What is a class action?
A class action is a lawsuit which allows an individual or entity to initiate litigation on behalf of all others who have been similarly harmed by a defendant’s misconduct. Class action lawsuits are particularly beneficial when many individuals or entities have experienced damages that may not be large enough to justify the expense of individual litigation.
What is a class period?
A class period is the range of dates within which a company is alleged to have been engaged in improper conduct. The attorneys investigating and prosecuting a class action will review the facts of the case and, along with the court-appointed “lead plaintiff,” determine the appropriate beginning and end of the class period. Sometimes, after an initial complaint is filed, a class period will be lengthened or shortened as an investigation continues or additional misconduct comes to light.
How do I join a class action?
In securities class actions, you are automatically a class member if you purchased the securities of a company during the pled class period, regardless of whether you specifically retain a law firm to prosecute claims on your behalf. This “class membership” concept also applies to consumer fraud and antitrust class actions. For example, if you purchased goods from a company that was accused of improper marketing practices during the relevant period of time (the class period), you would be a member of the class even if you did not personally retain an attorney. Generally, class members are not required to do anything while a litigation is ongoing. However, if there is a settlement or judgment in a case or a class has been certified, class members may receive a “claim form” or a notice that a class has been certified. It is important to review these materials so you are aware of important deadlines and your rights (including what rights you may be giving up as a result of developments in the litigation). Some claim forms must be returned to “claims administrators” by a specific date in order for class members to receive a recovery.
What is a lead plaintiff?
A lead plaintiff, sometimes referred to as a named plaintiff or representative plaintiff, is the member of the class that is responsible for overseeing the prosecution of the class action litigation. In a class action brought pursuant to the federal securities laws, any investor with losses within the class period can file a motion seeking appointment as a lead plaintiff. There is a specific process governing when motions must be filed and who will be selected as a lead plaintiff if there are multiple applicants. In terms of when a motion must be filed, the federal securities laws require the plaintiff filing the first lawsuit to issue a press release advising all investors that a class action lawsuit has been filed and of their right to seek appointment as lead plaintiff. Lead plaintiff motions are then due within 60 days of the press release being issued. In actions under the federal securities laws, the court selects the class member or members most capable of representing the interests of the “absent” class members. There is a statutory presumption that the investor or investors with the largest financial losses during the class period, who are otherwise typical of the absent class members and are adequate to represent the class, are the presumptive lead plaintiff. Courts have appointed individuals, groups of individuals, institutional investors, groups of institutional investors, and even combinations of individuals and institutional investors as lead plaintiffs, as the circumstances of each case may dictate. The lead plaintiff is responsible for selecting counsel to represent the lead plaintiff and the class, and these attorneys, if approved by the court, serve as “lead counsel” or “class counsel.” Non-securities cases generally do not have the same statutory deadlines and presumptions as cases under the federal securities laws. The process for selecting leadership in non-securities class actions is typically outlined by the judge overseeing the litigation.
How long does it take to prosecute a class action?
The time to prosecute each class action varies based on, among other things, the facts, parties, and jurisdiction of a particular class action. It is not unusual for class action litigation to take 3 years or longer to conclude.
What is contingency fee litigation?
Contingency fee litigation refers to situations where attorneys are only paid if they successfully resolve the litigation, such as winning at trial or obtaining a settlement with defendants. Attorneys who practice on a contingent fee basis typically do not receive any form of monetary payment (e.g., retainers, etc.) from a client at the outset of litigation nor are clients invoiced for fees incurred during the litigation. There are no out-of-pocket expenses for plaintiffs represented by Kessler Topaz as Pennsylvania law allows the firm to advance all such costs on behalf of its clients. Generally, attorneys representing clients on a contingency fee basis will be paid for their time and expenses solely from any recovery obtained for the class. Kessler Topaz handles virtually all of its cases on a contingency fee basis.
What will it cost to be involved in a class action?
Because Kessler Topaz prosecutes class actions on a contingency fee basis, there are no out-of-pocket fees or expenses paid by our clients, regardless of the outcome of the case. If we are successful in obtaining a recovery for the class, we will apply to the court for a fee that fairly represents the work performed and the risks and costs assumed by Kessler Topaz. In securities class actions, attorneys’ fees typically are awarded as a percentage of the total relief obtained by the attorneys on behalf of the class. The attorneys’ fee percentages ultimately awarded by courts vary considerably and often depend upon the timing of when recovery is obtained, the difficulty and complexity of the claims, awards in similar cases, and the total size of the recovery for the class, among other things.
Will my out-of-pocket loss equal my damages?
Damages are a complex legal calculation that may or may not equal your out-of-pocket losses, which are purely an accounting calculation. To establish damages in securities class actions, lead counsel typically hire experts to determine the extent by which a company’s stock was artificially inflated during the relevant class period. Because there are often multiple factors which contribute to stock price movement, factors which experts readily assess, one’s damages are not necessarily the equivalent of out-of-pocket losses.
Do I have to keep my stock to participate in a securities class action?
No. Regardless of your current holdings, you may be eligible to participate in any recovery that the class enjoys if you purchased during the class period and meet other relevant criteria.
Why should I work with Kessler Topaz?
Kessler Topaz has specialized in class action litigation for more than 25 years, and has represented all types of investors in recovering financial losses caused by fraud and other misconduct. We are one of the largest contingency fee law firms in the United States focusing on securities fraud and other complex class actions. The Firm has been appointed as class counsel in several of the largest corporate frauds in history and has represented or advised clients pursuing claims across the world. Kessler Topaz has developed a global reputation for excellence and has recovered billions of dollars for victims of fraud and other corporate wrong-doing. We are zealous advocates for our clients and are one of only a few law firms to ever litigate a class action lawsuit under the federal securities laws through trial.
Why should I be concerned with class/collective actions outside the United States?
In today’s global economy, it is more likely than not that an institutional investor’s portfolio will include securities that trade on non-U.S. exchanges. Due to a 2010 U.S. Supreme Court decision, in Morrison v. National Australia Bank, investors who purchase securities on non-U.S. markets may no longer use the U.S. courts to seek to recover for fraud-based investment losses. Investors must now look to jurisdictions outside the United States in order to recover. Most jurisdictions outside North America do not offer opt-out class actions and therefore they do not offer investors the opportunity to remain completely passive and file claims for their share of any recovered proceeds. Instead, investors often have to affirmatively join or opt-in at the inception of a case in order to potentially recover.
In recent years, high profile corporate scandals such as Volkswagen’s “diesel-gate” (where Volkswagen admitted that it had installed software in certain diesel model vehicles in order to lower emissions during testing conditions and evade U.S. Environmental Protection Agency and California Air Resource Board regulatory standards) have led to high-profile shareholder litigation in other countries. Investors who do not have systems in place to monitor and evaluate shareholder litigation opportunities outside the United States risk not only losing out on potential recoveries but also having to face difficult questions from their constituents when there is a substantial recovery and they are not included.
How do class/collective actions in jurisdictions outside the United States differ from class actions in the United States?
Every jurisdiction is different. The most important difference for investors to be aware of is the difference between an opt-in jurisdiction and an opt-out jurisdiction. For quite some time jurisdictions like Canada and Australia have allowed for class actions, which are similar but not identical to the United States’ class action procedure. Although they have their procedural differences (including the timing for filing any claim), the U.S., Canada, and Australia are all technically opt-out jurisdictions. That means generally that an investor, who is not seeking to serve as the lead or representative plaintiff or to pursue their own action “opt-out” action, does not need to take any affirmative steps at the commencement of an action in order to be included in the case and share in either a settlement or a favorable judgment. With some exceptions in certain Australian cases, an investor is eligible to participate in any settlement or judgment simply by registering its claim or filing a claim form by a date set by the court overseeing the dispute. Most other jurisdictions, however, do not offer true “class actions” and instead are opt-in jurisdictions that require an investor to take affirmative steps to join active litigation at the inception of the case in order to be included in any settlement or judgment. In these opt-in jurisdictions, large groups of investors may join together in one joint or collective action to pursue their individual claims. In addition to requiring investors to opt-in at the case inception, cases in these opt-in jurisdictions typically require some degree of active and ongoing participation by the investor (for example by requiring the investor to produce certain documentation that proves their legal existence and their transaction history).
What will it cost to become involved in a class/collective action in a jurisdiction outside the United States?
It depends on the jurisdiction. Canada, for example, operates in a similar fashion to the U.S. and attorneys will usually represent all class members on a contingent fee basis. A contingent fee basis means that neither the lead/representative plaintiff nor the class members owe any money out-of-pocket upfront (or in the event the case is unsuccessful) to cover the attorneys’ time and the expenses incurred in litigating the case. Instead, the attorneys litigate the case and cover upfront expenses and only receive compensation for their time (usually a percentage of the total recovered on behalf of the class) and reimbursement for expenses if the case is successful and yields a recovery for the class members.
Many jurisdictions outside North America, however, prohibit attorneys from representing clients on a contingent fee basis. As a result, investors who wish to pursue an action will typically be required to either pay upfront/as the case proceeds a pro-rata portion of the attorney’s fees and court costs or to utilize third party litigation funding (that will cover all upfront expenses and risk of loss in exchange for reimbursement of expenses and a litigation funding fee that is a percentage of any amount recovered). Some jurisdictions are also “loser-pays” systems, which means there is a risk that if investors are unsuccessful in an action they could potentially be liable for the costs and fees incurred by the defendant in defending the action. In some countries the amount of adverse costs is manageable (set by statute based on the amount in controversy, for example) while in others it can become quite expensive (because it is either based on the amount of costs and fees the defendant actually incurred or because it is a multiple of the amount in controversy). The use of third party litigation funding and/or adverse cost insurance when litigating in these jurisdictions can help ensure that an investor does not bear any risk of either out-of-pocket or adverse costs (in the event the case is unsuccessful).
How do I assess and balance the time commitment involved against a potential recovery?
As a starting point, we always recommend that institutional investors implement some type of litigation policy that provides guidance as to what types of actions your fund may wish to get involved in. Some policies may guide a fund to take action based on the nature of the alleged fraud or abuse. Other policies may include minimum loss thresholds that need to be reached before you will evaluate possible participation in a given action.
If you include loss threshold(s) in your litigation policy, you may wish to consider implementing different loss thresholds for different jurisdictions depending on the amount of time and resources required for participation in a given jurisdiction and the amount you may recover (as a percentage of your initial estimated losses). In jurisdictions likes the United States, Australia, and Canada, unless you are seeking to become a lead/representative plaintiff or to pursue an opt-out action (because you have a significant loss), the amount of time required to participate is minimal. Indeed you may already have either your custodian bank or a third party claims filing service that registers you or files claim forms on your behalf. In those jurisdictions, we typically recommend you participate regardless of how small your estimated loss might be. In contrast, in many European jurisdictions, where more documentation and involvement is required, it may make more sense to only consider actions where you have a more sizable loss and that loss threshold may differ depending on the jurisdiction. For cases in the United Kingdom, for example, you may wish to require a greater loss threshold than, for example, cases in the Netherlands. Litigation in the United Kingdom is likely to be more expensive (meaning that although the case may be covered by litigation funding, investors may pay a greater portion out of any recovery for the litigation funding fee and reimbursement of expenses and that the amount of recovery paid to the investor will be smaller as a result) and because more documentation, information, and active participation may be involved in participation in shareholder litigation in the United Kingdom.
In addition to the amount of any threshold differing per jurisdiction, the amount of the thresholds you apply will likely be unique to your fund based on factors such as the size of your fund(s), the amount of staff and resources you have available, your familiarity or comfort with a given jurisdiction, and even the subject matter of the alleged fraud or abuse by a defendant (i.e. a high-profile and compelling case of fraud or abuse may warrant participation in an action even if your typical loss threshold is not met).
What steps should I take to ensure that I’m adequately tracking, analyzing, and joining actions outside the United States that have a substantial impact on my portfolio?
As a starting point, it is important to make sure you have a system in place for being alerted to potential actions around the world in which you may have a financial interest. There are many third party claims filing service providers and law firms (like ours) who offer some coverage for international actions but all these services are not created equal. It is important to understand and conduct due diligence on any third party service to assess the level of the service they are claiming to provide to you both in terms of how they are discovering and reporting on potential actions and how they are planning to assist you with analyzing and joining any potential action. Below is an overview of some the questions we recommend investors ask their providers and conduct due diligence on:
How does the service provider collect information on shareholder litigation opportunities around the world? Do they take a more passive or active approach?
Many jurisdictions do not have public docketing systems like the courts in the United States. Additionally there is no one comprehensive source that aggregates and reports on all court filings in every jurisdiction. That means that no third party or law firm can ever guarantee that they are finding and tracking one hundred percent of all shareholder litigation that impacts your portfolio. However, even though no service can offer one hundred percent coverage, there are considerable differences in the amount of coverage and the quality of services that are provided. Some services may rely solely on information that is voluntarily provided by certain litigation funders or law firms. Other services, like ours, more actively seek out information on potential or existing cases by, inter alia, combing news alerts, searching court records (where a country offers some type of docketing system), and establishing relationships with law firms and litigation funders around the world who send information when they are organizing a new potential action.
How does the service provider notify you of potential actions and your options?
How detailed is the notification? Are they only sending notifications of new cases when they determine it is an action that impacts your portfolio? Or are they notifying you of every proposed action and leaving it to you to determine whether it impacts you? Are they staffed by attorneys who understand and can provide advice on your options or are they staffed by people with no or limited legal background? And if they are not staffed by attorneys, how was the information in the notice collected? Did they rely solely on the firm/funder who announced the action or was there any independent verification? The detail and quality of the reporting you receive can make it easier or harder for your staff to determine whether or not to pursue a particular shareholder action. Additionally, if the staff of a third party service provider does not understand key components of international shareholder litigation, such as the difference between an opt-out and an opt-in jurisdiction, it can mean that you are not being properly advised when action is required or when you can remain passive.
Does the service provider offer to assist you with participation in the case once you decide to join? Or do they simply connect you with the law firm/funder organizing the action? If they plan to assist you, are they well-equipped to do so?
As previously discussed, many third party service providers are not staffed by attorneys. As a result, this can lead to confusion or problems in the ongoing litigation that can jeopardize your claims. For example, the service provider did not understand formalities in a jurisdiction and how certain types of investors need to be named as plaintiffs (i.e. in the name of underlying trusts or funds versus in the name of the asset manager) or that documentation needed to be signed by the investor itself and not by the service provider.
The above are just a few key questions or issues that investors should consider. One of our partners recently wrote an article outlining some of the issues we have seen with third party services who claim to be assisting clients with international shareholder litigation and outlining other key questions investors should be asking of their service providers. You can read that article here: https://www.ktmc.com/newsletters/the-bulletin-fall-2020#11986.
How can Kessler Topaz assist me with cases in jurisdictions outside the United States?
Kessler Topaz has been at the forefront of representing institutional investors in litigation in non-U.S. jurisdictions and either has successfully organized actions and represented clients in achieving recoveries in the following countries or organized and is currently actively involved in representing clients in shareholder litigation in the following countries: Australia, Brazil, Canada, France, Germany, Japan, the Netherlands, Portugal, and the United Kingdom.
The Firm is also able to monitor non-U.S. cases for our clients and ensure they are participating in any and all settlement or active litigation opportunities – something U.S.-based custodian banks are not well-equipped to do. We are currently following over 100 actions outside the U.S. for our clients, and have alerts set up in numerous countries to advise us each time a new action is filed. The Firm devotes considerable resources to following legal developments related to securities litigation and class/collective actions around the globe and assists clients in: 1) understanding the jurisdiction, 2) understanding the strength of the facts and law giving rise to a potential action, 3) assessing their estimated financial exposure or loss related to a given action, and 4) evaluating the proposed action and determining whether to opt-in and participate (this includes, for example, assisting clients with analyzing competing actions proposed against the same defendant and, if applicable, competing proposed jurisdictions and deciding which is best option for pursuing a recovery). If a client joins a particular opt-in action, upon request the Firm assists them in overseeing that action, navigating the complexities of dealing with local counsel and any litigation funder, understanding the legal system of the jurisdiction, understanding the proposed case structure and legal strategy, and the Firm assists with and eases the administrative burden involved in meeting any formal procedural or other participation requirements (such as determining how a client should be named as a plaintiff and advising on what types of documentation a client can produce to best prove and explain its corporate structure, legal existence, transaction history, or other evidentiary requirements). The Firm is currently assisting clients with participation in actions (that the Firm did not organize and for which it has no financial interest) in jurisdictions such as Australia, Brazil, Denmark, Germany, Italy, the Netherlands, and the United Kingdom.
