Global Product Liability
Product Liability Alert

Local strategies in global class actions for product manufacturers and distributors

02 January 2019, by Christopher M. Young, Justin Kerner, Timothy Pfenninger

Economist Thomas Friedman once noted that, today, "you can innovate without having to emigrate."1That’s certainly true in the world of law. As business has spread across traditional geographic borders, litigation in its various forms has followed suit. Significantly, class actions − once largely unique to the United States − and other forms of collective redress are proliferating around the globe. The list of countries that have enacted some form of collective redress grows longer year by year. Plaintiffs’ attorneys are innovating, sharing information and coordinating product liability claims in a manner not seen before. And the “global class action,” in which claims are raised in many different fora and discovery shared globally, is now a very real phenomenon. Increasingly, companies manufacturing or distributing products can (whether willingly or unwillingly) litigate without having to emigrate.

Here, we explain what global class actions are, how they may affect product manufacturers, distributors and retailers operating in the global marketplace and what you can do – or should at least consider – if your company is the target of such actions.

Birth of the global class action

In 1966, the United States Supreme Court created the modern-day money-damages class action by promulgating Federal Rule of Civil Procedure 23(b)(3), which permits the class-wide aggregation of individual claims so long as the Rule’s prerequisites are satisfied, "questions of law or fact common to class members predominate over any questions affecting only individual members," and "a class action is superior to other available methods for fairly and efficiently adjudicating the controversy."2 Thereafter, the United States, as the only jurisdiction that permitted the joinder of individual claims in a single action for monetary damages, became the center of class action litigation. But much has changed since 1966. American exceptionalism in the field of aggregate litigation has waned. Although the United States is still the center of the class action universe by virtually any measure, it is now just one of the many jurisdictions that permits actions for collective redress. Some 40 countries now have procedures for such actions, and the number grows higher every year.

Because collective redress procedures have grown rapidly around the globe, such litigation is no longer a solely domestic affair. Rather, the spread of these procedures has given rise to "global class actions." A "global class action" may take one of two forms. First, the term may refer to parallel class or collective actions, premised on the same facts, but being adjudicated in more than one jurisdiction. This type of action is vividly illustrated by the Volkswagen "clean diesel" emissions litigation, which followed Volkswagen's admission that it fitted approximately 11 million cars with software designed to bypass diesel emissions standards. US consumers, who quickly aggregated claims under Rule 23, did not stand alone. Across the pond, in the United Kingdom, thousands of British consumers joined together under a "Group Litigation Order," which, like Rule 23, provides for the aggregation of claims for monetary damages. And similar actions were either threatened or commenced in many other jurisdictions. Volkswagen was ensnared in a global class action.

Second, the term "global class action" may refer to aggregate litigation in a single jurisdiction with claimants from foreign jurisdictions. While such actions are still relatively rare in the United States (thanks in large part to Rule 23's procedural hurdles and application of the forum non-conveniens doctrine), such actions have been filed with increasing frequency, both in the United States and abroad.3

The rise of the global class action, in whatever form it may take, adds to the already considerable challenges faced by global product manufacturers and distributors. In fact, as foreign jurisdictions continue to develop new class action or collective redress procedures, there are at least three specific areas that warrant attention.

Procedure is power

First, product manufacturers and distributors should be keenly aware of and concerned with the varying class action and collective redress procedures in each jurisdiction where they do business or where their products are sold. Such procedures vary widely from jurisdiction to jurisdiction, in terms of who has standing to sue, the allowable scope of suit, available remedies and whether plaintiffs are required to opt-in or may opt-out of proposed litigation. For example, in the United States, a class action will be maintained only if "the class is so numerous that joinder of all members is impracticable."4 Such numerosity is not required in many jurisdictions that have adopted collective redress procedure. Also, many jurisdictions do not even permit a collective action on behalf of unnamed plaintiffs, whereas the presence of unnamed class members is a core feature of US class action procedure. These procedural differences, and differences like them, impact the types of suits companies may face and whether a judgement in one forum may be given preclusive effect in another.

Due to the introduction of class and collective action procedures in foreign jurisdictions, class action claims that were once barred by US courts are now being lodged elsewhere. Imagine, for example, a company that distributes blood to hospitals across the globe. It guarantees the blood it sells is safe and disease-free. But the company's negligence results in the distribution of blood tainted with HIV to the United States and the Netherlands, and patients in each country contract the virus. Because of the requirements imposed by Rule 23, it is unlikely that US patients can aggregate their claims and proceed with a class action. As Judge Posner explained in a case with near-identical facts, US courts routinely "refuse to permit the use of the class-action device in mass-tort cases."The Supreme Court echoed a similar refrain in both Amchem v. Windsor and Ortiz v Fibreboard, which effectively killed plaintiffs' ability to raise and settle product liability claims pursuant to Rule 23.Now, US product liability class actions (as opposed to coordinated mass tort proceedings) are limited to those in which the plaintiffs seek economic injury.

However, while the US plaintiffs in this hypothetical situation would be forced to individually litigate, an action for collective redress on these facts could proceed in the Netherlands. That jurisdiction's claim aggregation procedures were designed, at least in part, to serve plaintiffs seeking recovery in mass tort, product liability actions. And Dutch procedure has been successful at resolving such claims. Between 1947 and 1976, diethylstilbestrol, or DES, was marketed and prescribed to pregnant women in the Netherlands with the goal of preventing premature birth and miscarriage. But after it became clear that the use of DES resulted in physical problems among daughters born from DES pregnancies, a suit was commenced and a global settlement followed. The DES plaintiffs obtained a result that would have been impossible in the United States – a global settlement following a single collective action.

Understanding how procedure varies across jurisdictions is also critical to ensuring that judgments are enforceable. In a remarkable opinion in the Southern District of New York, the district court analyzed the availability of claim aggregation procedures in the United Kingdom, France, Germany, Austria and the Netherlands.It did so for two reasons. First, pursuant to Rule 23, the court needed to assess whether or not maintaining a US class action with foreign claimants was the "superior" method of redressing plaintiffs' claims.8 Second, the court wanted to ensure that its judgment would be given preclusive effect in the foreign jurisdictions at issue.9 If the procedure employed in the US action was either at odds with the foreign law or contrary to international "public policy," the court rightly feared its judgment would carry no weight in those jurisdictions. Ultimately, the court concluded that the US action would be "recognized and enforced in" France, the United Kingdom, and the Netherlands. But the court's judgment would not be enforced in Germany or Austria. As this case demonstrates, foreign procedure may be analyzed in a domestic class action not only for the purpose of certifying a class, but to determine the enforceability of judgments abroad.

At bottom, those engaged in or anticipating a global class or collective action must be acutely aware of the procedure in varying jurisdictions.

Transnational discovery is broad and expensive

Second, parties to global class actions must be concerned with the availability and cost of discovery. As Justice Stephen G. Breyer put it, "discovery and discovery-related judicial proceedings take time, they are expensive, and cost and delay, or threats of cost and delay, can themselves force parties to settle" disputes.10 This is especially true in transnational litigation, where discovery is increasingly not cabined by geographic boundaries. Parties engaged in global class actions routinely face discovery obligations in multiple jurisdictions.

For example, imagine a German company that manufactures self-driving cars and works with a distributor in the United States. The software used in those cars is written in Poland. One day, the cars suffer a massive failure injuring thousands of drivers worldwide. The German manufacturer is sued in multiple jurisdictions, including in the United Kingdom pursuant to a Group Litigation Order. The claimants seek documents from the manufacturer in Germany, the distributor in the United States and the software designer in Poland. The plaintiffs have effectively forced the German defendant to defend discovery in three jurisdictions.

In this example, the plaintiffs might seek documents from the German manufacturer and the Polish software designer in their home jurisdictions pursuant to the Hague Evidence Convention. The Hague Evidence Convention is a treaty signed by over 60 nations that provides for the request of evidence from individuals and entities within the jurisdiction of a signatory. Here, that means that if the procedures set forth in the Hague Evidence Convention are followed, the third party is not shielded from the request merely due to its presence outside of the United Kingdom. Similarly, the US distributor would be subject to discovery pursuant to 28 U.S.C. § 1782. US law permits "interested parties" in foreign litigation to seek discovery – both documentary and testimonial evidence – from US persons and entities. The permitted discovery is broad – the Supreme Court has explained that discovery by foreign litigants is not limited by the availability of similar discovery in the foreign jurisdiction and may be taken before a foreign lawsuit is even commenced.11 This means that our British plaintiffs could have obtained discovery from the US distributor before deciding to join the Group Litigation Order.

Understanding the scope of potential discovery obligations is critical to developing a successful strategy to pursue and defend litigation. Transnational discovery implicates many other considerations, including the privilege rules of the nations at issue and the data privacy laws of those nations (including but not limited to the EU's recently-implemented General Data Protection Regulation, or GDPR). Product manufacturers and distributors involved in such matters should be aware of the procedures and obligations available in each relevant jurisdiction, and should consider involving counsel who can appropriately safeguard protected data.

Financing transnational litigation

Finally, to properly assess the risk of litigation, parties to a global class action must concern themselves with how litigation may be financed in jurisdictions around the world. Third-party litigation finance companies are already active in the class action space in many jurisdictions – particularly, but not exclusively, those ex-US jurisdictions where plaintiffs' lawyers are not permitted to finance such litigation themselves.

Under the "American rule," absent a statute or private agreement to the contrary, each party bears its own costs, regardless of the outcome. Conversely, however, most other jurisdictions now employing class or collective action procedures provide no mechanism for sharing costs among class members, and they require fee shifting based on outcome. In fact, in some jurisdictions, a class representative must post a security bond against adverse costs. For this reason, rules related to litigation financing could greatly increase the risk of litigation and impact the preferred fora in which actions may be litigated.

What the future holds

Global class actions are spreading at a rapid pace. Jurisdictions that once frowned on the US-style class action have either enacted or plan to enact similar collective redress procedures. In fact, just within the last month, the European Union approved rules to harmonize collective redress procedure across its member states to allow consumers in the EU to join forces in cross-border litigation. As global class actions continue to spread and courts continue to confront difficult, unresolved questions related to their use, the issues and trends discussed above will follow.

In the United States, meanwhile, while courts continue to wrestle with the idea that foreign plaintiffs may take part in domestic class actions, there are some who believe that the class action mechanism is dying a slow death. Among their ranks is Justice Elena Kagan, who recently wrote that "to a hammer everything looks like a nail. And to a Court bent on diminishing the usefulness of Rule 23, everything looks like a class action ready to be dismantled." But even if Justice Kagan is correct, and the usefulness of Rule 23 is slowly diminishing, the explosion of foreign class or collective action procedure has affirmed that aggregate litigation will remain a part of the global legal landscape for the foreseeable future. There is no question that manufacturers, distributors and retailers will continue to face class action litigation. And now, it is increasingly likely to take place on the global stage.

 

An earlier version of this article appeared on Law360 on January 2, 2019.


1Thomas Friedman, The World is Flat (2005).
2 Fed. R. Civ. P. 23(a); Fed. R. Civ. P. 23(b)(3).
3See, eg, Morrison v. National Australia Bank, Ltd., 561 247 (2010) (rejecting a US securities class action that involved claims of foreign investors against foreign issuers to recover losses from purchases on foreign securities exchanges.)
4 Fed. R. Civ. P. 23(a)(1).
Matter of Rhone-Poulenc Rorer, Inc., 51 F.3d 1293, 1304 (7th Cir. 1995).
6Amchem Prods. v. Windsor, 521 U.S. 591 (1997); Ortiz v. Fibreboard Corp., 527 U.S. 815 (1999).
7In re Vivendi Universal, S.A., 242 F.R.D. 76 (S.D.N.Y. 2007).
8 Id. at 90.
9Id. at 93, 95.
10Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241, 268 (2004) (Breyer, J., concurring).
11 Id. at 258-260.

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