Among the more interesting recent securities litigation developments outside the United States was the announcement earlier this month that institutional investors had reached a 11 billion yen ($92 million) settlement of shareholder lawsuits they had filed in Japan against Olympus. Among the many interesting details about the settlement was the involvement of global securities litigation firm DRRT in the Japanese litigation settlement. Following the settlement news, I reached out to Alexander Reus of DRRT to see if he would agree to participate in a Q&A for publication on this site, to which he agreed.
Alexander is the managing partner of DRRT. DRRT is an international law firm and litigation funder with offices in Miami and several other international locations specializing in representing institutional investors in shareholder litigation and loss recovery. DRRT has special expertise in the increasingly important non-U.S. jurisdiction and is handling over a dozen cases worldwide.
I would like to thank Alexander for his willingness to participate in this Q&A. The Q&A is set out below. My questions are in bold, and Alexander’s answers are in plain text.
The mechanisms for private securities and investor litigation are well-established in the United States (and Canada) but not nearly as well established outside of the U.S. – yet many of the cases in which your firm is involved have been filed in non-U.S. courts. How did this come about and what do you think the opportunity is for your firm? When your firm is involved in a case outside of the U.S., what is your firm’s role?
We have always focused on creating value for our clients and acting opportunistically in doing so. While the US / CAN class action system are well established and function well for anybody, even without being active, most non-U.S. systems do not know or accept class actions “opt-out style”. Hence, it is either “do nothing, get nothing” or “do something, in order to get the chance for a recovery”. Representing first mostly European institutions, it was logical and natural to also focus on European “class action alternatives”, and we have been pioneers in this field.
We identify a potential case, research the local laws and procedures, identify and qualify a local firm, evaluate the economic feasibility and then put together a legal and economic concept for the risk-free, funded representation of institutional investors. That involves a lot of hands on legal work both in the run-up to an actual filing, as well as the hand-holding of the local firm and the strategic guidance during the litigation. Of course, it also involves the funding of the litigation.
When your firm becomes involved in a case outside of the U.S., how does your firm go about selecting the cases in which it become involved, and what are the criteria for selection? Are there countries or jurisdictions that you prefer to avoid, and if so, why?
The jurisdiction must allow litigation funding and/or success fees, and have a legal and procedural framework which makes the handling of a case for 50-100 institutions possible. It cannot have too much economic risk from adverse costs or local lawyer or court fees, or must have some insurance mechanism to insure against the high economic risks. Also, such as China and Hong Kong, it cannot make litigation funding illegal and subject to criminal persecution.
Your firm was involved in the cases that were filed in Japan on behalf of nearly 100 investors relating to the Olympus accounting scandal and that recently settled for 11 billion yen ($92 million). How did your firm become involved in these cases and what was its role? What did that litigation involve and how was the settlement reached? What do you think is the significance of these cases and of the settlement?
It involved 2 related cases filed in 2012 and 2013 for two large groups, as well as another group of non-litigating clients who were included in a mediation. The groundbreaking moment in this litigation was the foresight of one of the senior lawyers within the law firm handling Olympus’ litigation matters to discuss possible mediation options and procedures with me, which resulted in an October 2013 tentative settlement. Nevertheless, it has been a challenge ever since to get the details and mechanics of the settlement worked out for over 16 months. Significant is the fact that a large settlement was reached BEFORE an actual court decision in Japan, which is something unheard of.
One of the biggest current scandals outside the U.S. involves the Brazilian oil company, Petrobras. There have been securities lawsuits filed against the company and its executives in the U.S. on behalf of investors who purchased their Petrobras securities on U.S. exchanges, but many more of the company’s shareholders purchased their shares on Brazilian exchanges and therefore can’t be a part of the U.S. securities litigation. Are there steps that can be taken on behalf of these investors who purchased their shares in Brazil? What are the features of the situation that might complicate efforts to pursue claims in Brazil on behalf of these other investors?
Yes, and we are on this case, just like we have been working on a similar, but smaller scale corruption case in Italy involving Saipem. We are not only filing lawsuits for our clients with significant exposure to US traded securities, but also preparing litigation in Brazil in the near future. Litigation in Brazil in this specific case, and as an interesting twist to what some companies would like to also implement in the U.S., will have to take place within an arbitration setting at the Market Arbitration Chamber of the BOVESPA, as dictated by Petrobras’ bylaws.
I know your firm was involved in the landmark Royal Dutch Shell settlement entered in the Netherlands courts using the procedure available under Dutch law for collective settlements the Dutch Collective Settlement of Mass Damages Claims Act, known as WCAM. At the time of the Royal Dutch Shell settlement many observers thought that the Netherlands courts might become the focus of global investor claims asserted in reliance on the Dutch collective settlement procedures. While there have been other settlements reached involving this procedure, the prediction that the Netherlands might become a magnet for investor claims has not really happened. Why do you think that is? Do you think it could still happen that the Netherlands courts could become a preferred forum for investor claims?
I always knew that the NL would not become the “European mecca” of class action securities litigation. However, what it can be and become is a very useful settlement place for willing parties to avoid European litigation. Suing in the NL still requires jurisdiction so it is not suitable for any lawsuits against any company.
What do you think the future may be for collective investor actions outside of the U.S.? Do you have any predictions for developments we can expect? Are there particular countries where you expect to see significant developments in the future?
Some countries are seriously considering implementing opt-.out class action systems, and the EU is also working on collective redress mechanisms. However, they can be 5-10 years out still. I believe that small investors will be left out while large investors can always “band” together and create institutional investor groups of 50-100 with a critical mass of damages to make a group action economically feasible. With more litigation funding available in England and the rest of Europe and with other countries accepting this notion as well, there will be more and more cases filed outside of the US. Don’t forget also the amount of cases being filed in Canada and Australia, where the opt out system exists but is not used, yet where a test case for opt outs is set to be ruled on this year.