On August 8, 2011, Mexico published new class action legislation in the Official Gazette, thus, starting the six-month period for the legislation to take effect. With this piece of legislation, Mexico joins the ranks of more than twenty countries, including at least eight other Latin American countries that allow collective actions. This article provides a brief history of the new law, highlights its key provisions and outlines some of the key issues the new law will likely raise.
BRIEF HISTORY OF MEXICO’S CLASS ACTION LAW
Mexico’s first collection action law, the General Law of Ecological Equilibrium, was enacted in the late 1980’s and it allowed for a popular action overseen by the Attorney General for Environmental Protection. In 1994, the Mexican Congress expanded the use of collective action legislation when it passed the Consumer Protection Law, giving standing to the Federal Consumer Protection Agency (PROFECO) to file collective actions on behalf of groups of consumers.
Dissatisfied with the results of these laws, several groups advocated for a broader and more robust collective action legislation. Starting in about 2008, these demands for further change began to take effect and legislators at the national, state and “federal district” levels began moving towards the enactment of collective action legislation.
At the federal level, two bills led the debate. One bill originated in the House of Representatives and was introduced by Representative Javier Corral Jurado, a member of the PAN party. A second bill originated in the Senate and was introduced by Senator Murillo Karam, a member of the PRI party. After much debate and wide participation from varying stakeholders, Senator Murillo’s plan was adopted, albeit with a number of safeguards intended to protect potential defendants.
KEY PROVISIONS OF THE NEW LAW
Under the new law, there are three categories of class actions: (a) diffuse rights claims, which focus on the protection of those indivisible, transindividual rights that belong to society in general and to an indeterminable number of individuals, such as the right to a clean environment or the right to truth in advertisement; (b) collective actions, including, for example, product liability actions, that seek to protect rights that belong to a group of persons linked by common circumstances; and (c) homogeneous individual rights actions, to protect a group linked by a contractual relationship such as when a bank or credit card company charges excessive fees to its clients. See Article 581. Federal courts maintain exclusive jurisdiction over actions brought under this new law. See Article 578.
The new law gives standing to the following parties (See Article 585):
- the Federal Consumer Protection Agency;
- the Federal Environmental Protection Agency;
- the National Commission for the Protection and Defense of Users of Financial Services;
- the Federal Competition/Antitrust Commission;
- the common and “adequate”2 representative of a class action;
- civil associations established at least one year prior to the lawsuit that provide “adequate” representation; and
- the Federal Attorney General.
The new law also sets out certain certification requirements, which the judge has to evaluate within ten days of the defendant challenging certification. See Articles 587 and 588. The substantive certification requirements include:
- the class action must be related to an alleged: (a) harm to consumers; (b) harm to users of public or private goods or services; (b) damage to the environment; or (c) harm to consumers due to monopolistic market concentrations or practices, as decreed by the Federal Antitrust Commission;3
- class members must share the same common factual or legal circumstances;
- “collective” and “homogeneous individual rights” class actions must be comprised of at least thirty members;
- there must be a clear relationship between the misconduct alleged in the action and the harm suffered;
- the class action must not be barred by res judicata;
- the class action must not be barred by the three-and-a-half year limitation period set forth in the regulation; and
- the class action must meet any other requirements of special applicable laws.
There are two points worth noting about the certification process. First, and in addition to the affirmative certification requirements, the new law sets out a number of grounds for rejecting a class action, including a general exception for cases where it would be improper to dispose of the subject matter on a class-wide basis. See Article 589. Second, certification may be reviewed (and presumably revoked) at any point in the case, “where there exists good cause for doing so.” See Article 590.
Once a class action is certified and the potential plaintiffs notified,4 they must opt-in if the class action involves collective rights or individual homogeneous rights. See Article 594. By contrast, plaintiffs in class actions involving diffuse rights do not have to opt-in, but they may opt-out of the class action. With respect to the former, it is worth noting that the time for opting-in extends to eighteen months following a final judgment or settlement, meaning that class members will be able to wait for the outcome before deciding whether to join. Id.
One of the most innovative aspects of the new law relates to the relief a judge may award. For starters, the new class action law allows the judge to issue injunctive relief at any stage of the proceedings, to order the recall or seizure of goods and products that are directly related to any irreparable harm threatening the class, and to take “any other step that the judge may deem advisable” to protect the rights and interests of class members. Successful plaintiffs involved in class actions that relate to collective rights or individual homogeneous rights may receive restitution or compensation of damages. Where individual class members are entitled to recover damages, the new law sets out a two-stage procedure consisting of the class-wide trial followed by individualized proceedings, during which class members have to prove their own damages and a causal link to the defendant’s conduct. See Article 605. Successful plaintiffs must begin these individualized proceedings within one year of the final class judgment or settlement. Id.
With respect to class actions involving diffuse rights, the new law requires the losing defendant(s) to “repair the damaged caused to the collectivity, by returning the affected thing to the state it was in before the affect.” See Article 604. In the event, repairing the damage is not feasible, the judge will order the defendant(s) to provide substitute compliance vis-a-vis the affected rights or interests. Id. Were this substitute compliance in the form of a money judgment, the payment must be made into a fund, to be managed by the Federal Judiciary Council and used to promote class actions in Mexico, to conduct collective rights research and awareness, and for the payment of class action-related expenses, including the class representative’s fees, where public interest reasons justify it. See Articles 604, 617 and 624. Finally, the new law allows for the recovery of attorney’s fees of between 3% and 20% of the amount of damages awarded. See Article 617.
KEY ISSUES THE NEW LAW IS LIKELY TO RAISE
The new law, which will become effective on March 1, 2012, will raise a significant number of legal issues to a legal community not used to collective rights litigation. Some of the issues include:
- whether the judiciary will embrace this new and foreign mechanism or simply dispose of cases under the auspices of Article 589, which allows for cases to be dismissed because it would be improper to dispose of the subject matter on a class-wide basis;
- whether the federal law will be the only class action law of the land or whether the states will pass their own versions of class action legislation;
- how will Mexico handle class actions that involve foreign class members and/or pending parallel proceedings in foreign jurisdictions;
- whether Mexican courts will take a broad or narrow approach to “class certification,” when, for example, deciding the “common question of law or fact” element;
- whether the relatively short “class certification” process will provide defendants an effective mechanism to challenge certification, especially in a country devoid of an extensive use of case law and stare decisis and without a “discovery” process;
- whether the eighteen month “opt-in” requirement for class actions involving collective rights or individual homogeneous rights provide an effective mechanism for plaintiffs to partake and benefit for class action litigation and provide defendants with an incentive to settle; and
- whether Mexican courts will give class action judgments and settlements a limited (e.g., Brazil and Chile) or extensive (e.g., United States) res judicata effect.
The answers to these and other important questions remains to be seen.