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February 19, 2008

A Gift from America to Europe: Class Action Lawyers and their Costly Lawsuits

In 1886, Europe gave a gift to the United States.  La liberté éclairant le monde, or what is more commonly known as the Statue of Liberty, has come to serve as a symbol of freedom and democracy around the world.

America has now decided to return the favor with a gift of its own – class action lawsuits.  U.S.-style class action litigation is rearing its ugly head in Europe and some American trial lawyers are salivating at the thought. 

Despite the evidence from U.S. experience that consumers have little to gain from class actions, the Italian Parliament recently passed legislation featuring class actions as part of its 2008 budget bill.  It’s set to take effect in July and one Italian consumer group is already champing at the bit to be first at the courthouse door. 

Adusbef, a consumer group focused on financial services, waited just ten days after the bill’s passage before it began soliciting its members to opt into several class actions it intends to bring when the law takes effect.

Adusbef’s actions are representative of the larger flood of class actions likely to hit the Italian courts in July.  Unfortunately, Italy is simply one stop on the class action European tour. 

In France, President Sarkozy has directed his Finance Minister to pursue adoption of a class action law.  Meanwhile, the U.K. is considering allowing contingency fee arrangements and ending “loser pay” rules, which have largely held its group litigation mechanism in check. 

Unfortunately, those are simply representative of actions occurring throughout Europe.  In recent years, Germany, Norway, Sweden, Finland, Denmark, Bulgaria and Spain have also adopted, or considered adopting, class actions in one form or another.

This has no doubt been gratifying to the U.S. trial bar.  A number of prominent U.S. plaintiffs’ firms have had their sights set on trans-Atlantic opportunities for some time, with the expectation that they could persuade policymakers there to alter features of European legal systems to make them more litigation friendly.

Class action plaintiffs’ firm Cohen, Milstein, Hausfeld & Toll opened an office in London in January 2007 and has been working to sell the British public on the idea of U.S.-style class actions. 

Securities class action plaintiffs’ firm Schiffrin, Barroway, Topaz, & Kesler, LLP has made a practice of recruiting foreign-based institutional investors as clients to sue in U.S. courts.  
 
Plaintiffs’ firms aren’t the only ones gearing up.  Class action defense firm Skadden Arps has announced it will add a class action defense practice to its London office, while DLA Piper has announced that it will launch a pan-European group of approximately 20 lawyers to work on private actions resulting from competition law breaches. 

Plaintiffs’ firms contend that they are acting on behalf of victimized consumers, but in reality, it is the lawyers themselves who tend to walk away from these cases with fat wallets, while the everyday citizen is left with coupons.

The extreme inefficiency of the U.S. tort system in compensating claimants is evidenced by the fact that, according to global research firm Tillinghast Towers-Perrin, less than 50 percent of the dollars spent on tort suits actually end up in the pockets of the plaintiffs.

But beyond that, consumers are forced to deal with higher costs as a result of an increasingly litigious culture.  The present cost of litigation as a percentage of GDP is roughly 3.5 times more in the United States than it is in other industrialized nations including Europe.

American experience can attest that this “gift” from America bears more resemblance to the Trojan Horse than the Statue of Liberty.  Europeans would be well-advised to turn class action lawyers back from their shores. 

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