The parties in the SCOR Holding (Switzerland) AG class action securities litigation seem to have devised a “global” settlement strategy to resolve the problems arising from the cross-border distribution of would-be class members.
First, some background. The lawsuit relates to alleged misrepresentations and omissions purportedly made by SCOR Holding’s predecessor in interest, Converium. Converium was domiciled outside the U.S .Its shares traded on the Swiss stock exchange, and its American Depositary Shares (ADS) traded on the NYSE.
In a March 6, 2008 order (here) in the SCOR Holding securities lawsuit, Judge Denise Cote had partially granted and partially denied the motion for class certification, as a result of which she certified a class consisting of U.S residents who had purchased Converium shares on the Swiss exchange, and any person who purchased Converium ADS’s on the NYSE. Excluded from the class were Non-U.S. residents who purchased Converium shares on the Swiss exchange.
The persons excluded from the class represent so-called “f-cubed” litigants – that is foreign shareholders of a foreign-domiciled company bought their shares on foreign exchanges. As I have discussed in prior posts (most recently here), courts have struggled with their response to the presence of “f-cubed” litigants, which can involve complicated issues at the lead plaintiff stage (refer here) and at the motion to dismiss stage (refer here), as well as at the class certification stage, as the SCOR Holding case demonstrates.
But as Adam Savett noted here in a post on his Securities Litigation Watch blog (here) discussing the SCOR Holding class certification decision, the exclusion of the “f-cubed litigants” does raise the problem of how those erstwhile class members can seek compensation for their alleged injuries. As Savett discussed in a prior post on his blog (here), one possibility is that the excluded class members might launch a host of individual lawsuits, as Savett shows to be what happened in the Vivendi case.
The litigants in the SCOR Holdings case seem to have adopted a two-pronged approach to try to head the castoff foreign litigant problem off at the pass, in a settlement that might truly be described as “global.” At least, that certainly appears to the parties’ intent.
As discussed in a May 7, 2008 press release from the SCOR parent company (here), the SCOR Holding securities litigation has been settled through a two-part process. As stated in the press release, “SCOR reached an agreement to settle the claims of the certified class before the US court and the claims of non-US purchasers of Converium securities in a proceeding in the Netherlands for an aggregate amount of EUR 74 million (pre tax and before D&O recoveries).” A May 7, 2008 Business Insurance article describing the settlement can be found here. (74 mm euros is roughly $114.5 mm).
The description of the two-part settlement does not explain what portion of the aggregate total of 74 mm euros was allocable to which portion of the two separate proceedings. Nor does the press release elaborate on the Netherlands proceeding. Presumably the proceeding is similar to that employed in the much-discussed Royal Dutch Shell settlement. For detailed background on the $352.6 mm Royal Dutch Shell settlement, refer to the With Vigour and Zeal blog here and here.
The SCOR Holding litigants certainly deserve points for a creative way of avoiding the problems that arose in the Vivendi litigation with the proliferation of individual actions. They also seem to have come up with an alternative way of addressing the concerns of excluded class members desirous of obtaining relief of the kind available to U.S. resident investors.
The parties’ resort to the Netherlands proceeding does raise a number of interesting questions. One of these questions first arose at the time of the Royal Dutch Shell settlement, which is whether other litigants might try to avail themselves of the Netherlands procedures. The SCOR Holding settlement suggests that the answer is yes, and that the Netherlands procedures potentially could become an avenue for non-U.S. litigants to seek redress. Whether these procedures would be utilized without a prior U.S. based lawsuit still remains to be seen.
Another question is whether other litigants will seek to use the Netherlands procedures as part of a similar two-pronged strategy to try to achieve a settlement that resolves both U.S. and Non-U.S. investors’ claims. The extent to which the SCOR Holding settlement truly is successful in effecting a “global” settlement will clearly have some impact on whether other litigants might try to same approach. The limited information available at this point does not reveal on whose behalf the Netherlands procedure was going forward and how comprehensive the Netherlands settlement will be towards resolving all of the non-U.S. investors’ claims. To the extent the SCOR Holdings litigants’ two-pronged settlement achieves global peace, the settlement could well attract the interest and attention of litigants in other proceedings that also involve non-U.S. investors.
One final attraction of the approach employed in the SCOR Holdings settlement (and I suspect this attraction had something to do with how the approach came about) is that the two-pronged settlement enabled the plaintiffs’ counsel to corral together a larger group of aggrieved investors, which clearly would have some appeal to plaintiffs’ counsel who would not wish to litigants’ interests excluded or straying away into unrelated processes that would diminish the aggregate size of the investor interests on whose behalf the counsel can try to negotiate an aggregate settlement.
Auction Rate Securities Overview: Readers interested in a thorough background regarding auction rate securities and the events that triggered the current round of auction rate securities litigation will want to review the May 6, 2008 publication by NERA Economic Consulting entitled “Auction- Rate Securities: Bidder’s Remorse?”