There have been few more powerful forces acting recently on the litigation environment around the world than third-party litigation financing. The recent rise of litigation funding, often accompanied by the active involvement of U.S. law firms, is changing the face of litigation in numerous countries. The collective action to be filed against MasterCard later this summer in the U.K. by U.S. law firm Quinn Emanuel, in an initiative being financed by Chicago-based litigation funding firm Gerchen Keller Capital LLC, is the latest and highest profile example of this trends. Indeed, the anticipated MasterCard action in some ways reflects the coming together of many of the important global litigation trends, as discussed below. The Quinn Emanuel law firm’s July 2016 press release about the planned lawsuit can be found here. Julie Triedman’s July 6, 2016 American Lawyer article entitled “Quinn Emanuel, Litigation Funder Team Up for Landmark $25B MasterCard Fight” can be found here.
The planned case against MasterCard arises out of the November 2014 ruling of Europe’s top court, the European Court of Justice, in which the court dismissed the appeal of MasterCard and related entities. The dismissal of the appeal left standing the General Court of the European Union’s determination that MasterCard had used its predominant position in the consumer credit card market to extract excess “interchange fee” from cardholders (costs imposed on retail businesses in order to be able to accept the credit cards and have their transactions processed; the fees are incorporated into the price consumers pay for goods and services).
In a separate development, in 2015, the U.K. Parliament enacted The Consumer Rights Act of 2015, which represented a comprehensive overhaul of the U.K.’s consumer protection and unfair trade practices laws. Among many other changes, the Act introduced an “opt-out” collective action mechanism. In particular, the Act broadens the jurisdiction of the Competition Appeal Tribunal, including the introduction of procedures for the tribunal to hear damages claims on an “opt-out” collective action basis. The Act also includes provisions for collective settlements and collective redress schemes. Of perhaps the greatest significance for the looming MasterCard action, the Act allows for the collective consumer actions on both a standalone or on a “follow on” basis.
The Anticipated MasterCard Action
In its press release, the Quinn Emanuel firm announced its intent to file an action on behalf of consumers with the Competition Appeal Tribunal on a follow-on basis, in reliance on the prior judgment of the European Court of Justice. The press release notes that the credit card companies fees have “already been found to be illegal by the Commission,” as a result of which the consumers “need only prove the damage consumers suffered as a result of MasterCard’s anticompetitive behavior.” The total damages, the press release asserts, “may be many billions and as much as £19 billion” (in post-Brexit terms, that would be about $24.7 billion).
The press release asserts that the anticipated MasterCard action, which will be filed later this summer, “is the first UK-wide consumer action under the new regime and by far the largest claim of any kind ever brought in UK history.” The press release also helpfully notes that the recent Brexit vote will not affect consumers’ right to pursue the action against MasterCard, as the prior decisions of the EU courts will remain binding on UK courts.
According to the press release, the class representative for the consumer class is to be Walter Merricks, who previously served as Chief Financial Services Ombudsman. Merricks has instructed the Quinn Emanuel firm, with several additional London barristers (“leading competition silks”) also instructed, as they say in the U.K.
The press release also notes that funds affiliated with Gerchen Keller Capital, whom the press release describes as “the world’s largest litigation funder,” is providing up to £40 million in litigation financing. In her American Lawyer, Julie Triedman states that the MasterCard action will represent the litigation funding firm’s largest non-U.S. litigation.
This development represents the culmination of virtually every important trend in the global litigation environment: it represents the increasingly important rise of collective action litigation outside the U.S., often based on important recent changes in local laws; it involves the critical element of litigation financing, which is both supporting the litigation and facilitating the innovative use of recent changes in the law; and it represents an initiative being driven by U.S.-based law firms.
First, with respect to the changes in the law, it is important to note that a number of countries have in the past several years have introduced changes that facilitate the use of collective action procedures for redress of various kinds of grievances. To cite but one example, the use of the Dutch Collective Settlement Procedures (which procedures were instituted only in 2005) has proven to be an effective tool at least in some instances for collective shareholder action. In India, the Companies Act of 2013 introduced the concept of “specialized class actions” into the Indian legal regime. In 2015, legal changes in Thailand introduced class action procedures. Numerous other examples of these kinds of changes abound, in many different countries; while each country’s changes has its own unique flavor, the fact is that statutory and other legal changes have made collective action procedures an increasingly common part of many country’s legal procedures.
Second, as I have noted elsewhere, many of the innovative uses of these new mechanisms is being driven by the availability of third-party litigation financing. The importance of litigation funding in Canada and Australia, where there is a longer-track record of third-party litigation financing, is well established. More recently, litigation financing has been instrumental in the pursuit of collective actions in connection with such high profile scandals as Petrobras, Tesco, Volkswagen, and Saipem. As Julie Triedman wrote in her American Lawyer article, the anticipated MasterCard action represents “the latest sign that commercial litigation financing is shaping global litigation.”
Third, a key drive in this process is the initiative of U.S.-based plaintiffs’ law firms, often in collaboration with litigation funding firms. The Quinn Emanuel law firm’s involvement in the MasterCard litigation is just the most recent example. Indeed, the Quinn Emanuel law firm is also involving in pursuing a German investor claim against Volkswagen, in an initiative in which Australian funder IMF Bentham’s European arm is providing financing. Similarly, the leading U.S. plaintiff firm Bernstein Litowitz (which is also the lead class counsel in the U.S-based securities litigation) has initiated an action in the Netherlands under the Dutch Collective Settlement procedures, on behalf of VW investors who are shut out of the U.S. class action lawsuit.
Indeed, other U.S.-based law firms, in conjunction with litigation financing firms, had, even before the recent MasterCard initiative, taken the lead in preparing to pursue follow-on collective competition claims in Europe. As discussed here, in October 2015, the litigation funding firm Burford Capital and the plaintiffs’ competition law firm Hausfield issued a joint press release (here) in which the two firms announced their entry into a €30 million agreement to fund claims in Germany and to allow the law firm to open a Berlin office. The move to open the Berlin office was driven by the rising number of competition (antitrust) claims in Germany and in anticipation on increased competition litigation based on the EU’s adoption of the European Directive on Competition Damages Actions (here).
The rise of collective actions outside the U.S. is now sufficiently advanced that serious questions are being raised about which jurisdiction might emerge as the next preferred forum for collective action litigation. At a minimum, I think the massive $1.3 billion Fortis settlement earlier this year under the Dutch Collective Action procedures is a watershed event, establishing beyond question not only that collective actions outside the U.S. are no longer an afterthought, but also demonstrating that the rise of collective actions outside the U.S. is likely to be one of the most important trends in the global litigation environment in the months and years ahead.
As if to underscore how important the rise of collective action litigation is, the Quinn Emanuel firm has now partnered with the Gerchen Keller firm to pursue the MasterCard action. This high profile case will undoubtedly draw attention to the availability of these kinds of collective relief procedures, and perhaps encourage other claimants, particularly if the MasterCard action results in a substantial recovery.
For readers of this blog, it is important to note that the procedures on which the claimants are relying are available only for consumer actions. The Consumer Rights Act of 2015 does not have any provisions introducing “opt out” collective action procedures in the U.K. However, the Act does represent an evolutionary development as part of the larger movement toward the availability of collective action procedures. Among the many possibilities down the road is the chance that as the collective action procedures of the type adopted in the Consumer Rights Act of 2015 become more commonplace and more accepted, that aggrieved parties will lobby for the availability of similar redress procedures in other contexts.
All of which makes me think that the rise of collective action litigation outside the U.S., driven by litigation financing and often initiated by U.S.-based law firms, may represent the single most important development in the global litigation environment today.
Special thanks to the several readers who sent me links and clippings about the MasterCard lawsuit.