Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Friday, October 28, 2016

Coffee on Entrepreneurial Litigation

John C. Coffee Jr. has posted The Globalization of Entrepreneurial Litigation: Law, Culture, and Incentives on SSRN with the following abstract:

Entrepreneurial litigation is litigation in which the plaintiff’s attorney functions as a risk-taking entrepreneur, financing, organizing, managing, and settling the litigation on behalf of numerous clients (who generally hold “negative value” claims), but with only modest oversight from the clients. Although well established in the United States (and to a lesser extent in Australia, Canada, and Israel), it has long been resisted in Europe, the U.K., and elsewhere, where local rules both preclude the opt-out class action, contingent fees, and jury trials in civil cases, and mandate a “loser pays” rule with respect to legal fees. Yet, despite these obstacles, entrepreneurial litigation appears now to be coming to both Europe and Japan, with large settlements having recently been struck in securities litigation (most notably $1.4 billion this year in the Fortis litigation). Perhaps surprisingly, the driving force leading this transition has been American plaintiff law firms, who do not litigate the action, but do organize it, using third party funding and litigation insurance as functional substitutes for the contingent fee and the American Rule on fee shifting.

Some have explained this phenomenon as a response to the U.S. Supreme Court’s decision in Morrison v. National Australia Bank Ltd., which barred U.S. courts from exercising extraterritorial jurisdiction over the federal securities laws, and thereby arguably encouraged other jurisdictions to compete for the cases that formerly were litigated in the U.S. Although the Morrison decision was a catalyst, this article rejects the claim that foreign jurisdictions are engaged in any competition for securities litigation, finding instead that defense counsel have found that they can sweep absent class members into a low cost settlement class action under The Netherland’s WCAM statute by discriminating between “active” and “non-active” class members.

This article examines these developments and the issues they pose for Europe and Japan. Ultimately, despite early successes, the long-term question becomes: How successful can legal entrepreneurs be when operating in a different and skeptical legal culture?

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