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Emerging Tactics of the European Plaintiffs' Bar
April 20, 2007
On April 11, 2007, Royal Dutch Shell PLC agreed to pay $352.6 million to settle with non-U.S. plaintiffs in a securities-fraud case in Europe. The company also agreed to pay $47 million in attorneys’ fees to the three U.S. law firms that represented the European shareholders.
While the announcement, made by Shell from its headquarters in The Hague, may have resolved the claims against the company pending outside the U.S., it has ignited a firestorm of commentary. Chief among these concerns is the fear that so-called U.S.-style litigation has finally crossed the Atlantic.
Ileana M. Blanco, a partner in Bracewell & Giuliani LLP’s Litigation Department, urges international companies not to panic. “In the words of Franklin D. Roosevelt,” she says, “European companies have ‘nothing to fear but fear itself.’ Awareness and preparation are the most effective tools for minimizing the challenges posed by an increasingly creative plaintiffs’ bar, wherever you do business.”
European vs. American Litigation: Different Histories
Many forms of litigation, as practiced in the United States, have traditionally been absent from European jurisprudence. For example, most European countries forbid contingency fees for lawyers; similarly, most group legal actions have also been disallowed. Discovery itself is often unheard of, and privacy rules regarding communication — including e-mails — are very different than in the U.S.
However, in recent years these restrictions have begun to thaw. For example, in Germany, following the initial public offering of Deutsche Telecom AG, thousands of individual shareholders filed lawsuits against the company alleging certain misrepresentations designed to artificially inflate the stock price. While the company settled the claims of U.S. plaintiffs in 2005, as a class, the German cases continue to clog the courts — causing the German government to consider loosening the rules against representative actions.
Similarly, in March 2007, the German Constitutional Court upheld the limited use of contingency fee arrangements, in narrow circumstances, between plaintiffs and their attorneys. Across Europe, federal rules of civil procedure are being gradually loosened, and creative attorneys representing plaintiffs are taking full advantage of these opportunities.
These events and others — including last week’s Shell settlement — should not be viewed as throwing the door wide open to American-style litigation in Europe. However, they do serve notice to international companies that they should take action now to minimize exposure to well-known legal strategies as practiced in the United States.
Managing Litigation Risk
Bracewell’s Blanco suggests several steps that European and multinational companies can take now to reduce litigation risks:
- Do not underestimate the creativity of plaintiffs and attorneys. Understand the objectives and methods of potential plaintiffs and their legal counsel.
- Identify experienced attorneys who know how to defend against a broad range of litigation strategies. In the face of loosening rules of civil procedure in Europe, clients should seek out attorneys with a history of successfully defending businesses against these tactics.
- Conduct an audit for potential exposure. Proactive identification of potential errors or misjudgments will enable a business to take proactive, corrective action before a concern becomes a lawsuit.