On July 13, 2018, the Amsterdam Court of Appeals finally approved the €1.3 billion ($1.5 billion) settlement of a series of shareholder claims against Fortis in the wake of the global financial crisis. The settlement, which had first been announced in March 2016 by Ageas, Fortis’s successor in interest, faced a number of judicial objections and concerns, resulting in changes to the settlement as originally proposed. According to a July 27, 2018 Law 360 article by Jonathan Richman of the Proskauer law firm and Ianika Tzankova of Tilburg University (here), the court’s recent approval “again shows” that the Dutch settlement procedure “remains a viable settlement vehicle for companies wishing to resolve transnational problems on a classwide, opt-out basis.” On the other hand, claimants’ attorneys have questioned whether the court’s rulings on class distribution and attorneys’ fees could discourage institutional investors from seeking to use the Dutch settlement procedures.
The Amsterdam court’s July 13, 2018 order (in Dutch) can be found here. An unofficial English translation of the court’s order can be found here. The parties’ Second Amended and Restated Settlement Agreement dated April 13, 2018, which the court approved in its July 13 order, can be found here.
Ageas’s July 13, 2018 press release announcing the court’s approval can be found here. A July 13, 2018 press release from the Grant & Eisenhofer law firm, which represented the foundation Stichting Investor Claims Against Fortis (SICAF) along with the Kessler, Topaz, Meltzer, & Check and DRRT law firms, can be found here. The Kessler Topaz law firm’s July 17, 2018 press release can be found here. The DRRT law firm’s July 17 press release can be found here.
Background Regarding Fortis
Prior to the financial crisis, Fortis was a global banking and financial services company based in Belgium. Fortis participated in a consortium of banks (including RBS and Banco Santander) in acquiring ABM AMRO, which was at the time the largest-ever bank acquisition. The transaction depleted Fortis’s balance sheet just as the financial crisis began to emerge.
On September 29, 2008, the governments of Netherlands, Belgium and Luxembourg agreed to bail out Fortis, but only if it were to sell its troubled stake in ABN AMRO. A September 30, 2008 Wall Street Journal article about the action of the three governments, and the role of the ABN AMRO transaction, can be found here.
On October 4, 2008, the Dutch government took over the company’s operations for 16.8 billion Euros ($23 billion). An October 6, 2008 Wall Street Journal article describing the government takeover, including the sale of Fortis banking and insurance assets to BNP Paribas, can be found here.
The U.S. Securities Class Action
As discussed here, on October 22, 2008, Fortis shareholders filed a securities class action lawsuit against Fortis, certain of its directors and officers, and its offering underwriters in the Southern District of New York, seeking damages based on alleged violations of the U.S. securities laws. In their amended complaint, the plaintiffs alleged that the defendants misrepresented the value of its collateralized debt obligations; the extent to which its assets were held as subprime-related mortgage backed securities; and the extent to which its ill-fated decision to acquire ABN-AMRO had compromised the company’s solvency.
In a February 2010 decision (discussed here), then-District Judge Denny Chin entered an order, applying the then-applicable jurisdictional standards under the Second Circuit’s opinion in the Morrison case, granting with prejudice the defendants’ motion to dismiss.
The Shareholder Foundation Actions
As discussed here, in a January 10, 2011 press release (here), two U.S. securities law firms announced that they had filed an action in Utrecht Civil Court on behalf of a specially formed foundation, Stichting Investor Claims Against Fortis. An English translation of the lawsuit can be found here. The lawsuit action was filed against Ageas NV/BV, as Fortis is now known, certain of its directors and officers, and its offering underwriters.
A separate Dutch shareholder foundation, Stichting FortisEffect also was organized on behalf of Fortis shareholders (as discussed here). In addition, the Dutch shareholder group VEB also organized an effort in the Netherlands on behalf of Fortis shareholders (refer here). Shareholder rights group Deminor separately filed an action against Fortis and its directors and officers in the Commercial Court in Beligium (as discussed here).
The Dutch Collective Settlement Procedure
By way of background with respect to the Netherlands class settlement 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.
The procedures described under the Act have been used in the past in connection with several high profile collective investor actions. In the first and (until the Fortis settlement) highest-profile use of the Dutch procedures, on May 29, 2009, the Amsterdam Court of Appeals approved the $381 Royal Dutch Shell settlement (as discussed here). In addition, as described here, two groups acting on behalf of the non-U.S. investors in Comverium Holding entered settlement agreements with Scor and Zurich. The total amount of the two settlements was $58.4 million. As discussed here, on January 12, 2012, the Amsterdam Court of Appeals held the Comverium settlements to be binding, meaning that it is presumptively enforceable throughout the EU.
The Fortis Settlement and Subsequent Procedures
In a March 14, 2016 press release (here), Ageas announced the settlement of the Fortis shareholder claims pursuant to the Dutch collective settlement procedures, including settlement with the various Dutch shareholder foundations and encompassing the separate proceeding in Belgium. The parties submitted the agreement to the Amsterdam Court of Appeals in accordance with the WCAM procedures and jointly requested the Court to declare the settlement to be binding.
As it turned out, the effort to have the settlement declared binding hit a number of obstacles. One set of issues that arose with the court related to the differential in the proposed settlement of the recoveries to be allocated between active claimants and nonactive claimants. As originally proposed, the active claimants were to receive a larger portion of the settlement than the nonactive claimants. In a June 2017 decision (here, in Dutch), the Amsterdam Court of Appeals rejected this proposed allocation, saying that while there could be differences in recoveries based on substantive differences in various proposed class members claims, the differences in compensation could not depend solely on whether or not a claimant was active. The court also indicated that it would not object to incentive awards as long as the awards were related to the claimants’ reasonable costs and expenses. The court allowed the parties leave to file further submissions detailing the parties’ funding arrangements, fees, and costs. This further phase presented the parties with a number of challenges, as the various claimant groups were organized in differing structures, with different funding arrangements.
As a result of further negotiations following the Court’s June 2017 hearing, the parties amended their initial settlement agreement. Among other things, Ageas agreed to increase the settlement amount by an additional €100 million (to the final amount of €1.3 billion). The amended agreement provided that active and inactive claimants would receive the same amount, with active claimants to be entitled to receive an additional 25% to cover their costs and expenses. Class members will now be given notice of the settlement and an opportunity to opt out of the settlement if they wish to do so.
Concerns About the Final Settlement
The Court of Appeals most recent decision involved a number of key features, as well detailed in the Law 360 article to which I linked above. The Courts various findings with respect to the division of the settlement proceeds between the active and inactive claimants and with respect to the claimants’ fee recoveries have drawn particular attention.
In a very interesting July 16, 2018 post on her On the Case blog (here), Alison Frankel reviews the concerns that some of the plaintiffs’ lawyers involved with the settlement have raised concerns about the court’s final ruling. Her article quotes attorneys from both the Grant & Eisenhofer firm and the Kessler Topaz firm as saying that the revised terms will “actually discourage institutional investors from using the Dutch system.” The Court’s insistence between on equal treatment between active and inactive claimants, according to the commentators, effectively tells institutional investors not to bother with the expense of joining a stichting, because they won’t be rewarded for the effort with a premium recovery, so they might as well avoid the cost and let someone else pay.
The Court’s decision also raises questions about the claimants’ eventual recovery of their fees for funders and lawyers; while the court did not eliminate the recovery of fees, the court made it clear that negotiated fees, even those to which a defendant has agreed, will be reviewed by the court and evaluated as part of the court’s overall reasonableness assessment. As a result of these concerns, the commentators suggested, fewer big money investors will sign up for stichtings, meaning that the representative group would be negotiating from a weaker position.
On the other hand, Frankel also quotes Jaroen van Kwawegen from the Bernstein Litowitz firm as saying that the Amsterdam Court in the Fortis settlement didn’t change the stichting lawyers’ ability to ask for fees based on the global recovery, just demanded that the fee arrangements be disclosed. He also disputed that institutional investors would actually be deterred from being actively involved in recovery efforts; he expects that institutional investors will join legitimate settlement stichtings to have a voice in the negotiations with defendants, not merely because of the prospect of fees based on the collective recovery.
Regardless of these questions about the Court’s dispositions with respect to allocation of recoveries and fees, the Dutch WCAM procedures present an attractive alternative for parties seeking to achieve a transnational resolution of claims on a classwide opt-out basis. The U.S. is the only other jurisdiction whose procedures allow for resolution of class claims on an opt-out basis. However, because of the U.S. Supreme Court’s Morrison decision and its limitation on the extraterritorial reach of the U.S. securities laws, the U.S. procedures will not be a viable alternative in situation arising outside the U.S.
While there are procedures in other countries (for example, the U.K. and Germany) allowing for the resolution of claims on a group, mass, or class basis, these procedures operate on an opt-in basis. As the Law 360 article to which I linked above notes, “in many respects, the WCAM is still the only game in town for a defendant (or prospective defendant) that seeks total peace.”
These aspects of the Dutch procedures were are already sufficiently attractive and well known that investor claimants seeking to pursue claims against a variety of companies from outside the Netherlands have formed shareholder foundations to seek to try to utilize the Dutch procedures to achieve a global collective investor settlement. Among other companies whose shareholders have initiated efforts to try to pursue collective settlements under the Dutch WCAM procedures are VW (about which refer here); Tesco (refer here); and Petrobras (refer here). The Fortis settlement will undoubtedly encourage shareholder claimants seeking to pursue claims against other companies to try to use the Dutch procedures as well.
Indeed, these attributes of the Dutch system and its potential attractiveness to prospective claimants has raised concerns in some quarters about the possibility of “forum shopping” and, even more pejoratively, “collective redress tourism.” Whether the Dutch courts will indeed become a preferred forum for the resolution of transnational claims remains to be seen. However, it is true that the final resolution of the Fortis claims does suggest that the Dutch procedures do represent a viable procedural vehicle for the resolution of claims on an opt-out basis.
Readers of this blog may be interested in a particular detail of the final Fortis settlement, having to do with the contribution toward the settlement of Fortis’s D&O insurers. At the time that Ageas announced the initial settlement back in March 2016, it also released an accompanying press release regarding the insurance arrangements. The accompanying press release states that Ageas had reached an agreement with the insurers that had issued D&O insurance policies to Fortis during the period 2007-2008, including two successive D&O insurance policies, as well as a separate public offering of securities insurance (“POSI) policy issued to Fortis in connection with a 2007 public rights issue. The amount of the insurance settlement was stated in the March 2016 press release to be €290 million, which represented about 24 percent of the initial amount of the proposed settlement.
The press releases and other documentation surrounding the final settlement that was ultimately approved by the court do not provide any further detailed information about the original insurance settlement or the amount of the insurer’s contribution toward the final settlement amount. The Second Amended and Restated Settlement Agreement (here) does state in paragraph (G) of the Background section of the agreement (on page 6) that the Settlement Amount “will be funded by Ageas and by the proceeds from certain insurance policies for the benefit of its (former) directors and officers. The Settlement Amount less such insurance proceeds will be paid by Ageas in order to settle all claims and to be released of any potential liability.” The agreement does not specify the amount of the insurers’ contribution, or whether the original €290 million the insurers agreed to pay has been eroded in the interim by subsequent attorneys’ fees. In any event, it is clear that the settlement agreement will be funded in part by the payment of the proceeds of Fortis’s D&O insurance policies.
The last note I want to make about this settlement is the one on which most people would focus, which is the sheer settlement’s size. This settlement is the largest shareholder collective action settlement ever in Europe, or indeed anywhere outside the U.S. A settlement of this value in the U.S. would be among the ten largest ever among U.S. securities class action lawsuits settlements. The arrival of collective shareholder settlements of this size outside the U.S. is unprecedented, and underscores the extent to which things have changed, a point reinforced by the massive £1 billion settlement in the U.K. of the collective RBS investor claims. The possibility of collective investor claims of this magnitude outside the U.S. represents a significant magnification of the potential liability exposures of companies and their directors, as well as of their insurers.