With Vigour and Zeal

As announced in this previous post, the Financial Services Roundtable has now published its own capital markets competitiveness report, entitled The Blueprint For U.S. Financial Competitiveness. (full report, executive summary)

It follows three such reports published in the past year to date, by the so-called Paulson Committee (November 2006), Bloomberg/Schumer (January 2007) and Daley/Culvahouse (March 2007). (Search WV&Z for more on each.) The Roundtable’s Blue Ribbon Commission on Enhancing Competitiveness is co-chaired by Richard M. Kovacevich and James Dimon.

The Roundtable’s Blueprint goes one further however and “build[s] upon the recommendations” of its predecessors, producing ten policy reforms encompassing 68 recommendations. The policy reforms include principles-based regulation and litigation reform: “Chief among the internal threats facing financial market competitiveness in this country is the U.S. legal framework, including the litigious nature of our system in general and securities litigation and class actions in particular.” (p.41) An excerpt:

[L]egal certainty is less of a goal in the U.K. where the potential for litigation or formal supervisory actions is not as great as it is in the U.S. This reflects not only some broader societal differences between the U.S. and the U.K., but, more importantly, the U.K.’s more prudential approach to financial supervision. Prudential supervision reduces the need for litigation and enforcement actions because it encourages firms and regulators to address areas of concern before they develop into significant problems. (p.32) (Subscribe to WV&Z)

What’s more: The article Investor Litigation in the U.S. - The System is Working (February 2007) by Jay W. Eisenhofer and Gregg S. Levin (then) of Grant & Eisenhofer PA provides a counterview to the findings of and recommendations by the first two competitiveness reports and also see SEC Commissioner Kathleen L. Casey’s address to the Institute for Legal Reform’s Annual Legal Reform Summit last month, which in large part is about competitiveness and refers to the three aforementioned reports. (Subscribe)

About a fortnight ago Telefonaktiebolaget LM Ericsson (OMX: ERIC A, B; NASDAQ: ERIC; LSE: ERI) of Sweden issued a press release stating that it expects a Q3 operating income of SEK 5.6 billion (€609 million, US$879 million), 39% lower than than the previous quarter (Q2) and 36% lower than the same quarter last year (Q3 2006). “This is below the company’s own as well as current market expectations and primarily a result of an unexpected shift in the business mix.”

That announcement was followed by the publication of its Q3 report (press release, press conference webcast) and the filing of a class action in the Southern District of New York by a private plaintiff, represented by Coughlin Stoia Geller Rudman & Robbins LLP. (Financial Times) From the complaint:

After these results were issued, on October 16, 2007, Ericsson’s stock collapsed to close at $31.33 per share, a decline of 24% [or US$15 billion in market value], on volume of 42.7 million shares. In fact, by early September 2007, Defendants had a good visibility into the quarterly results, which visibility improved each day of the Class Period [11 September 2007 - 15 October 2007], but defendants concealed the declining results from the investing public that they would have to make the cuts to the Company’s outlook until October 16, 2007.

The FT has this Ericsson statement in response to the action:

We are very sorry to hear about this class-action suit. We follow the rules as stated by the [Swedish] stock exchange as well as in our stock exchange contract. At the moment we are reviewing the class-action suit and any further comment will be decided upon later.

The deadline to move the Court for lead plaintiff status is no later than 60 days from the date the case was filed, 29 October 2007. (Subscribe to WV&Z)

What’s more: Ericsson has confirmed with WV&Z that it has no further comment on the action than the statement in the FT as above.

What’s more, as of 20 November: Indications are that the following firms are looking into filing their own complaints:

• Brodsky & Smith LLC
• Brower Piven PC
• Schatz Nobel Izard PC
• Stull, Stull & Brody

Today the Economist Intelligence Unit published a survey entitled Collective litigation in Europe, sponsored by Bryan Cave LLP. (Financial Times) Some of the results echo those of the Legal Week/EJ Legal Big Question survey on the same topic, published last month (see previous post).

For example, the Client Bulletin that introduces the survey (same link as above) says that “[collective l]itigation is expected to arise from product liability (67%), cartel and price-fixing (38%) and shareholder rights disputes (28%),” (see survey pp.3, 4) which corresponds with the outcome of the Legal Week survey results.

The major difference though is in the type of respondent: this one surveyed ‘European lawyers and business executives’ and not exclusively the ‘UK legal community’ which the survey itself notes has an impact on some of the findings. The bulletin continues:

Europeans are far from eager to adopt US class action procedures, and reject many features of the American system. However, 60% of respondents expect that legal fees will become linked in some way to the outcome of cases in Europe, and 43% expect to see the introduction of contingency fees for lawyers as a percentage of court judgments. (See survey p.5 and Q7, p.14)

Number of times the term ‘litigation funding’ appears in the survey however: naught. (Subscribe)

What’s more: Lawrence Scarborough has followed up his firm’s survey with an article in Legal Week this week (issue of 8 November), entitled Europe should face up to US-style litigation, in which he discusses some of the survey’s findings. He concludes with his opinion:

In my opinion, corporate Europe would be advised to consider whether any of the proactive mechanisms put to the survey respondents might benefit their own businesses in coping with what is clearly an escalating risk.

It is well reported that Avon Pension Fund, administered by the Bath & North East Somerset Council, is to lead the In re GSK securities class action (Financial Times, Legal Week, Pensions & Investments, The Times) and less well that this is the latest addition to the list of ‘f-cubed’ cases. For the previous post by yours truly announcing the actual filing of that case four months ago and a copy of the complaint, see here and with thanks to the D&O Diary (which has its own take on the case and appointment), the opinion appointing Avon. (See also this previous, background article in The Times.) For more on ‘f-cubed’ cases, see this previous post.

Plaintiffs’ Lead Counsel: Coughlin Stoia Geller Rudman & Robbins LLP

What is still of interest here then is the reference made in some reports to the National Association of Pension Funds. The source it seems is the press release Coughlin Stoia put out following the appointment, in which it says the following, in part:

The decision by Avon Pension Fund, which as a shareholder in GSK claims it lost US$2.7m, to seek lead plaintiff in the case was taken in light of its fiduciary responsibilities to its members and is in line with guidance issued by the National Association of Pension Funds (NAPF). The NAPF policy sheet for trustees was published this year at its conference in Edinburgh and advises UK trustees that their fiduciary duties to their beneficiaries extends to monitoring fund investments and making informed decisions about when and how to make the best recoveries.

As explored in this previous post in March, the NAPF’s ‘policy sheet’ Securities Litigation – Questions For Trustees is actually not to be taken as ‘guidance’ but is a neutral document, posing and answering questions relevant to pension fund trustees that seek more information on securities actions and their responsibilities. Coughlin Stoia’s reference however does not seem to be neutral but interpreting the answers differently. The press release continues:

NAPF states that in relation to securities class actions it is “self-evident that trustees have a duty to protect the assets in their scheme” and that they should “not neglect opportunities to recoup losses”.

Actually the NAPF’s press release accompanying the paper gives the following complete quote by David Paterson, its Head of Governance:

“It seems self-evident that pension trustees have a duty to protect the assets in their scheme. At the very least, they should not neglect opportunities to recoup losses, especially where the cost and effort of doing so are commensurate with the expected return.”

Asked to comment on the use of the NAPF in publicity for the case, Paterson has submitted the following statement to WV&Z:

As you are aware, the so-called “guidance” was in fact structured as a series of “Questions for Trustees”. Our main concern is that trustees be aware of their right to join in a settlement and that they should therefore monitor class actions carefully. We also highlighted the risks of acting as a lead plaintiff and suggested that trustees give consideration to them before deciding to lead a suit. It is clearly not for the NAPF to opine as to whether an individual case has merit.

Given the quite different legal regimes in the US and UK I would be concerned if it became common practice to sue UK companies in the US courts. Shareholders have more rights in the UK which they have used effectively to hold boards to account. The more confrontational approach which is the norm in the US does not sit well alongside our “comply or explain” regime which depends crucially on dialogue between shareholders and companies for its success - and it has been successful, so far.

That doesn’t seem like the guidance Avon was following, not from the NAPF. (Subscribe)

Last week The Lawyer ran a Special Report series of articles on the topic of Litigation and Alternative Dispute Resolution, at least one of which is of interest here, namely the one by Daan F. Lunsingh Scheurleer of NautaDutilh NV. This week’s The Lawyer contains an excerpt of an interview with Anthony Maton, one of the partners in the London office of Cohen Milstein Hausfeld & Toll PLLC. Both deal with, to some extent, the EU becoming a more claimant-friendly environment.

In ‘Oiling the wheels’, Lunsingh Scheurleer and senior associate Dr. Ianika N. Tzankova discuss the burden on defendants in US class actions of foreign claimants and class certification, and Dutch rules governing collective settlements in an EU context. The Royal Dutch Shell settlement, ‘a potential groundbreaker’, and Vivendi’s class certification are cited as examples, among others. It is noted here that Lunsingh Scheurleer acted as counsel to two pension funds that were instrumental in the Royal Dutch Shell action’s settlement proceedings, namely ABP and another. (source)

Maton, in his comparison of UK firms with US firms and their respective handling of claimant actions, points to among other things the same procedural differences as Lunsingh Scheurleer does: “The process in the States… with contingency fees, juries and [in anti-trust cases] triple damages, means a very different approach. It’s an approach that we believe would not work in the European arena.” He however is reported to believe that, in the context of anti-trust claims, “it will not be long before there is a workable regime.”

Lower transaction costs is one factor in Lunsingh Scheurleer’s case for Europe as the forum of choice for the settlement of European mass disputes that exclude US claimants: “[T]ransaction costs in the EU are lower than in the US due to the absence of a jury system, extensive discovery and far-reaching no cure, no pay arrangements. Lower transaction costs are in the interest of both plaintiffs and defendants.”

The Maton interview excerpt is complemented by a two-minute segment in The Lawyer’s monthly podcast, October Edition (also available on iTunes).

What’s more: Dr. Tzankova joined NautaDutilh in 2007 after obtaining her PhD, with a thesis entitled ‘Access to justice in mass disputes’, from Tilburg University where earlier this month she has been appointed for a five year term as extraordinary professor of Comparative Mass Litigation. (press release; also see the Nederlands Juridisch Dagblad, in Dutch)

Asked to comment on KapMuG and Lovells LLP’s recent creation of a practice group focused on class actions in Europe (see previous post), Bernd Jochem of German firm Rotter Rechtsanwälte Partnerschaft has, with thanks, submitted the following on behalf of his firm:

As a law firm focussing on investor rights we have not only seen new legislation like the KapMuG coming into force but also a rising interest of institutional investors to participate in such actions in Germany.

Together with litigation funding, which is established in Germany, the KapMuG gives institutional investors the opportunity to fulfill their fiduciary duties without taking a leading role with all its consequences. Since a test case under the KapMuG does not - unlike in the U.S. - stop the clocks running under the statutes of limitation for those who have not filed a court claim, in Germany an investor who wants to reserve his rights still has to file at least an initial claim.

However, only one case will be the test case while the other proceedings will be stayed. This has led to the participation of several, even foreign, institutional investors to participate in the case against Daimler, which will be the first one to be decided under the new KapMuG by the German High Court of Justice (”Bundesgerichtshof”) in the near future. Expectations are the court will deliver its decision between December 2007 and March 2008.

New cases that will be filed soon will involve the stock drop of IKB Kreditbank [Xetra: IKB] shares due to the subprime exposure in the U.S. Here too we are experiencing a significant interest by institutions to participate.

I absolutely agree with Lovells’ expectation that in this regard the focus for such actions will be in the UK, Germany and the Netherlands and that securities and anti-trust law will be the main areas.

In the comment he adds that it is his expectation that “[t]he cross-border issues in this context will also lead to alliances among law firms of different countries focussing on class actions.” The firm already has a long-standing relationship with US plaintiffs’ firm Shalov Stone Bonner & Rocco LLP.

Stefan Winheller of Winheller Rechtsanwälte (US relationship: Schiffrin Barroway Topaz & Kessler LLP), in a separate reaction to the same post, stated that “the KapMug is not like the US style class action: it is not an opt out system and each investor has to file suit on its own. At least it allows aggrieved investors to recover their damages with lower cost risks.” (Subscribe)

The direct action by Kirk Kerkorian’s Tracinda Corp. against DaimlerChrysler AG (Deutsche Börse, NYSE: DCX), the next week to be renamed Daimler AG, is no more. The Third Circuit Court of Appeals upheld the earlier decision and rejected Tracinda’s claim for damages. See this previous post for some background on the case and the International Herald Tribune for more on the latest decision.

Terry N. Christensen, of Christensen Glaser Fink Jacobs Weil & Shapiro LLP which represented Tracinda, is quoted in the IHT article as saying: “We feel that we did our duty to try to protect Chrysler shareholders.” (WV&Z’s emphasis) By opting out?

The shareholders that in 2004 settled the securities class action Tracinda opted out of shared $300 million among them. (notice) Tracinda held approximately 13% of DaimlerChrysler’s shares at the time and so would have been able to claim about $39 million of that settlement amount. (Other sources put the figure at $30 million and $35 million.)

Opting out however, to retain the right to pursue a direct action for and on behalf of itself, it lost the right to claim and thus, at least in hindsight, it thereby lost another $39 million. (To put that into perspective, it had sought as much as $3 billion in damages in the direct action.) Tracinda’s unclaimed amount was to be distributed among those claimants that stayed in instead, an instant 15% gain. One may doubt however whether this is what Christensen referred to in his statement. He couldn’t be reached for comment at the time of posting.

Jonathan J. Lerner, of Skadden Arps Slate Meagher & Flom LLP and the lead trial counsel defending DaimlerChrysler, responded to WV&Z’s request for comment saying that “Daimler is delighted at the unamamous affirmance of the dismissal of Tracinda’s claim. The case had no merit and the basic theory of the case was legally and factually flawed.” Lerner’s defence of the action in District Court was named one of the 10 best defence wins in 2005 by the National Law Journal.

City firm Lovells LLP announced on Monday that it has formed a dedicated group of dispute resolution lawyers to focus on class actions. Most of the members of the new group are located across the firm’s European offices.

London-based dispute resolution partner Neil Mirchandani, leader of the group, states the following in the press release:

The formation of the Class Actions Unit comes at a time when a number of continental European jurisdictions have implemented or are considering legislation to introduce new group litigation procedures. The Class Actions Unit offers a coordinated cross-jurisdiction and practice area team able to provide experienced strategic and technical legal advice wherever and whenever an issue arises.

WV&Z asked him to elaborate on that statement, in particular which limited areas of law in which specific jurisdictions the firm expects will feature most prominently in terms of work for the firm and the industry in general in the short term. His response:

The areas we expect to experience most group litigation activity in the short term are antitrust, product liability and shareholder disputes. It is harder to say which jurisdictions but there may possibly be increased activity in Germany following the Kapmug legislation; Holland if the procedures used in the recent Shell case are accepted more broadly; and the UK following on from proposals for private enforcement in competition cases and the influx of US claimant firms.

In addition to these developments, the press release also refers to the recent increase in interest in litigation funding and the coming into force (in just a few days now) of the Companies Act’s derivative claim provisions in general. (Please use the Search function on the right to find previous WV&Z posts on these topics, for example on Shell.)

See Lovells’ Publications section for the archive of its periodical Class Actions Bulletin and a perspective of class action law in five European countries.

What’s more: ‘KapMuG’ is the German statute on class actions. The abbreviation stands for ‘Kapitalanleger-Musterverfahrensgesetz’ or, in full, ‘Gesetz über Musterverfahren in kapitalmarktrechtlichen Streitigkeiten’ which loosely translates to ‘Statute governing representative legal actions on the grounds of capital markets disputes’. For the official text of the Act, see the Bundesministerium der Justiz’ KapMuG entry, in German.

After, in chronological order, the Paulson Committee, Bloomberg/Schumer and Daley/Culvahouse, the Washington, DC-based financial institution lobby group The Financial Services Roundtable is to publish its report on capital markets regulation and competitiveness next month, according to today’s FT. And then there were four…

It is to recommend a ‘principles-based’ approach, such as the UK has, across the country’s ‘patchwork’ of financial markets regulators and “that [the US version of the UK] model would also tackle litigation reform”.

A Roundtable spokesperson has indicated to WV&Z that the report will be entitled “Blue Ribbon Commission on Enhancing Competitiveness”. It is due to be published shortly after the Roundtable board meeting next week, during which the report will be discussed by the four policy setting committees, one of which is the Regulatory Oversight Committee. (Subscribe to WV&Z here.)

Legal Week has published the results of its latest Legal Week/EJ Legal Big Question survey, namely on the topic of class actions in Europe. The headline conclusion: “The UK legal community is united in the belief that US-style class action litigation is set to take off throughout Europe, with product liability cited as a key growth sector.” The second area of law cited behind product liability (cited by 52% of respondents) is shareholder claims (36%).

On the latter area in particular, Anna Pertoldi of Herbert Smith LLP is quoted as saying:

Shareholder actions could be an area for increased group litigation in Europe, but we will have to see how it pans out. With the new Companies Act coming into force in the UK, and new funding methods becoming available, people may be encouraged to have a go and test the waters.

Note how she is apparently not squarely in the other camp then but appears to be so on the issue of the derivative claim and the Companies Act 2006 (see previous post). Two more quotes:

John Whittaker, Clyde & Co LLP:

If class actions are given a platform through proactive law firm initiatives, it is likely that claimants will seize the opportunity to litigate their claims.

Matthew Newick, Clifford Chance LLP:

Across Europe there are government moves to facilitate class actions [for example, in Denmark], with specialist firms setting up shop [Cohen Milstein Hausfeld & Toll LLP in London] and increasing investor activism as well as interest in third-party funding, which, if it takes off, could be a key driver for class action growth.

The survey also shows that 72% of respondents are in favour of the concept of litigation funding. Herbert Smith is reportedly (Legal Week) considering offering access to litigation funding to its clients, indirectly joining the ranks of funder IM Litigation Funding and funding broker Calunius Capital LLP.

(One error Legal Week continues to make however: Skadden Arps Slate Meagher & Flom (UK) LLP has not launched a class action defence practice in London, see previous post.)

What when where: Mark Wells of Calunius Capital and Susan Dunn of IM Litigation Funding will be joined by Sam Eastwood (Norton Rose LLP) to discuss litigation funding at the Masterclass session of The Lawyer’s Private Litigation Conference, which overall has an emphasis on litigation relating to competition. The conference takes places on 28 - 30 November 2007 at the Melia White House in London. (programme and registration form)

Topics discussed include (speaker or selected speakers in brackets):

• ‘How should private enforcement develop in UK & Europe?’ (Vincent Smith, Cohen Milstein Hausfeld & Toll; Nicolas Bessot, European Commission - DG Competition),
• ‘Comparison of class actions in the UK, Europe & the US’ (Mike Pullen, DLA Piper UK LLP), and
• ‘Settlement options’ (Simon Morgan, Simmons & Simmons), as well other topics by Howrey LLP, Freshfields Bruckhaus Deringer and Irwin Mitchell among others.