A closely-watched set of claims stemming back to the 2008 global financial crisis has settled for a massive €1.204 billion (US$1.3 billion), making it one of the highest settlements ever and ushering in a new era in the globalization of securities laws. Several shareholder foundations, led by American plaintiff’s firms, have reached an agreement using Dutch collective settlement procedures to settle shareholder claims against Belgium-based Ageas (formerly Fortis). Securities practitioners have been watching the Fortis litigation develop since 2008 after the Belgium-based provider of banking and insurance services participated in the ABN AMRO acquisition and received a government “bailout” by Belgium, the Netherlands, and Luxembourg to prevent its collapse.
This significant settlement exemplifies a sea change that began with the U.S. Supreme Court’s 2010 decision of Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869 (2010). With American firms at the forefront of bringing such massive actions on behalf of a worldwide class, this settlement demonstrates that the Netherlands will become an increasingly popular venue for pursuing international securities class action claims. Nonetheless, questions remain about the settlement’s enforceability around the world and whether companies will be able to receive assurance that such settlements will truly result in global peace.
The Post-Morrison Global Landscape
By way of background, on June 2010, the U.S. Supreme Court issued Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869 (2010), an important decision which narrowed the reach of key provisions of the Exchange Act with respect to the purchase and sale of securities outside of the United States. The Court found that the antifraud provisions in the Exchange Act apply only with respect to the purchase or sale of a security listed on a U.S. stock exchange or the purchase or sale of any security that takes place in the United States. The Court stated that these key provisions of the Exchange Act do not have extraterritorial application since Section 10(b) lacks an explicit statement of extraterritorial effect.
Post-Morrison, it has become increasingly clear that foreign and American investors are largely foreclosed from accessing American courts to litigate claims against foreign issuers whose shares do not trade on a U.S. exchange. Further, access to American courts was extinguished for the “F-cubed” cases (foreign investors, suing a foreign issuer, traded on foreign exchanges).
Accordingly, plaintiffs and their attorneys are now looking for forums in which they can seek redress and several countries appear ready to accept and litigate multi-national securities claims. For example, changes to the class action law combined with amendments to provincial securities acts have prompted an increase in the filing of securities class actions in Canada. The rise of private third-party litigation funding in Australia has set the stage for a potentially rapid and truly global expansion of securities litigation in that area of the world.
The Netherlands in particular has become an increasingly popular venue for pursuing international securities class actions claims because of its procedures for court-approved, opt-out class-settlements. Courts in the Netherlands have used a class settlement procedure, known as WCAM, to create legally binding multi-national settlements of class action suits alleging securities fraud. Therefore, followingMorrison, the Netherlands has become a forum for both plaintiffs seeking relief on behalf of a worldwide class, and defendants seeking a binding opt-out resolution of claims involving worldwide investors.
The Act on Collective Settlement of Mass Damages (Wet collectieve afhandeling massaschade or “WCAM”) provides a mechanism for a defendant and foundation to enter into a legally binding, “opt-out” settlement agreement that, with court approval, disposes of all claims related to an international group of injured individuals. Rather than appoint a lead plaintiff as in the United States, shareholders seeking redress may form foundations in which aggrieved shareholders join to form a group. As with other collective actions, the foundation or association must, in accordance with its articles of association, represent the interests of a group of individuals that suffered losses from a similar cause. While WCAM settlements could stem from a collective action brought under the Dutch Civil Code, parties may also petition the court to approve a settlement before any suit has been filed.
Under WCAM, after parties reach a settlement, they may jointly petition the Amsterdam Court of Appeal to make the settlement legally binding on all potential plaintiffs that do not opt-out of the settlement after receiving proper notice. The settling parties must provide adequate notice of the proposed settlement to potential participants. However, there may be significant problems in enforcing WCAM settlements in other countries of the European Union.
Dutch settlement procedures have been used in the past. For example, in May 2009, in another high profile settlement using these procedures, the Amsterdam Court of Appeal approved and declared binding a settlement worth over $350 million between Shell Petroleum N.V. and various foundations and associations representing the interests of a group of international investors who suffered losses following disclosure of a reduction in the number of proven oil and gas reserves. Likewise, two groups acting on behalf of the non-U.S. investors in Comverium Holding entered settlement agreements, totaling $58.4 million. The Amsterdam Court of Appeals held the Comverium settlements to be binding.
The Fortis Lawsuit & Settlement
On October 22, 2008, U.S. shareholders filed a securities class action lawsuit in the Southern District of New York against Fortis, certain of its directors and officers for violations of Sections 10(b) and 20(a) of the Securities Exchange Act. The amended complaint alleged that Fortis and certain of its officers and directors misrepresented and failed to disclose material information concerning the Company’s worsening financial condition in order to induce shareholders to purchase securities. Specifically, the Complaint alleged that the defendants represented that the Company was relatively immune from the effects of the global credit crisis, that its exposure to the subprime market was minimal, and that Defendants concealed the adverse effect that Fortis’s acquisition of ABN-AMRO would have on the Company’s financial condition. The securities class action was dismissed with prejudice under the applicable Morrisonstandards on February 18, 2010.
Later, on January 10, 2011, the Stichting Investor Claims Against Fortis, a specially formed foundation representing investors in the U.S., Europe, the Middle East and Australia, brought a unique shareholder fraud action against Fortis. The foundation filed suit in Utrecht Civil Court seeking declaratory judgment against Fortis for defrauding investors through a 2007 rights issue to acquire ABN AMRO. The foundation alleged that Ageas, formerly known as Fortis, and its officers and directors, as well as its underwriter, misled investors about the bank’s financial health from the fall of 2007 up to three days before the 2008 government bailout. Additional shareholder foundations were also organized --- Stichting FortisEffect, a Dutch shareholder foundation, and Dutch shareholder group VEB. A Belgium group separately filed actions in Belgium.
This recent settlement agreement includes the Dutch shareholder foundations and the separate Belgium proceeding. Ageas agreed to pay a global amount of € 1.2 billion to shareholders covered by the settlement without admitting any wrongdoing. The settlement will be submitted to the Court of Appeals pursuant to WCAM procedures and the parties will jointly request the Court to declare the settlement binding. Following the approval of the settlement by the Amsterdam Court of Appeal, WCAM allows for an affected person to “opt out” of the settlement.
While the sheer size of the settlement is noteworthy, what has emerged from this settlement is that the Netherlands now views itself and is seen by others as a jurisdiction to handle significant, multi-national class action matters.
It is clear that the procedure in the Netherlands can be used by issuers trading on exchanges outside of the Netherlands and by shareholders who purchase shares on multiple exchanges outside of the Netherlands. This extraterritorial reach seemingly replaces the pre-Morrison U.S. court system availability to such parties in F-cubed and other cross border securities class actions. Indeed, the Fortis case resolved the Belgium proceeding as part of the Dutch settlement. American securities litigation plaintiffs’ firms have been at the forefront in forming the foundation of international investors that brought the unique shareholder fraud action and have successfully found a forum outside of the United States to bring their claims. Dutch settlement foundations seeking to resolve claims against VW and Tesco are actively being pursued in the Netherlands.
However, questions remain regarding the true enforceability of an opt-out settlement such as this, given that many EU countries have an opt-in class structure and thus may find that the Dutch procedure raises strong public policy concerns. Accordingly, whether companies will truly be able to find global peace through such settlements will continue to be assessed. But it is clear that the doors are now wide open in the Netherlands to handle truly global securities litigation class actions.