In our work as lawyers in an international context, we are seeing a steady increase in cases where a large number of individuals claim damages of a similar nature. There are numerous reasons for this increase; one is the rise of globalisation, another the involvement of interest groups and claims vehicles highlighting the possibility of collective actions. Further, newly enacted collective redress mechanisms in various jurisdictions (for example in the Netherlands and the United Kingdom) are encouraging actions of this kind. In the Netherlands, a draft bill on redress of mass damages in collective actions was recently presented. Although a collective action and a collective settlement procedure were already in place, the proposed new collective damages action could actually force liable parties to collectively redress a mass damages claim. Further, in the United Kingdom, amendments to the Competition Act 1998 - brought into force in October 2015 - allow claimants to bring collective claims in competition cases through a proposed representative claimant before the court and ask for a collective proceedings order to be made.
An increasing tendency to lodge mass claims may require that defendants consider alternative solutions in order to avoid time consuming, costly litigation - as well as reputational exposure. Settling mass claims is one option defendants may choose. This short article addresses issues that may arise and which defendants should keep in mind when choosing to settle mass claims.
Settling all (potential) claims?
Settling mass claims does not always result in the full, final and global release of all (potential) claims. An important question is whether a settlement agreement covers the entire mass claim, or only a part of it. Further, any publicity in relation to a settlement may encourage additional claimants, possibly with low-merit cases, to lodge claims or seek to become a party to a settlement. A defendant should therefore carefully monitor the extent of the coverage of a settlement agreement and may seek to expand that coverage and subsequently limit the number of remaining claims.
In this respect, the Netherlands has a well-developed model for settling mass claims and mitigating the risk of residual exposure. The Dutch Act on the Collective Settlement of Mass Claims (Wet Collectieve Afwikkeling Massaschade; the 'WCAM'), has attracted attention around the world due to its successful application in significant transnational cases. It allows parties to a collective settlement to jointly request the court to declare the settlement binding on all members of a class, on an opt-out basis. Under the WCAM, even a relatively small Dutch interest is sufficient to bring a case within the competence of the Dutch court; a requirement which is usually met. Although recognition by foreign courts may differ from country to country, it is likely that a decision to declare a settlement binding is recognised by other European courts on the basis of Council Regulation 1215/2015 (the "Brussels Ibis Regulation") - making the Dutch model an efficient transnational option. Although the question of recognition in transnational cases has not yet been completely resolved, the WCAM has already been successfully used for several global settlements.
Additionally, a new class action regime was introduced in the United Kingdom in October 2015, which may allow defendants to reduce the risk of facing remaining claims. Claimants can bring a private action for losses suffered as a result of an infringement of competition law before the Competition Appeal Tribunal (the 'CAT'), which now has the power to make collective settlement orders irrespective of whether or not collective proceedings have already begun. Claims can be brought on either an opt-in or an opt-out basis, subject to certification from the CAT. In opt-out cases the claim can be brought on behalf of, and aggregate damages awarded to, a defined group without the need to identify and specify the losses of all the individual claimants within that group. UK claimants within a particular class are automatically included in an action unless they take specific steps to opt-out.
Risk of additional contribution claims
Despite the fact that mechanisms as introduced in the Netherlands and the United Kingdom enable defendants to expand the coverage provided by a settlement agreement, the involvement of other parties in the alleged wrongdoing may prove to be a factor in deciding how to settle mass claims.
In principle, a settlement between the settling defendant and the claimants does not affect the claimants' claims for damages against the other defendants in the case. A settling defendant may therefore still be exposed to possible contribution claims from other parties that may be liable on a joint and several basis, which can be a disincentive to agree on a settlement. The settling parties can however agree to include an indemnification in the settlement agreement, protecting against these contribution claims. However, in the context of settling mass claims, such clause may appear somewhat impractical due to the large amount of participating claimants involved.
Instead of - or in addition to - including an indemnification provision in the settlement agreement, the settling defendant may agree with the claimants that they will reduce the amounts of their claims against the other defendants in line with the settling defendant's share. In practice, the other defendants' performance towards the claimants is then reduced by the amount that the claimant would otherwise have received from the settling defendant. Under Dutch law, this mechanism is laid down in article 6:14 DCC and has a broad scope of application. In proceedings concerning the WCAM, for example, article 6:14 DCC is presumed to apply unless another intention is apparent. Further, on a European level, Directive 2014/104/EU on antitrust damages actions also contains a clause protecting settling parties from contribution claims. Comparable systems operate in several state laws of the United States as well.
Although these share-reduction mechanisms can be effective in fulfilling a settling defendant's main objective - preventing involvement in any future litigation - some complications may remain. For example, when the claimants agree to reduce their claims in relation to the settling defendant's share in the alleged wrongdoing, the definition of 'share' should be carefully considered. A defendant's share may consist of other liabilities than only in relation to its part of the damages (e.g. litigation costs or additional liability in case of bankruptcy of other defendants). Covering this in the settlement agreement affects the amount claimants are able to claim from the other defendants, as they can only pursue claims for the difference between this share and the total damage caused by all defendants involved in the alleged wrongdoing. Therefore, defendants should be aware of the implications of a settlement with regard to future exposure to contribution claims, and should consider including provisions in the settlement itself in order to mitigate these potential risks as much as possible.
Cooperation as a type of non-financial compensation
When settling mass claims, the parties involved must agree on a mutually acceptable compensation. In situations where the claimants are expected to continue to litigate against other defendants, a settling defendant should consider the claimants' potential incentives to give up their claims in return for compensation - which may not necessarily be limited to monetary compensation. For instance, in cartel damages cases it is worth considering if cooperation with the claimants in pursuing claims against coconspirators can be offered in addition to - or even in place of - monetary compensation. As the evidence necessary to prove a claim for damages is often held exclusively by the defendants, and is often not accessible to the claimants, they may wish to ensure that the settling defendant will cooperate on matters of which he has knowledge. Sharing evidence in this way can function as a type of compensation, offered in exchange for the release of claims.
If the European Commission has enforced the competition rules in relation to the alleged misconduct, the defendants will have had access to the European Commission's file pursuant to article 27 of Council Regulation 1/2003 and article 15 of Commission Regulation 773/2004 (as amended by Commission Regulation 2015/1348). This file also contains information on the misconduct of the other defendants.
If the relevant evidence does not come from the defendant itself, but is obtained through access to an investigation file, the defendant has only limited possibilities to share this information. Pursuant to article 16a (1) of Commission Regulation 773/2004 pre-existing documents may be used "for the purposes of judicial or administrative proceedings for the application of articles 101 and 102 of the Treaty [on the Functioning of the European Union]", which seems to give some leeway to settling defendants to share these documents. However, information taken from leniency statements or settlement submissions can never be shared with claimants (article 16a (2)). The same applies to documents that have been created by other defendants or the Commission in the context of the Commission's administrative procedure (e.g. the Statement of Objections), as long as the Commission proceedings are pending (article 16a (3)).
When being exposed to mass claims, agreeing on an amicable settlement instead of case-by-case litigation against a large number of claimants may be an attractive option from a defendant's point of view. Although a settlement provides a certain level of freedom to find a tailor-made, defendant-friendly solution, settling mass damages cases presents unique challenges that require careful analysis. When deciding to settle mass claims, being aware of the various mechanisms and issues inherent in the process might be decisive in the process of selecting the most appropriate way forward.
GLOBAL SETTLEMENT OF ANTITRUST ACTIONS – A HERO'S JOURNEY
Tony Piazza, Mediator, Mediated Negotiations
Even in a simple two party dispute, in which the sole material term is dollars, hammering out a settlement can be a challenge. When the field of variables expands to multiple jurisdictions and legal systems, with multiple parties, counsel, and settlement confirmation processes, the journey approaches heroic proportions. There are, fortunately, a few guideposts on the trek to a global antitrust settlement.
Step One: Consider hiring a Sherpa
Sure, you could summit Everest on your own. But while you have been busy litigating over the past few years there are guides who have hiked this terrain many times. Take advantage of the experience of a mediator who has walked through hundreds, or thousands of resolutions of complex cases. And it is not just a question of experience, but of access to a different dynamic than is available to even the most experienced litigator.
Originally published by Global Private Litigation Bulletin ABA Antitrust Section | Global Private Litigation Committee Issue 9 | March 2017
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.