it pursues cases around the continent. Again, as part of the culturally sensitive strategy, Hausfeld plans on working with local counsel instead of exporting existing Cohen Milstein lawyers. Earlier this year, the London-based research and advisory firm Economist Intelligence Unit released a report supporting the belief that the UK is likely to be Europe’s hotspot for group litigation, in part because the discovery process is more favorable to claimants in the UK compared to other parts of Europe. The firm surveyed 242 lawyer and business executives across Europe and found that “[m]ore than 59% expect to see group litigation emerge in the UK in the next three years, compared with 33% in Germany and 29% in France.” Strikingly, however, 88 percent of the survey respondents expected that group litigation “will become prevalent in the EU within the next ten years.” Most believe that these will be opt-in collective actions of named claimants and not massive class actions of unnamed members as in the United States. Several European countries have enacted reforms in recent years to provide some type of group litigation. In November, Italy’s Senate passed a budget amendment that allows consumer associations and other groups to file collective actions. Both houses of the Italian parliament must approve the budget for it to take effect. A law that took effect in Germany in 2006 allows shareholders to file securities fraud claims in groups of 10 against companies. The law was passed after 17,000 fraud claims against Deutsche Telekom AG clogged the German courts. In 2005, the Netherlands passed the Act on the Collective Statement of Mass Claims. The law didn’t grant individuals the right to file collective claims, but it allows them to reach a collective out-of-court settlement with defendants that is later certified by the Amsterdam Court of Appeal. Earlier this year, a group of European investors reached a $450-million settlement with Royal Dutch Shell over losses stemming from the company’s overstatement of oil reserves. Cohen Milstein represented KBC Asset Management in the case, for which Grant & Eisenhofer served as lead plaintiffs’ counsel. The case is an example of how class-action lawyers can pursue claims in both the United States and Europe. A federal case in New Jersey is pending with U.S.-based investors as plaintiffs. The case also is an example of how pan-European plaintiffs’ practices will be able to choose where to file their claims when the alleged wrongdoing covers multiple jurisdictions. If lawyers feel they can settle a case, Murray explains, the Netherlands might be a favorable place to pursue claims; if not, the lawyers may choose a jurisdiction like the UK. “It’s going to be a pretty sophisticated analysis,” Murray says. “We have a good understanding of what to do in different parts of Europe because we have lawyers in these jurisdictions that we’ve worked with.” Of course, even some of these recent reforms in member states do not make the jurisdictions very favorable for claimants. Loser-pays provisions and other restrictions in some member states – such as limiting collection actions to injunctive relief – have prevented class-action-like litigation from taking off. The EC’s Competition division outlined its hope for greater private enforcement in a 2005 green paper entitled “Damages actions for breach of the EC antitrust rule.” The paper noted that the European Court of Justice, in a 2001 decision, explicitly gave consumers the right to sue companies in the courts of their member states for violations of EC competition rules. However, the right has been mostly theoretical because of the loser-pays provisions, damage caps, strict discovery rules and the lack of mechanisms for collection actions. The EC paper proposed that member states adopt provisions that allow consumer groups or “other qualified entities” to file representative actions on behalf of consumers for damages. The EC wants consumer rights to be uniform across the 27 member states. The paper also floats more dramatic reforms, such as claimant-friendly discovery procedures, punitive damages and “cost protection orders” that allow courts to protect claimants from litigation costs – even if they lose. The commission called for responses to the paper and is developing more specific reform proposals. There is some irony to these developments. In the United States, class action filings are down, and this trend is expected to continue. As Gregory Markel, the chair of the litigation practice at Cadwalader Wickersham & Taft, opined in the last print issue of Lawdragon, the golden era for plaintiffs’ firms appears to be over. Markel explained that the reforms of the 1995 Private Securities Litigation Reform Act, which raised pleading standards in shareholder class actions, are finally taking hold. The criminal cases against class action giant Milberg Weiss and several of its former attorneys, including William Lerach, also have driven the number of filings down. Susman says that “the gradual closing of the courthouse doors” may eventually make an overseas expansion a good business move for a plaintiffs’ firm. “There’s no question it’s getting harder to file a class action,” he says. “Lawyers are always asking, ‘Where do I go next?’ And I can see going to Europe for that.” Until that day, Cohen Milstein will be true pioneers. Though Hausfeld waited patiently for eight years to pull the trigger on his plan, much uncertainty remains. Procedurally, it’s unclear how cases filed throughout Europe will play out – especially before any of the proposed EC reforms come to fruition. When it takes on a large corporation with cartel activities hurting businesses and consumers across Europe, will Cohen Milstein have to pursue claims in the UK, Italy, Germany and other states for one set of violations of EC competition laws? “Nobody knows,” Hausfeld says. “We’ll have to file the cases and see what happens.” Page: 2 of 2 pages for this article < 1 2
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