German Law Firm Forges Path to Private Cartel Damages

  • Germany
  • 11/10/2017
  • Bloomberg Law

By Eleanor Tyler, Bloomberg Law

An international law firm’s novel end run around Germany’s limits on class action lawsuits could have major implications for small businesses and consumers throughout Europe seeking to recover losses from illegal cartels.

Recent changes to German competition law strengthened claimants’ rights in private cartel actions. But Germany, like many other European countries, doesn’t provide for a right of collective action, meaning the cost of bringing a suit frequently isn’t worth it for small plaintiffs.

Hausfeld LLP may have hit upon a way to make such suits worthwhile by banding together small claims. Hausfeld intends to file a groundbreaking small-claims action against a heavy truck cartel, the first of its kind, in Munich courts before the end of the year, Christopher Rother, Hausfeld’s managing partner, told Bloomberg Law. Rother is an architect of this new strategy, which could change the litigation landscape in Europe.

The collected private actions against the heavy truck manufacturers, combined with individual suits from big plaintiffs, could wind up costing the defendants more than the record 2.9 billion euro fine ($3.4 billion) imposed by the EU last year.

The potential for bigger private recoveries is something German antitrust officials would welcome. “If cartel members have to expect actions for damages from customers harmed by the cartel in addition to a heavy fine, this appreciably weakens the attractiveness of illegal agreements,” a spokesman for the German competition authority, The Bundeskartellamt, told Bloomberg Law.

The new structure could solve longstanding problems with how to combine small, individual plaintiffs in complex cases against big companies, as well as how to finance those suits. Legal discovery is highly restricted in Germany, which means an expanded group of complainants greatly improves the expensive prospect of proving economic damages in court.

“The risk of private enforcement is now something that is an issue for the defense bar,” Rother said.

Building a Case

Hausfeld is representing both individual claimants and roughly 5,000 corporations that have opted into a consolidated claim for their collective purchase of about 120,000 trucks.

The combined data from so many buyers helps plaintiffs establish the the main proof needed in a private damages action – an economic analysis showing how much the cartel overcharged them. Discovery laws give them access to only a small amount of data from defendants. To prove economic harm, plaintiffs typically bear the cost of buying data or assembling it through public records. Private data from a broad swath of a cartel’s customers is a powerful new weapon in cartel actions, Rother said.

Changes to Germany’s competition law went into effect this year. They include a rebuttable presumption that cartels cause damages via overcharges passed through to buyers. The law also extended the statute of limitations for cartel claims from three to five years.

What was missing was a way to make such private rights of action practical. Rother, who joined Hausfeld in 2015 from the German railroad, Deutsche Bahn AG (DB), first worked out a new kind of collective action in response to the 2015 Volkswagen emissions scandal.

The firm contracted with a licensed legal services provider to buy claims from consumers with Volkswagen cars and asserted the group’s claims in a single lawsuit against VW. The firm gathered 32,000 active claimants in that case, Rother said. Hausfeld filed its VW case on Nov. 6 on behalf of 15,000 plaintiffs for 357 million euros ($416 million). Further filings will come this spring.

Logistical Challenges

This sort of small-claims collective action presents unique logistical challenges. Intake is partially automated to handle the high volume, and a specially-created online platform does initial screening. Would-be claimants upload documents that support their claims and the system tracks and manages their data.

The intake system is underwritten by Hausfeld’s funder, litigation finance services provider Burford Capital LLC. Under German bar rules, lawyers can’t work on a contingency basis, Rother said. That means the money to finance collective actions must be “entirely separate” from the legal brains in the operation. Hausfeld partnered with Burford, invoicing as work is performed. Hausfeld, which has experts around the world that evaluate claims, helps Burford evaluate the risk and reward of claims, and Burford takes a fee from each claim.

It “is yet to be seen” whether Hausfeld’s new approach and the new competition law amendments will be enough to make Germany more attractive for cartel plaintiffs, said Dr. Kim Manuel Kuenstner of Schulte Riesenkampff, a firm is involved in several individual cases against the heavy truck cartel.

In general, Kuenstner told Bloomberg Law, Germany is known as a relatively inexpensive venue for private actions, but its courts are somewhat slow to come to judgment. Another jurisdiction could turn out to have unforeseen advantages that Germany doesn’t offer, he said.

Whether the experiment works could have continent-wide implications. Other European countries will soon be changing their laws to comply with an EU directive to facilitate more private lawsuits seeking damages from cartels.

Hausfeld’s individual cases are pending before a court in Munich, where the heavy truck cartel whistleblower MAN Truck & Bus is based. The firm will bring their collective action cases by the end of the year. If successful, Hausfeld could expand its model to other EU member states.