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Strange CargoLitigation over an air shipping cartel has brought antitrust mass actions to Europe. But will the new capital of private anticartel enforcement be London or Amsterdam?
Litigation over an air shipping cartel has brought antitrust mass actions to Europe. But will the new capital of private anticartel enforcement be London or Amsterdam?
Focus Europe2013-01-01 12:00:00 AM
If you buy roses on Valentine's Day anywhere in the world, chances are that the flowers have flown by air cargo from a place like Kenya or Colombia. If you bought those roses between 1999 and 2006, the airline likely overcharged the florist by 510 percent for shipping. Little overcharges like these are the stuff of big class actions wherever class actions can be brought. The riddle of the air cargo cartel is whether effective mass actions can be transported to Europe.
It was coincidentally on Valentine's Day 2006 that regulators launched dawn raids with military precision on nearly all the world's major airlines, to search for evidence of collusion. In the years since, the U.S. Department of Justice has fined freight carriers more than $1.7 billionand U.S. victims have won $500 million in early settlements. The European Commission has fined the airlines more than $1 billion. So where is the payout for European victims? It's coming.
U.S. plaintiffs lawyers have long sought in vain to export U.S.style class actions to Europe. Even after a decade of debate, European policymakers have not quite yet finalized a framework for collective redress. But without class actions, contingency fees, or fanfare, English and Continental lawyers have each developed a free-market model for private antitrust enforcement. The two air cargo cases show they're working.
Once unable to get off the ground, private cartel cases in Europe now number about 25. The stakes in the air cargo litigation are especially high, and the issues are freighted with significance. But what really makes it fascinating is that Europe's two models for managing a cartel action are competing head-to-head. U.S. class action lawyers back the case in London. Australian class action lawyers back the case in Amsterdam. Who can force the airlines to pay an overcharged florist may decide the future of private antitrust in Europe.
Anthony Maton and Peter Koutsoukis are partners at the U.S. and Australian firmsHausfeld LLP and Maurice Blackburn, respectivelythat are suing the air cargo cartel in their home countries. Each lawyer is spoiling for a fight in Europebut on his own terms. For five years they've cruised the same elevator lobbies, trying to recruit the same air freight customers to their competing causes. Maton tells whoever will listen that London will be Europe's collective action capital. Then Koutsoukis corners the same guy, and says Amsterdam.
Koutsoukis has signed on 500 companies that shipped $9.5 billion of allegedly overpriced air freight services. Maton acts for 300 companies that were allegedly overcharged up to $6 billion, including the florist Emerald Supplies Ltd, which may have sold you roses. Neither will offer a damages claim, but assuming overcharges of 510 percent, and hefty interest bills (with compounding in the Netherlands), the English case is worth more than half a billion dollars, and the Dutch case more than $1 billion.
Blunt and business-minded, Koutsoukis is the founding and managing partner of 11 small Queensland offices for Australian plaintiffs firm Maurice Blackburn. In 2008 he set up a more exotic business for his law firm called Claims Funding International, with the purpose of suing the air cargo cartel in Amsterdam. CFI chose Ireland as its base for tax reasons, and borrowed its model from a Brussels-based group known as Cartel Damage Claims ["A Private Affair," Summer 2007].
The challenge in Europe is to fund and aggregate claims without contingency fees and class actions. CFI gets around both problems by "buying" plaintiffs' claims and bringing them as a single action in its own name. Victims assign their claims to CFI on the understanding that if CFI recovers, it will give the victims 72.5 percent of the recovery while keeping the rest for its investors. Koutsoukis says his law firm has covered the first $9 million of litigation costs, but expects to find coinvestors.
If you think this sounds a lot like a contingency fee, some members of the air cargo cartel thought so too. Air France S.A. asked the Paris commercial court to declare Koutsoukis's vehicle (which had initially been incorporated in France) to be an invalid front, set up for a fraudulent purpose. "They basically called me a crook coming across from Australia to avoid contingency fees," says Koutsoukis. But the French court found the case inadmissible, reasoning that a company cannot seek a declaration of invalidity merely because its economic interests are threatened. Meanwhile, Cartel Damage Claims is advancing cases on the same model in courts around Europe.
Koutsoukis filed his cartel claim in the District Court of Amsterdam in 2010. But the Dutch court ruled that it must await the airlines' appeals of their fines in the E.U. courts. So CFI's case may be frozen for years, unless the Dutch Court of Appeal unfreezes it this spring. That leaves the ball in English court, where the main players are Maton and his firm, Hausfeld LLP.
Michael Hausfeld has made a fortune suing global cartelists like vitamin makers in the United States from his base in Washington, D.C., but he slowly came to realize that global cartel enforcement required him to develop a vigorous overseas arm. In Hoffman-LaRoche v. Empagran (2004), the U.S. Supreme Court told Hausfeld that he couldn't recover in the U.S. when his clients' actions and injuries were wholly foreign. After a first collaboration in London reached a dead end ["Spreading the Word," Summer 2002], Cohen, Millstein, Hausfeld & Toll opened a London office, which became part of Hausfeld LLP after Michael Hausfeld left his old firm. In a sort of last hurrah for global claims in the U.S., Hausfeld in 2008 won a $200 million U.S. court settlement from British Airways and Virgin Atlantic for overcharging air passengers from the U.S. and the United Kingdom. But in the wake of Morrison v. National Australia Bank (2010), U.K. claims against U.K. defendants in the U.S. won't fly even when the conduct and injuries are not wholly foreign. So London claims must now stand on the strength of London filings. Enter Anthony Maton.
With an Oxbridge accent softened by a blokish style, Maton is Hausfeld's London ambassador. Since 2007 he has filed a dozen cases against other European cartels. While the cases wend their way through the courts, Maton has forged 3040 partial U.K. settlements, for tens of millions of dollars. He aims to grow revenues fourfold over the next five years. Maton puts it this way: "Are we in all-singing, all-dancing U.S. class action mode? No. Are we working for a whole lot of clients running a successful practice? Yes."
Hausfeld LLP's British plaintiffs can choose from a grab bag of tricks for funding cases in the absence of a contingency fee, thanks to the creative ferment of London financial services. Beginning in 2000, winning lawyers in U.K. courts could recover up to double their fees. But such "success fees" made little difference until they were widely combined, in the last five years, with litigation insurancewhich offsets the risk that losers will have to pay the winners' hefty feesand third-party funding where needed.
Parliament recently turned this system on its ear, in the Legal Aid, Sentencing and Punishment of Offenders Act 2012. In addition to gutting legal aid, this law made success fees and litigation insurance premiums unrecoverable. At the same time, in a move that was once unthinkable, it legalized contingency fees. In the future, London trial lawyers expect to use a mix of case-funding techniques. But for current cases the new rules are irrelevant.
Using the standard-for-now combination of success fees and insurance, Maton sued the cargo cartel in London high court in 2008, in a suit captioned Emerald Supplies v. British Airways . He planned it as Europe's first opt-out class action. In other words, Maton claimed to speak for all cartel victims who don't opt out of the case, not just the victims who opt in. To Hausfeld's chagrin, the Court of Appeal rejected this gambit in 2010, on the grounds that the class members' interests were not uniform. U.K. judges had dealt a grave setback to plaintiffs' sacred quest for a U.S.style class action.
And yet, according to DLA Piper's Martin Rees, who serves as one of the defense counsel: "I don't think it made much difference to Hausfeld." Maton simply recast his action as a claim by 300-odd large businesses, secure in the knowledge that English courts excel at managing this sort of mass litigation.
The catch is that small victims, whose claims are not worth pursuing individually, have no practical remedy. Maton estimates that he and CFI account for at most 40 percent of the freight overcharges. Without a class action or class settlement, the other 60 percent can't recover.
That's a shame for the little guys, and a shame for deterrence. But for Emerald Supplies et al., it's full steam ahead once the European Commission finally publishes the air cargo ruling that it announced in 2010. In the meantime, the plaintiffs can contemplate the novel legal experiment they have set in motion.
What made Emerald Supplies choose the English model, and why did 500 others favor the Dutch?
The most basic difference is that in England, the cartel victims sue in their own names. Although that exposes them to publicity, the victims get to decide if, when, and how to settle. On the Continent, where victims assign their claims to a single vehicle, the driver of that vehicle has total control.
The U.S. class action king William Lerach once famously joked that U.S. class action lawyers have no clients. Channeling his inner Lerach, Koutsoukis explains: "In Europe, we can completely direct the litigation, and that's a great advantage. We can choose the witnesses, set the strategy, and tell our lawyers what the settlement figure should be. We haven't got clients telling us what to settle for. We'll consult our clients, of course, but it's good to have that control." The difference here is that CFI, as the owner of the claims, really has no clients. Paralyzed by their fear of the U.S.style class action, policymakers on the Continent have ironically allowed the emergence of a model that arguably disempowers victims even more.
While Maton critiques CFI for depriving victims of control, Koutsoukis argues that Maton's interests are misaligned with those of the victims, because defendants are only willing to pay a certain sum for damages-plus-fees. One of the ironies of the European mass action scene is that the rival groups sometimes flay each other with the same rhetoric that tort reformers use against all class actions. For potential claimants who wish to screen out the negative advertising, there are other factors to consider.
English courts have the advantage of broader discovery. Although that may help different parties in different cases, DLA's Rees argues that "systemic justice in the U.K. is always superior because there's more information." London also has the edge in the quality of its bench and depth of its case law. In particular, English judges have taken a broad view of their cartel jurisdiction. In Cooper Tire v. Dow Deutschland (2010), the Court of Appeal allowed plaintiffs to sue a Europe-wide cartel in Britain so long as one of the companies fined by regulators had a British affiliate.
On the other hand, litigation costs are lower in Amsterdam, with billing rates about half those in London. Koutsoukis quotes top rates of about 500 ($640) versus £800 ($1,275) per hour. And if you lose in Amsterdam, you're limited to paying a paltry 36,000 ($46,000) of each winner's fees. "You lose air cargo in the U.K.," says Koutsoukis, "and you're paying £1020 million" ($1632 million). Maton notes that insurance can mitigate the risk.
Finally, Dutch courts are unique in Europe for allowing a global opt-out settlement, enforceable on a Europe-wide basis. The Dutch Act on Collective Settlement of Mass Damages proved to be popular with all parties in a high-profile deal struck by Royal Dutch/Shell Group five years ago ["Shell Games," Winter 2008].
Maton replies that he too can use the Dutch mechanism when the time for settlement arrives. But he has constructed a viable alternative to the Dutch settlementwhich has earned comparatively little attention. In 2009 Maton was representing victims of the Marine Hose cartel. In return for the promise not to sue, the defendant Parker ITR s.r.l. agreed to a global opt-in settlement on a purely private basis without the involvement of any court. And while this deal is by its nature not enforceable in court, the plaintiffs got their money, and the defendant got the legal peace it craved. "The proof is in the eating," says Maton.
Although the plaintiffs' rivalry is amusing and edifying, both the English and Continental models of private cartel enforcement might best be described as intriguing but not fully tested. And sometimes, London and Amsterdam won't be options. In practice, a plaintiff's choice of forum will be limited by the location of the cartel defendants.
Till Schreiber of CDC, which pioneered the Continental model, says that the German courts should for now be regarded as a distant third choice for European cartel plaintiffs. Defendants usually force a German cartel case into a specialized chamber that bogs down due to big backlogs and a lack of antitrust expertise. To top it all off, German courts charge an up-front fee of 275,000 ($350,000). "That's the price of getting into the taxi," he says, "and then you don't know whether the taxi will even drive you, or take you where you want to go."
Despite the uncertainties, private cartel cases in Europe are real enough to generate a steady stream of settlements for Hausfeld. DLA's Rees says flatly: "Private enforcement is doing quite well on this side of the Atlantic." After a few false starts, why is the concept finally taking root?
One answer is that the decisive rejection of global jurisdiction by U.S. courts made the need more urgent. Another answer is that private enforcement in Europe awaited the emergence of practical solutions to case funding, and those solutions only caught on in the last five years ["Mass Action in the U.K.," Winter 2008].
Michael Hausfeld chalks up the difference to a change in the mind-set of legal society at every level. "When we first arrived in London," he says, "Magic Circle firms were united in absolutely barricading this kind of work, and vilifying any firm doing it as importing the worst U.S. excesses. Now we're getting referrals from the Magic Circle."
Of course, the most important minds to change are those in power. Hausfeld still foresees enactment of a U.S.style system of U.K. private enforcement, and a looser E.U. regime of collective redress. But he also admits that the legal market has evolved enough on its own that such change is no longer essential to his goals.
The remarkable truth is that the British Parliament adopted contingency fees last year, and the legal world yawnedbecause the market had already developed a synthetic equivalent. The same may happen if Parliament ever adopts a formal class action. Don't look now, but the revolution is already upon us.