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No place for litigation funding in US

No place for litigation funding in US

The class action litigation funding model, which now plays a significant role within Australian shareholder class actions, would struggle to prosper in the United States. Discussing the future…

The class action litigation funding model, which now plays a significant role within Australian shareholder class actions, would struggle to prosper in the United States.

Discussing the future of corporate class actions last week at ALFA International's 2011 Annual Client Seminar, hosted by TressCox Lawyers, Strasburger & Price partner David Cibrian said it would be an "uphill battle" for litigation funders to succeed in the United States because of the presence of contingency fees, which are absent in Australia and England.

"I think it's a challenge for the funding model because we have contingent fees," said the Dallas-based lawyer. "Contingency fees are alive and well in the United States so a plaintiff attorney who thinks he or she has a viable case, it is really not that expensive to front some cost ... I think most plaintiff [attorneys] are willing to take it on the chin and invest in their own cases."

Providing an overview of the US class action regime and the recent developments affecting the future of class actions, Cibrian also discussed the "use and abuse" of class actions in the US over the years, particularly in the area of employment.

Citing the gender discrimination class action against Walmart, which involved 1.5 million female employees and constitutes the largest certified class action in US history, Cibrian described the efforts by the US Supreme Court to move away from the abuse of class actions and the "get rich quick schemes" within the employment practices area - one of the greatest areas of abuse according to Cibrian, along with securities fraud.

"A lot of litigation that has some substance is not really intended to address some sort of grave injustice ... which should be at the core of class actions," he said. "Decades ago in the United States, when you had wholesale environmental contamination, where entire communities were affected, you could see the class action, from a public policy standpoint, having a reason for being. We have really gotten away from that."

The future of class actions in Europe

In contrast to the strength of class actions in the United States, it's a different picture in Europe.

Also presenting at the ALFA seminar on the topic, Protecting your business assets at home and abroad, London-based Charles Russell partner John Sykes discussed the decline of class actions in England thanks to a fear amongst government and business of disrupting business and creating a litigious society - a fear that has heightened during the recent market turmoil.

"Class actions, and the availability of them, are a political issue," said Sykes. "In Europe, the politics behind it is a fear of disrupting business in Europe. It's a fear of creating a litigious society - the sort of society we say we don't have in Europe, but perhaps the US do have. And we're scared of that. Business is scared of that litigious society."

According to Sykes, some of the reasons why there are more class actions in the US, compared to Europe where their prevalence is waning, include the United States' opt-out procedure for class actions (as opposed to Europe's opt-in procedure) and the existence of contingency fees, which Europe does not have.

The fact that losers of a class action in England pay the winner's costs presents a huge potential liability and discourages class actions, according to Sykes.

"Trials are rare and the number of class actions is declining," he said, adding that an opt-out system, similar to the US, was proposed in England back in 2008 but later rejected by government, and that the introduction of contingency fees in England has also been recommended in the past.

"Class actions ... [have] been on the agenda in the EU for a long time and it's mainly consumer class actions that they're interested in," said Sykes. "But it's mostly talk. There was a public consultation in April 2011 and it was agreed that class actions perform a positive role, particularly where consumers are concerned, but again, fear of the US style of class actions has meant there has been very little action."

Briana Everett

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