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Armageddon Through Aggregation: The Use and Abuse of Class Actions in International Dispute Resolution
Michigan State University -- Detroit College of Law Journal of International Law (2001)
  • Richard O. Faulk
A troubling and dangerous phenomenon has emerged onto the international litigation landscape. The system of justice understood and appreciated by citizens in most democratic states — one which guarantees individual plaintiffs and defendants their “day in court” — is increasingly being sidestepped by procedural rules that allow entrepreneurial lawyers to aggregate claims into massive controversies that are, for all practical purposes, untriable. Although these enormous cases arise in varying formats, they share a single intimidating characteristic: the designed imposition of enormous and intolerable risks which defendants cannot prudently accept by insisting on their “day in court” in a jury trial. Although some courts have refused to accept this type of “judicial blackmail,” the practice has not been disapproved uniformly. Indeed, the mere threat of international class actions, especially those regarding human rights violations occurring in other countries, has produced gigantic settlements in the United States. The recently concluded slave labor and Holocaust victims’ class actions against German companies and the Swiss banks are illustrative. In those controversies, sovereign states and major international institutions paid billions of dollars to resolve claims by many persons residing outside the United States arising from activities occurring wholly outside the United States. Moreover, the settlements occurred not only in the absence of any adverse rulings on the merits of the case, but also, at least insofar as the Germans were concerned, despite favorable rulings holding that the maters were not justiciable in United States courts. Most importantly, the settlements occurred before classes were certified, thereby demonstrating the coercive effects of class allegations. The use of these techniques is understandable in view of their predictable effects, namely, enormous and relatively prompt settlements and extraordinary fee recoveries by plaintiffs’ counsel. With few exceptions, the public record conclusively demonstrates that once a controversy is aggregated to the point where the “blackmail” threat arises, settlement is inevitable unless the threat is eliminated by interlocutory appellate review or bankruptcy. As a result, major controversies that significantly impact the public interest and private coffers are involuntarily decided outside of the judicial process — bypassing all of the procedural safeguards, protections and guarantees the litigation process provides to participants in all other types of cases. Unfortunately, the unfairness of this phenomenon impacts individual plaintiffs as well as defendants. Settlements achieved in mass tort cases are fraught with potential conflicts of interest between individual plaintiffs and their counsel. Moreover, the potential for collusive settlements — settlements which end the controversy, compensate plaintiffs’ counsel highly, and under-compensate individual plaintiffs — cannot be disregarded. Unless the system permits sufficient attention to individual claims and adequate representation of individual interests, there are genuine risks that individual plaintiffs’ rights may be trampled in the stampede to settlement. The use of American or, for that matter, any other nation’s collective liability devices to resolve claims of non-resident foreign litigants represents a major intrusion into the internal social policies and cultures of other sovereign states. Although “globalism” may be useful as a commercial cliché, its intrusion into jurisprudence is disturbing — especially when procedural devices that are not yet recognized internationally are used to resolve claims arising from conduct that occurs beyond the forum state’s borders. Accordingly, proposals that seek to expand the use of the class device internationally, or which would allow the international enforcement of class action judgments by treaty, should be evaluated cautiously. To the extent that such proposals are considered, they must not focus solely upon enhancing claimants’ access to justice. They must also guarantee that defendants are not oppressively denied their opportunities to be heard. There are three serious obstacles to compromise on this issue. First, the necessity of class actions seeking recoveries for money damages that are not arithmetically calculable, such as usurious interest or other financial claims, is questionable. Given the extensive reliance on governmental regulation and enforcement, as well as the pervasive social welfare systems already in place, there is little “incentive” to use litigation as a tool of social engineering for tort damages in most other democratic nations. The “entrepreneurship” of contingent fees, a hallmark of American class action litigation, seems flatly incompatible with the “fee shifting” tradition of most other nations. Indeed, outside of the United States, it appears that the international community distrusts litigation as a means for social reform – preferring instead to focus on individual claims and requiring litigants to take responsibility for asking society’s institutions to resolve their personal disputes. Second, long-standing civil law principles militate against the creation and implementation of class action practices that depend upon equitable principles and discretionary certification and administration. Civil law systems generally eschew judicial discretion. Instead, they primarily depend upon specific statutes, regulations and rules which are adopted in the parliamentary process and which are strictly enforced by a relatively inflexible judiciary. Although stricter guidance for judges can certainly protect against abuses, unyielding allegiance to inflexible standards may create even greater dangers. Even more troubling, the civil law culture is not structured to consider or implement the lessons learned as a mass controversy matures through individual trials and appeals. Without stare decisis, protections against abuse fashioned by courts with prior experience will not be applied consistently, and the jurisprudential memory necessary for handling aggregate controversies will never arise. Finally, the selective adoption of American-style class action rules by individual nations, such as those in the European Union, threatens a barrage of “forum shopping” by litigants and counsel who seek to create “transnational” class actions. Since most EU member states do not recognize the doctrine of forum non conveniens, and since those states are also obliged to enforce judgments rendered by the courts of sister EU nations, the enactment of class action rules by any member state arguably enables class action practice by the citizens of all member states within the borders of a single forum. Such a development is already imminent in Scandinavia, where a Swedish proposal, in the guise of promoting greater access to justice, threatens all of the evils inherent in the American class action experience on a “Trans-European” scale. This paper does not purport to solve these problems. Instead, it questions whether there is a need to create them in the first place. Despite paeans to the contrary, class actions in the United States have not been an unqualified success, especially when they have addressed claims beyond arithmetically calculable economic losses. Moreover, there are serious cultural differences between the United States and other democratic nations – differences that cannot be overlooked or ignored in a “rush to judgment” on this important question. Even isolated attempts to emulate the American model may bind citizens in other nations without their consent – a situation antithetical to democratic justice. Accordingly, any attempts to introduce class action practice into the international arena should be approached with the utmost caution, with full awareness of the cultural limitations of the forum’s system of jurisprudence, the serious potentials for abuse inherent in the process, and the consequences of enabling extra-territorial class actions within the forum’s national courts.
  • international class actions
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Citation Information
Richard O. Faulk. "Armageddon Through Aggregation: The Use and Abuse of Class Actions in International Dispute Resolution" Michigan State University -- Detroit College of Law Journal of International Law Vol. 10 (2001)
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