vw2Several years ago, when investors’ representatives used class claims settlement procedures available under Netherlands law to reach securities claim settlements involving Royal Dutch Shell (about which refer here) and Converium (about which refer here), there was a great deal of speculation whether the Dutch procedures could become an important vehicle for aggrieved investors to recover damages for alleged securities law violations.


This speculation was particularly magnified after the Amsterdam Court of Appeal, in connection with the Converium settlement, held that the Dutch settlement procedures could be used to resolve securities claims of non-Dutch investors against a non-Dutch company, in the form of judgment that is enforceable throughout the EU and among other European countries. Though many of these kinds of investor settlements were anticipated, the onslaught of securities settlements using the Dutch procedures never really did materialize.


However, a new initiative being organized in The Netherlands on behalf of Volkswagen securities holders whose investment interests were harmed as a result of the automobile company’s emissions-related scandal may represent the most significant effort since the Converium case to try to use the Netherlands procedures on behalf of an aggrieved class of investors. This initiative on behalf of Volkswagen’s securityholders has a number of interesting features. It also raises a number of potentially complicated questions about jurisdiction, priority, potential preemption, and international comity.


First, by way of background with respect to the Netherlands procedures. The Dutch procedures are derived from the Act on the Collective Settlement of Mass Claims, known in the Netherlands as the “WCAM.” The Act, which became effective in 2005, allows parties to a settlement agreement to request that a Dutch court declare the settlement agreement binding. The agreement must be concluded between, on the one hand, one or more potentially liable parties, and, and on the other hand, a foundation or association representing persons on whose behalf the settlement agreement was negotiated. If the Court does declare the settlement agreement binding, the agreement then binds everyone covered by its terms, unless an affected person decides to opt out in writing within a certain time period after the binding declaration. A summary of the Act, its procedures, its binding effect, and its use in connection with the settlement of international claims, can be found here.


According to a February 15, 2016 press release (here), a foundation has now been formed to represent Volkswagen investors and to seek a settlement with Volkswagen on behalf of the investors. The foundation, known, according to its formation documents, is known as Stichting Volkswagen Investor Settlement (Volkswagen Investor Settlement Foundation), and it was formed, according to the press release “to recover losses on Volkswagen securities that were publicly traded outside the United States.” Specifically, the foundation purports to represent “investors who purchased of held VW ordinary shares, preference shares, bonds or other publicly traded securities during the period April 23, 2008 to January 4, 2016 and who suffered losses on those securities due to the emissions scandal.”


The press release also states that the foundation is “committed and focused on securing a favorable settlement with VW and obtain Court approval for settlements covering all publicly traded securities. The press release “recommends” that institutional investors join the foundation by signing a participation agreement. The press release stresses that by participating, investors “protect their interest and demonstrate their support for the settlement negotiations between the Foundation and VW, without and costs, obligations or risks.”


Further information about the foundation, its formation, governance, and objectives, can be found on the foundation’s website, here.


Interestingly, the foundation has retained as its U.S. Counsel the Bernstein Litowitz law firm, which has also been appointed as lead counsel by the U.S. Court presiding over the separate lawsuit previously filed in the U.S. under U.S. securities laws on behalf of investors who purchased VW ADRs in the U.S. The foundation’s website discloses that the Bernstein Litowitz law firm is “providing the seed money and is financing the costs of the Foundation, including legal costs. Third-party financing is not anticipated.”


The instrumental involvement of the Bernstein Litowitz law firm in the foundation obviously has assured that the Dutch initiative is coordinated with the U.S. litigation. The description of the class of investors that the foundation purports to represent expressly excludes investors who purchased VW ADRs in the U.S. (that is, the investors on whose behalf the Bernstein Litowitz firm is acting in the U.S. securities class action lawsuit).


However, the U.S. securities class action lawsuit is not the only other investor lawsuit that has been filed against VW in connection with the emissions scandal. As I noted when I wrote about the initial filing of the U.S. lawsuit, there was also at the same time an initiative launched by VEB, a Dutch investor association, to assert a liability claim in Dutch court against VW, and on behalf of VW investors who purchased their VW securities in through an investment account in the Netherlands or through a Dutch bank or broker. The VEB action is described in its September 25, 2015 press release here.


In addition, as discussed here, according to its October 1, 2015 press release (here), Bentham Europe Limited announced that it is “coordinating a German shareholder action against Volkswagen AG.” In its press release, the firm announced that “it is in discussions with institutional investors worldwide to fund a shareholder action in Germany against Volkswagen.” The action, to be filed on behalf of shareholders who purchased shares in Volkswagen on German exchanges, will allege breaches of the German Securities Trading Act over an eight year period between 2007 and 2015.


There may well be other investor recovery initiatives pending as well, for all I know. But even if these other proceedings are the only ones, the present the looming possibility of competing court procedures. While the claims, the legal theories, and the groups of persons represented are in each case slightly different, there would appear to be some unavoidable points of overlap between and among the various initiatives.


The investors that the VEB association is purporting to represent are more limited than the investors that the recently formed investor foundation is purporting to represent. The VEB class is restricted to VW investors with investment accounts or a broker in the Netherlands. The Dutch Settlement Foundation, is, by contrast, purporting to represent a worldwide class. The class the Foundation purports to represent is more comprehensive, and it encompasses the investors that the VEB association purports to represent. Moreover, the two representative organizations appear to be proceeding on different bases; the VEB association described its initiative as a “liability claim.” By contrast, the foundation does not appear to intend to file a claim; it apparently intends only to seek to try to negotiate a settlement on behalf of investors.


There may be even more of an overlap (and potential conflict) between the Dutch Shareholder Foundation’s initiative and the German shareholder action initiative. They both seek to represent a worldwide class of VW investors.


These various cases may present less of a conflict than immediately meets the eye. The German action apparently is to be initiated on an “opt in” basis, whereas the Dutch initiative is to be pursued on an “opt-out” basis. Investors that opt-in to the German action can opt-out of any Dutch settlement.


The apparently overlap between the VEB and the foundation action, both of which purportedly will be pursued in the Netherlands, could present something more of a conflict, as the two representative organizations purport to be acting on behalf of overlapping investor groups.


The existence of different proceedings in at four different countries also presents the possibility of competing and conflicting rulings and determinations. Given that courts in at least three different countries are involved, there are no legal mechanisms to ensure that the proceedings are coordinated, are not duplicative, and do not produce inefficiencies. (To be sure, the U.S. action and the Dutch foundation initiative will be coordinated because of the involvement of U.S. counsel for the foundation.)


The existence of these various proceedings also raises interesting challenges and questions for Volkswagen. Obviously, the whole idea of the Dutch foundation initiative is for the foundation to enter into settlement negotiations on behalf a global class of investors. The opportunity to achieve a global settlement might, at least as a theoretical matter, be appealing to Volkswagen. Indeed, one of the reasons for the Dutch foundation’s PR push, and for its efforts to enlist investors through a participation agreement, is to try to present the foundation as a credible party with whom Volkswagen might choose to negotiate. However, the appeal of entering into settlement negotiations with the Dutch foundation clearly will be affected by the likelihood that the negotiation would in fact secure resolution and finality with all investors. The existence of the other actions at least potentially complicates the possibilities for resolution and finality.


In addition, for a German company, there is the added question about whether or not it would want to try to resolve investor claims in a Dutch forum. The automobile company may prefer to be in the courts in its home country. For that matter, there really is something decidedly odd about the proposition that claims against a German automobile manufacturer on behalf of investors who mostly bought their shares in the company on a German stock exchange should have their claims resolved under a Dutch procedure, in a Dutch court, through a process initiated by a Dutch foundation. Even though the court in the Converium case approved a settlement involving a non-Dutch company and on behalf of non-Dutch investors, the prospect for Dutch courts to operate as sort of a clearinghouse for European investor claims is a proposition that may still raise concerns for some.


Then there are the questions that may have to be tested, including questions about the enforceability of a Dutch judgment in the EU; in Europe but outside the EU; and outside Europe. Even though the court in Comverium recognized a global class, the claim preclusive attributes of a Dutch court’s judgment in these various other jurisdictions has yet to be fully tested.
In any event, at least for those of us on the sidelines, it will be interesting to watch these various initiatives unfold. At a minimum, it seems likely that the investor class action procedures are about to be fully exercised, presenting the possibility for important legal developments as the various parties pursue their respective initiatives.


Special thanks to a loyal reader for sending along links to the Foundation’s press release and to the Foundation’s website.


Bankia Offers to Make its Aggrieved IPO Investors Whole: Earlier this month, I noted (here) that a group of aggrieved investors who had suffered a loss as a result of their purchase of shares in the Spanish bank Bankia’s July 2011 IPO had filed a collective action against the company and certain of its directors and officers. The existence of the collective action raised the prospect of an onslaught of claims against the company by the many other retail investors who bought the company’s shares in the IPO.


However, in a February 17, 2016 press release (here), the company announced that it is going to “offer any retail investors who acquired shares during the bank’s IPO in 2011 the opportunity to quickly and easily recoup their investments, without having to meet any other condition and at no cost and without recourse to legal proceedings or out-of-court settlements.”


The bank is going to offer the retail investors the opportunity to obtain a full refund in exchange for the return of their shares. The bank will also pay a 1% interest rate for the period between the IPO and the date of the retail investor’s application to participate in the process.


As the press release notes, this process “will fully guarantee that all retail investors participating in the Bankia IPO will recoup 100% of their investment along with compensatory interest for the period elapsed. Funds will be recovered more quickly and the cost of and time spent on legal proceedings will be avoided or reduced.”


The bank has set aside 1.84 euros in order to fund the anticipated settlements.


With respect to the retail investors that have already filed lawsuits, these litigants will be required to sign an agreement with the bank withdrawing their claim. Any retail investors involved in legal or out-of-court proceedings that decide not to accept the offer “will have to continue with their claims, assuming the additional costs and time involved.”


That is one way to resolve an action with aggrieved investors.