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By Qianwei Fu, Judith A. Zahid and José Umbert
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The great majority of private antitrust disputes are resolved through settlements. One of the key challenges for policymakers, practitioners, consumers and businesses is how to efficiently resolve cross-border price-fixing disputes given the lack of a single forum. Cartelists facing the prospect of U.S. and EU litigation for the same global conspiracies typically attempt to secure as broad of a release as possible. Even a well-crafted settlement with a coordinated series of negotiations, however, may not bring a defendant peace across both U.S. and EU jurisdictions. The scope of resolution is influenced heavily by the current state of laws on collective redress in different European jurisdictions and, in particular, the use of an opt-in rather than an opt-out rule.

The U.S. Opt-Out System

Wide-spreading price-fixing conspiracies inevitably affect a large number of individual and business purchasers. The class action mechanism ensures that large numbers of similarly situated individuals and businesses can enforce their rights efficiently. It is one of the most significant factors that incentivize private antitrust enforcement in the U.S.

When a class action based on common questions and efficiency is certified,[1] the court must notify class members that it will “exclude from the class any member who requests exclusion.”[2] Under the U.S. opt-out model, putative class members must formally opt out of the class if they do not want their legal rights adjudicated in the proceedings. If an absent class member does not opt out of the class, that class member will be bound by the outcome of the class action and will not be able to bring an independent claim later.

In other words, the result of the class action, whether favorable or unfavorable to the class, will have res judicata effect on all class members. A class member who does opt out has the option of independently advancing his or her interests on an individual basis, assuming that the value of the claim is large enough to justify the costs of initiating an independent lawsuit.

At the settlement stage, a court may refuse to approve unless the settlement gives a new opportunity to opt out.[3] This is entirely discretionary and no class member may insist on a second opt-out opportunity at settlement. The fact that terms of settlement changed from that contemplated during initial opt-out period does not require second opportunity to opt out, particularly where terms actually improved.[4] Moreover, class members do not have a right to condition their opt-out election upon court rulings over objections to proposed settlement[5] or pick and choose which elements of a class action to join and which to exclude themselves from.[6]

Absent specific circumstances, class members who have filed timely requests for exclusion from the class action are not entitled to participate in a settlement which is subsequently entered in the suit.[7] Likewise, there is no right to reenter the settlement class after a class member has properly opted out of the settlement.[8] Nor do class members who choose to opt out and preserve their right to litigate their claims independently have standing to appeal a later settlement agreement.[9]

In the U.S., a class can release only those claims that arise out of the identical factual predicate to the claims asserted in the settled action. To the extent foreign injury claims are outside the reach of U.S. antitrust law, a class settlement will not affect those foreign claims. Nevertheless, where parties act cooperatively, cross-border settlements disposing foreign claims, which would not otherwise fall under the U.S. antitrust law, can be successfully implemented.[10]

An opt-out that independently negotiates with defendants in U.S. litigation should be careful that any settlement preserves its ability to seek compensation in a non-U.S. jurisdiction, to the extent its foreign injury claims are outside the reach of U.S. antitrust law. Likewise, if a company is considering pursuing a claim in a non-U.S. jurisdiction, it should be mindful of the scope of any class releases in related U.S. litigation.

In reality, opt-outs in U.S. antitrust class actions are likely to be large corporations who have suffered significant financial loss. Since almost all class actions are litigated on a contingency basis, class members bear no litigation risk for remaining in the class. Thus a major advantage of an opt-out rule is to enable cases that otherwise would not have been brought, due to the small size of damage claims. It is the only and most effective device to compensate large numbers of antitrust victims in the U.S., particularly consumers and small- or medium-sized businesses.

Different Forms of Collective Redress in Europe

While European member states may have been skeptical about the U.S. opt-out style class action, some forms of collective redress schemes are gradually being introduced in Europe in response to the sharp increases in multiparty cases, in areas such as consumer protection. Yet the procedures allowing for collective redress vary greatly among member states.[11]

One form is the “group action,” where a number of identified claimants bring actions in one procedure. In contrast to the U.S. class action, claims for individually stated amounts are filed. Most group actions apply an opt-in procedure, which requires the explicit approval by the harmed consumer to be included in the procedure. A judgment or a settlement does not have a binding effect on individuals who do not participate in the proceedings.

Another recurring form is the “representative action,” which is brought by an ex ante authorized or representative body on behalf of a group of individuals, who are not themselves parties to the proceedings. A couple of states have also introduced so called “test case procedure” where one individual’s claim leads to a judgment that forms the basis for other claims with the same interest against the same defendant.

Across the 28 European member states, only four — Denmark, the Netherlands, Norway and Portugal — have some version of an opt-out approach on the books, often limited in scope. For example, in the Netherlands, one of the Europe’s hubs for private antitrust litigation, the opt-out model only applies to settlements. Consumer organizations can negotiate a settlement on behalf of all victims. If a settlement is reached and approved by the court, the settlement becomes binding upon all members of the group that are entitled compensation under the settlement unless group members elect to opt out within a specified period of time. If group members opt out, they are free to pursue individual actions.[12]

The lack of a harmonized legal framework across Europe makes it very difficult to resolve group claims in a multinational cartel context. Opt-in collective actions face difficulties in attracting sufficient participation, with victims who suffered small and widely dispersed damage — such as overcharges caused by a price-fixing conspiracy — having little incentives to participate. To add further complexity, Brussels I Regulation on jurisdiction is not adapted to the needs of collective redress and no consolidation procedure exists when there are parallel collective redress proceedings pending in different member states.[13]

To date, the Marine Hose settlement, announced in February of 2009, is the only settlement that can be fairly described as a limited global settlement for cartel claims worldwide. The settlement combines a traditional opt-out settlement class for direct purchasers in the U.S. and an opt-in contractual approach for direct and indirect purchasers located in the rest of the world who purchased marine hoses from Parker. Because the non-U.S. portion of the settlement was executed without judicial oversight, little public information is available to assess the effectiveness of its unique opt-in structure.

Outlook — A Road to Harmonization?

In an effort to harmonize the differing systems across member states, the European Commission recommended that all member states implement opt-in collective action regimes. On April 17, 2014, the European Parliament approved a new directive on antitrust damages actions, which removes some of the hurdles that had discouraged victims in EU countries from seeking compensation for competition infringement.[14] Since the new directive fails to introduce any collective redress procedures, it is difficult to predict whether the commission’s nonbinding recommendation will encourage the creation of a harmonized collective redress mechanism in the EU.

By contrast, the recent U.K. reforms introduce an opt-out collective action regime for competition law claims on behalf of both consumers and businesses. The new framework, if passed by the U.K. Parliament, would require the Competition Appeal Tribunal to certify whether an action should proceed on an opt-in or (for U.K.-domiciled claimants) opt-out basis. The U.K.’s proposed adoption of an opt-out system and its already developed procedural rules will continue to incentivize claimants to litigate damages claims in English courts.

Though the EU and U.K. reforms will bring positive changes for consumers and businesses that have suffered harm from infringement of competition law, a coherent EU-wide approach to bring collective claims in the member states is still lacking. For now, given the garden variety of regimes at the national level, European consumers and small- and medium-sized businesses that may have suffered damages from cartel activity are often left uncompensated.

Cartel victims with low-value claims have little incentive to sue or opt in to a collective action, because of the high litigation cost and the prospect of a relatively small recovery. For policymakers, if the objective is to ensure that as many antitrust victims as possible will be compensated for the harm they suffered, the choice of which procedural approach should be adopted — opt-in or opt-out — is fundamental.

Under the current state of EU law on collective action, a cartelist is more willing to engage in settlement negotiations when the purchases outside the United States at issue are substantial. For business purchasers of price-fixing products, litigating as a group of similarly-situated large purchasers not only offers the advantage of being able to pool litigation resources, it also facilitates early settlement discussions.

Despite the legal and practical obstacles to achieving a cross-border resolution in damages actions, an artfully structured settlement under the right circumstances may nonetheless provide a mechanism that effects collective redress for the largest possible number of cartel victims.

—By Qianwei Fu, Judith Zahid and José Umbert, Zelle Hofmann Voelbel & Mason LLP

Qianwei Fu is a senior associate and Judith Zahid and José Umbert are partners in Zelle's San Francisco office.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] Fed. R. Civ. P. 23(b)(3).

[2] Fed. R. Civ. P. 23(c)(2)(B)(v). In money damages class actions, due process requires at a minimum that an absent class member be provided with an opportunity to remove himself from the class by executing and returning an “opt out” or “request for exclusion” form to the court. Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 812 (1985).

[3] Fed. R. Civ. P. 23(e)(4). Cf. Class Plaintiffs v. City of Seattle, 955 F.2d 1268, 1289 (9th Cir. 1992) (Rule 23(e) does not require second opportunity to opt out at settlement stage).

[4] Denney v. Deutsche Bank Sec. Inc., 443 F.3d 253, 270-271 (2nd Cir. 2006).

[5] Olden v. LaFarge Corp., 472 F. Supp. 2d 922, 931 (E.D. Mich. 2007).

[6] See, e.g., Order in Precision Associates, Inc. v. Panalpina World Transp. (Holding) Ltd., 08-CV-42 JG VVP, (E.D.N.Y. Sept. 25, 2012) (unpublished).

[7] Valente v. Pepsico, Inc., 89 F.R.D. 352 (D. Del. 1981).

[8] Order Denying Motion to Withdraw Requests for Exclusion from the Settlement Classes and to Join the Class Settlements in In re: Cathode Ray Tube (CRT) Antitrust Litig., No. C-07-5944-SC (N.D. Cal. Apr. 1, 2014).

[9] See Mayfield v. Barr, 985 F.2d 1090 (D.C. Cir. 1993).

[10] See, e.g., In Re: International Air Transportation Surcharge Antitrust Litigation, No. M:06-cv-01793 (N.D. Cal.) (the British Airways and Virgin Atlantic Airways settlement resolved the claims of U.S. Classes and UK Classes under both U.S. and UK law for a combined $200 million for fixing fuel prices on international flights).

[11] Presently, not all Member States have collective actions for damages.

[12] Dutch Civil Code, Arts. 7:907-910; Dutch Code of Civil Procedure, Arts. 1013-1018.

[13] In the U.S., where class actions are filed in different judicial districts, a specialized judicial body – the Judicial Panel on Multidistrict Litigation (“JPML”) can determine, on motion of any party or on the Panel’s own motion, whether the cases should be coordinated or consolidated for pretrial proceedings.

[14] See EU Lawmakers Smooth Way for Class Action against Cartels, available at http://uk.reuters.com/article/2014/04/17/uk-eu-cartels-compensation-idUKBREA3G1MG20140417.