Like them or not, class action lawsuits have changed the legal landscape in the U.S. by allowing one or a few persons to represent a large group in a single proceeding—the investor who loses a bundle in the stock market or the car owner stuck with a lemon. Depending on your point of view, class actions are tools of social justice empowering individuals and consumers, or vehicles of coercion that hurt business and corporations.
Now, they’re becoming something else: a trendy American export. For the last two decades or so, a growing number of countries have adopted collective procedures roughly akin to class action rules in the United States, including 21 of the 25 largest economies in the world.
The growing acceptance of class actions has provided rich opportunities for research and study. At the forefront of this work is Deborah Hensler, the Judge John W. Ford Professor of Dispute Resolution and associate dean for graduate studies, who has co-edited a new book, Class Actions in Context: How Culture, Economics and Politics Shape Collective Litigation.
The work brings together scholars from around the world, presenting case studies of how the new rules are working in practice: smokers suing the tobacco industry in Brazil, Canadians seeking recognition of gay partner rights, and parking lot attendants in Taiwan pushing for higher pay from the Taipei government. (Spoiler alert: The parking lot attendants win—but at a steep price.)
Hensler, a political scientist and public policy analyst who directed the RAND Institute for Civil Justice before joining the law school faculty, first spotted the diffusion trend in the early-2000s.
“I was getting multiple calls from people in government in countries around the world, questions where the preface was ‘we are considering drafting a class action statute … and we would like some advice,’ ” she recalls.
Most surprising—some of the phone traffic came from places where the idea of private lawyers enforcing public laws and regulations goes against long-held civil law traditions. “I am getting calls from people in the Netherlands, people in Indonesia,” Hensler says. “I’m thinking, ‘What’s going on?’ ”
That led to an international conference in 2007, held in the U.K. and co-sponsored by Stanford Law School and the Oxford Centre for Socio-Legal Studies, focused on the globalization of class actions. By word of mouth and academic networks, interest in the subject spread rapidly. There’s now a Stanford Law website, www.globalclassactions.stanford.edu, with country updates and regular analysis and commentary. “We keep hearing from people saying, ‘My country just passed a class action statute,’ and offering to write a report to post,” says Hensler.
Besides the book, the conference has also led to collaborative teaching efforts. This fall, Hensler is co-teaching a course at Stanford on global litigation and class actions, with scholars and practitioners who have contributed to the book, including Dutch lawyer and academic Ianika Tzankova, Axel Halfmeier of Germany’s Leuphana University, and Jasminka Kalajdzic of the University of Windsor in Canada. For some of the sessions, they will convene in real time using video conferencing equipment (donated by Cisco Systems General Counsel Mark Chandler, JD ’81) and in a final session will be joined by judges from several countries to offer their perspectives.
The new laws are far from uniform. In some countries, cases may be brought only by associations or public entities, rather than private individuals such as in the U.S.
There are also limits on the types of underlying claims that may be brought as class actions. Belgium, France, and Japan limit class actions to consumer protection; South Korea, to shareholder claims only. A class action law in Poland, on the other hand, has been used largely by citizens to sue the government, which enjoys no sovereign immunity.
Certainly, some nations are taking bolder steps than others.
The Netherlands, for example, is trying to position itself as a global center for resolving class actions. A 2005 law allows parties who have already settled class actions to have them reviewed and approved by a Dutch court. The law was adopted initially to assist in settling injury claims arising from the anti-miscarriage drug diethylstilbestrol (DES), which has been linked to vaginal cancer.
Even more established is a sweeping class action law, introduced in 1994, which was first used after a Dutch insurance company went belly-up, leaving 15,000 policyholders stranded without coverage. The case was brought by a foundation, originally appointed and financed by the government insurance regulator—which withdrew its support after it was named as a defendant in the suit. The Dutch Supreme Court cleared the regulator of any wrongdoing but kept alive the case against the insurer’s accountants and actuaries; a settlement was reached under which policyholders got roughly 50 cents on the dollar.
“It’s a small country. You have to be open-minded and entrepreneurial,” says Tzankova, a former Fulbright scholar at Stanford, who helped edit the new book. She notes that the Netherlands also has a long tradition of peacekeeping efforts, including the World Court located at The Hague.
Hensler says such efforts reflect economic globalization and changes in cultural attitudes about fault. Anecdotal evidence of unfairness also often triggers new laws.
Belgium enacted a class action law in 2014 partly in response to publicity surrounding the bankruptcy of a software company, in which thousands of investors lost money. The investors used a law that allowed them to piggyback on findings in criminal court. A number of company principals were prosecuted, but those found guilty did not have any money or had fled the country. After more than a decade of litigation, the investors are not expected to recover anything.
“Images of courtrooms packed with hundreds of people,” published in newspapers and on television, helped sway public opinion in favor of a more consumer-friendly approach, according to Stefaan Voet, a professor of law at the University of Leuven, who helped draft the Belgian class action law.
Lawmakers in countries such as Germany worry that collective litigation will compromise individual rights, Hensler says, adding that while they have been under pressure to act, the solutions they have crafted have not been models of efficiency.
Starting in 2001, for example, Deutsche Telekom AG, the German telecommunications firm, was hit with thousands of investor claims after a sharp decline in the price of its stock. In 2005, investors in the U.S. negotiated a settlement in which the company agreed to pay $120 million in damages.
Back in Germany, though, shareholders have received nothing, despite a new aggregate litigation mechanism, called the Capital Markets Model Case Act, which was specially enacted in the hope of giving the shareholders a just and speedy resolution of their claims.
Under the law, a single plaintiff was chosen and common issues of law and fact were litigated as a “model procedure” that would be binding on all the investors. But the model case took a decade to decide and, then, all defendants were relieved of any wrongdoing. An appeals court revived one count, but there remains no end in sight.
Similarly, Volkswagen AG’s admission that about 11 million of its vehicles were rigged to defy emissions tests has yet to produce anything of value for consumers in the homeland.
The automaker recently agreed to settle a U.S. class action by spending up to $10 billion buying back or repairing vehicles, among other relief. But German law does not allow for class actions in auto defect and other consumer cases. Under the Model Case law, the company is being sued in Germany by investors in its stock, which tanked in the wake of the scandal. But that won’t help the car owners.
“It is a step forward politically, but it has not resolved the problem of these mass cases,” says Halfmeier, who was commissioned by the German justice ministry to evaluate the model case proceeding.
Ironically, all this comes as class actions in the U.S. have been under siege, with the U.S. Supreme Court closing the courthouse doors to class actions in the area of employee rights and gender discrimination.
While the U.S. system is not perfect, Hensler says, it has proved highly efficient at resolving large-scale disputes, of social and economic import.
“In my view, class actions are a useful tool to supplement public enforcement of our Constitution, statutes, and regulations,” she says. “They’ve contributed positively to social reform, for example, as illustrated by Brown v. Board of Education. They can deliver powerful deterrent signals as illustrated most recently by the Volkswagen case. And until the recent line of U.S. Supreme Court decisions, they’ve helped level the playing field between employees and employers.” SL
Rick Schmitt, an attorney and former staff writer for the Wall Street Journal and Los Angeles Times, is a freelance writer based in Washington, D.C.