In any litigation, and particularly in disputes regarding mass claims, there are times when various settlement options have to be considered. On 29 May 2009, the Court of Appeal of Amsterdam declared the Shell settlement1 to be generally binding, as envisaged in the Dutch Act on the Collective Settlement of Mass Claims the (WCAM). In July 2009, the Dutch court declared the Vedior settlement agreement to be binding (also) including U.S. residents under the WCAM.
These judgments underline the potential of the Netherlands as an alternative forum for cross-border class settlements, because the courts considered it no hindrance to the assumption of jurisdiction that the large majority of the interested parties was domiciled outside the Netherlands. Moreover, the availability of a forum in Europe dealing with mass dispute settlements may be a relevant factor for courts elsewhere in deciding whether to take jurisdiction over European claimants and whether to include them in a certified class.
The settlements under Dutch law intersects with limitation on subject matter jurisdiction in U.S. courts for claims by “foreing cubed” plaintiffs under securities laws. The mechanism to settle group claims in the Netherlands may influence U.S. courts to place further limits on jurisdiction for foreign plaintiffs, while also providing a way for foreign issuers at risk of jurisdiction in the U.S. to effectively settle collective claims outside of the U.S.
Europe and the Dutch WCAM
Globalisation and related factors are causing a continued increase in the incidence of mass damage, i.e., damage of a similar nature suffered by a large number of individuals. As a result, class action-type litigation has become a much debated topic across Europe, resulting in several legislative initiatives at the level of both the European Commission and individual EU member states. The enactment of the WCAM, made the Netherlands the first, and thus far the only, European country with legislation enabling a binding collective settlement of mass disputes.
The WCAM provides for a class settlement procedure. It strongly resembles the class action settlements in the United States. However, the Dutch statute is significantly more limited than U.S. class actions procedures. It does not provide for a mechanism to bring or maintain class actions seeking monetary damages under the statute, and instead, only authorizes the Amsterdam court to certify settlements between a defendant and an organization representing the interest of injured parties. Unlike the U.S., there is no statutory scheme available for claiming compensation on a collective basis. On the other hand, the WCAM system avoids a negative side effect of the American class action as well: blackmail settlements.2 The WCAM avoids polarization and perhaps even escalation of proceedings. The initiative may even come from the party who has caused the damage. It seems that the WCAM can be seen as an instrument for drawing uncomfortable events from the past to an end in a satisfactory manner, without the risk of becoming exposed to being forced into a settlement.
Pursuant to the WCAM parties to a settlement agreement may request the court to declare a settlement agreement binding on all persons to which it applies according to its terms. The WCAM thus provides for the possibility for companies to buy peace for a certain amount of money. Because the declaration procedure before the Amsterdam court starts with a voluntary settlement by a foundation or association with the indemnifying party, the indemnifying party has first to agree to a settlement. This presumes parties to negotiate in light of the alternative: the alternative of not settling. The WCAM does not provide for strict rules on the settlement fund and the distribution of proceeds. The method and procedure for calculating damages, the amount, the form, standards, protocols are on purpose not provided for in the statute. Parties can agree on some form of abstract damages that diverges from the common presumption of the law of damages. The foregoing, however, does not imply that parties enjoy full freedom of contract. The Amsterdam court is bound by rules to evaluate the substantive and procedural fairness of the settlement in view of the interest involved on the settlement. The Amsterdam court is to balance various interest on the basis of flexible and transparent standards. Deciding whether the settlement is a fair deal, will depend on a number of factors, including but not limited to the following:
- the amount of the compensation awarded is reasonable having regard to the extent of the damage, the ease and speed with which the compensation can be obtained and the possible cause of damage;
- sufficient security is provided for the payment of the claims of persons on whose behalf the agreement was concluded;
- the settlement agreement provides for the independent determination of the compensation awarded;
- the interest of the persons on whose behalf the agreement was concluded are not otherwise sufficiently safeguarded;
- the group of persons on whose behalf the agreement was concluded is sufficiently large to justify a declaration that the relevant agreement is binding;
- the foundation or association does sufficiently represent the interest of persons on whose behalf the agreement was concluded.
The settlement agreement can be concluded at any stage of the conflict. There is no need for a preliminary court procedure in which the alleged offender is being held liable in tort. The settlement agreement can serve the purport of avoiding court procedures on the liability issue. The form of the settlement allows the parties to included specific clauses in the agreement that are not covered by the WCAM, like provision regarding choices of law and forum, board approval, dispute settlement as well on modification and termination.
The WCAM only applies to settlements that are entered into by a foundation or association that represents the interests of the interested claimants by virtue of its articles of association. Under the petition procedure in front of the Amsterdam court, interested parties will be given notice to appear at a hearing: in example parties that were injured by the alleged tortuous act and any foundation or association that was not a party to the settlement but representing the interest of injured individuals involved.
All persons are bound by the terms of the approved settlement agreement by the court, provided that individuals are allowed to opt-out during at least three months following the court ruling. The settlement agreement becomes binding upon such individuals by operation of law if they do not opt-out in time. Being bound by the terms of the settlement agreement basically means that the interested persons who do not “opt out” have a claim for settlement relief and are bound by the release in the settlement agreement. The WCAM does not provide for an opt in system. Claims are made for all victims, not just for the ones who have been identified and have given their permission. The Dutch mechanism only requires identification of the victims if they are actually paid damages. It is up to the victims, however, to report in and identify themselves, after they have been alerted by seeing their case published in newspaper articles or on websites. Victims may then indicate whether or not they wish to be bound by the settlement decision.
As long as the proceedings regarding the binding declaration are pending, other proceedings regarding claims to which the settlement agreement applies will in principle be stayed at the request of the potentially liable person. Once a deal is approved by a Dutch court, it is highly likely to be enforceable throughout Europe through the European Commission regulation on jurisdiction and recognition of judgments.
To date, the WCAM has produced five court-approved collective settlements in a wide variety of disputes, ranging from product liability to securities fraud.
Reasons to Sue in U.S.
But while Europeans may prefer to settle in Europe, certain parties probably prefer to file suit in the United States so long as they can, for the following reasons:
- The United States is unique for its jury system, the availability of punitive and treble damages and the cultural embrace of jackpot verdicts;
- the Unites States’ acceptance by both business and law firms of litigation as a profit center, the existence of universal class action procedures and the absence of a “loser pays” rule in the award of legal fees;
- In securities law in particular, plaintiffs in U.S. courts are blessed with two doctrines that are rare overseas. Derivative suits allow shareholders to sue in the corporation’s name, and the fraud-on-the-market theory presumes that injured shareholders relied on corporate misrepresentations.
Implications for non-U.S. Companies
It deserves the attention that Shell and Vedior settlement judgments may have the following implications for non-U.S. companies under U.S. securities laws:
- the availability of a claim action settlement in the Netherlands may be a factor for U.S. courts to reject jurisdiction over “foreign-cubed” claims: those claims can be settled abroad. If it became widely established that foreign-cubed cases have little or no likelihood of success in U.S. courts, then plaintiffs’ lawyers would be less likely to pursue those claims in the U.S. in the first place and defendants would presumably face less pressure to settle under the Dutch law, which does not support class liability in a contested case;
- If there is a material risk that a U.S. court might exercise subject matter jurisdiction over foreign-cubed claims, it might behoove foreign issuers to seek settlement negotiations with European investors in Europe, with the possibilities of using Dutch courts to approve binding settlements. In doing so, non U.S. companies may reduce the risk and expense of litigating in the U.S. system. Moreover, the reduction in class size and resulting damages may diminish the incentive for U.S. plaintiffs’ lawyers to bring class action suits on behalf of the U.S. investors alone.
- If foreign investors instead bring individual actions against non U.S. issuers outside the U.S., the Dutch procedure could bring a shift in negotiating power for non U.S. defendants who want to settle groups of claims without the convenience of managing individual suits in multiple jurisdictions.
The order declaring the Shell and Vedior settlement agreement generally binding has shown that the WCAM may be an effective tool for multinationals to find a global solution for disputes involving interested parties throughout the world. The WCAM procedure is expected to see a rise in popularity and/or imitation on a global scale. The Netherlands may become a mecca for European class action settlements. The Dutch WCAM could also become an important weapon against the plaintiff bar in the United States. Our attorneys will be pleased to help to map out the specific consequences for your specific matter.