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"Paris Class Action Conference" - Remarks by Stanton D. Anderson

Tuesday, April 12, 2005 - 8:00pm

Paris Class Action Conference
Remarks By Stanton D. Anderson
Chief Legal Officer and Executive Vice President
U.S. Chamber of Commerce

Paris, France
April 13, 2005

Good morning and thank you for inviting me to speak with you today.

During the past few years, much of my time has been spent on the subject of class action reform. Since the mid-1990s, the United States has experienced a class action crisis. Thousands upon thousands of class actions have been filed in U.S. courts by enterprising plaintiffs' attorneys – a breed of lawyer not yet fully developed in France that specializes in litigation against targeted companies. In the U.S., these plaintiffs' attorneys have taken advantage of both the class action rule and a number of anti-defendant local courts (what we call "magnet jurisdictions") to extract massive settlements from American business. These settlements, however, have not worked to the benefit of the American consumer. Instead, in most cases, the money has gone to the plaintiffs' attorneys who filed the lawsuits, while the consumers whose claims were allegedly being protected, have ended up with worthless coupons or in the best cases, modest financial recovery.

For those of you who are unfamiliar with the American legal system, class actions are a procedural device which allows an individual to sue not only on his or her own behalf, but also on behalf of others like them. So, for example, a plane crash. The relevant law and facts for all the passengers on the plane are essentially identical – they were injured at the same time, in the same place, and as a result of the same conduct. Class actions, therefore, allow a court to decide the claims of all of the victims on the plane by simply trying the claims of one victim, rather than individually trying all of the claims.

While variations of class actions have a long history in common law jurisprudence, modern American class actions are approximately 40 years old. They were adopted in the early 1960s to create greater efficiency in the American legal system. The drafters of our modern class action rule also believed that there were certain areas of the law – most notably civil rights – where allowing the trial of one person's claim to serve as the proxy for the claims of a larger group could better aid those being discriminated against.

The drafters of the American class action rule created a two-part process. First, courts would determine whether a case was suitable for class action treatment – in other words, whether a class of individuals whose claims were based on essentially identical law and facts actually existed. This determination process is called "class certification." Once the courts certify the class, the courts then adjudicate the claims of one class member and apply that judgment to the claims of the rest of the class.

What the drafters of the American class action rule failed to appreciate – and what plaintiffs' attorneys quickly realized – was that the class action procedure could easily be abused. This abuse occurs under the American system because once a class is certified, everyone who meets the class definition is automatically included as a class member unless they take affirmative steps to exclude themselves from the class. Unless they "opt-out," they are bound by the decisions in the case. The downside of this process is that few class members understand their legal rights – oftentimes members do not even know they are in the class – and therefore few actually opt-out. The result is a dramatic increase in the defendants' legal exposure because of the sheer number of plaintiffs included in the class.

Simply put, class actions permit the aggregation of sometimes millions of claims in a single proceeding. A company facing a lawsuit where a class has been certified is placed in a real dilemma. Even if it is very likely to succeed on the merits of the case, the loss of such a class action lawsuit will likely put the company out of business. So, once a class action is certified, many corporate defendants choose to settle an essentially meritless claim rather than run the small risk of a catastrophic judgment and trying to correct the misjudgment through the normal appellate process. This creates an incentive for plaintiffs' attorneys to file large-scale class actions, since doing so offers the possibility of a quick reward.

This is precisely what happened in the United States. Plaintiffs' attorneys brought all sorts of class action lawsuits, most of which were comprised up of individuals whose claims were not factually or legally similar, and were certified by judges who took a very liberal view as to how to apply certification rules in those cases. Class actions sprung up in various areas of the law, such as products liability, that were far from what the original drafters of the class action rule intended.

Combine this trend with other aspects of the American legal system such as contingency fees that encourage litigation, and virtually unlimited evidentiary discovery procedures, and you have a system that was ripe for abuse. There is virtually nothing preventing plaintiffs' attorneys from filing class actions. Instead, we have a system that encourages speculative litigation. In fact, the American class action system has turned into a litigation "business" designed to squeeze money out of companies whether or not those companies have really done anything wrong.

So, why should you care about the American class action experience? Because, as you begin to examine the pros and cons of the class action proposal offered by President Chirac, I think the American experience should be relevant. Although I would not presume to suggest that I have a better sense than you on whether this proposal has merit within the French legal system, I do think that our experience in America with class actions is instructive.

I am certain that President Chirac had good intentions in making this proposal. I do find it interesting, however, that Mr. Chirac has decided to pick this particular aspect of American culture to emulate – especially considering the fact that it will require a distinct shift in the French legal system.

I am also sure that in the weeks ahead, you will be hearing from plaintiffs' lawyers in the United States saying that adopting a class action rule is the right thing to do. But the reason they are saying that is not because they want French consumers to have a new litigation tool in French courts. They want to be able to represent French citizens in class actions in the United States.

You may find it interesting to know that right now, U.S. courts are often reluctant to hear class actions brought on behalf of citizens of foreign countries – particularly when the claimants' home countries do not use the class action device, and may not recognize class action judgments entered by U.S. courts. Thus, ironically, if France adopts a class action rule, the main result may be that U.S. courts increasingly will be willing to adjudicate claims brought by American lawyers on behalf of entire classes of French citizens. For that reason alone, my most fundamental piece of advice about the possibility of establishing class actions in France would be quite simple – don't do it.

If France decides, as President Chirac has suggested, that it needs to embrace this litigation concept, there are two over-arching pieces of advice that I would offer. First, if you adopt the class action rule, make sure that it is narrowly drafted. The history of the American class action experience is one of unintended consequences. And because class actions permit the aggregation of thousands or even millions of claims, those unintended consequences can be very significant. For that reason, take care to ensure that any class action rules are specifically tailored to the problems you wish to address.

Second, do not enact a class action rule if your reason for doing so is a belief that the availability of the rule will somehow supplement the government's ability to protect consumers. Indeed, from what I gather, this is the reason President Chirac has proposed adopting the class action rule in the first place. In the U.S., however, it has been our experience that plaintiffs' attorneys rarely file cases that serve a pressing public need. Instead, they generally file those class actions that are most likely to be successful with the least amount of work – namely those that are derivative of pre-existing government investigations. A recurring pattern in the United States is for plaintiffs' attorneys to wait until a government agency has made substantial progress or even concluded an investigation, and then sue the investigation's target even if the government has decided that the defendant did no wrong. The reason why plaintiffs' attorneys adopt this approach is simple – it's easier and more profitable.

To be sure, some of differences between the French and American legal systems may mitigate the extent to which a French class action rule can be abused. Most significantly, the fact that current French law does not provide for contingency or success fees, and that French courts may require the loser to pay has the potential to make French class actions far less profitable for plaintiffs' attorneys than American ones. Also, the fact that jury trials are not applicable to civil and commercial matters, means that unfounded lawsuits can not be brought as easily in French courts. In addition, the rules of evidence-gathering under French law are not based on discovery, which tends to reduce the chance of frivolous lawsuits from being filed without sufficient grounds. All of these may indeed have a positive impact on any French class action rule that is adopted.

It is also important to note, however, that if France decides to import American-style class actions, this new rule may not be the only American legal doctrine that ultimately enters the French legal system. I would not be at all surprised to see an eventual push for France to import other parts of American legal culture such as contingency fees and liberalized discovery rules, in order to maximize the impact of the newly-adopted class action rules.

In conclusion, let me leave you with this thought. The individuals who created the class action rule in the United States thought that they were creating a mechanism that would improve efficiency in the American legal system and further the common good. However, it is now clear, forty years later, that they dramatically underestimated the potential for class action abuse.

As you consider whether to adopt a class action rule and what form that rule should take, be mindful of the American experience. There is an old adage in the U.S. that says to be careful what you ask for because you may actually end up getting it. Good intentions only go so far, and if the French class action experience mirrors the American one, it will be French consumers and French businesses who suffer.

Thank you.