Mexico: New Class Actions Law Introduces Risk For Companies Doing Business In Mexico

Mexico has recently passed class actions legislation putting certain Mexican businesses on edge. Although the legislation has certain unique provisions, it borrows from other Latin American class actions statutes and those of Mexico's neighbours to the north. To date, class actions have been virtually non-existent in Mexico, therefore this legislation will undoubtedly continue to garner attention as potential plaintiffs and their counsel prepare for its imminent arrival and the Mexican courts deal with this novel area of law.

In 1994, Mexico passed a consumer protection law, providing for limited collective actions in consumer matters, but only gave standing to the Federal Consumer Protection Agency. In practice, the Agency filed only a few claims and class actions were still non-existent in Mexico. After extensive debate, in July 2010 Mexico amended its Constitution to allow class proceedings to be brought by private litigants and to provide the federal courts with exclusive jurisdiction over class actions. In April 2011, the class actions regulation was passed by Congress and on August 30, 2011, it was published in the Official Gazette, beginning a six-month countdown until the legislation is in force (March 2012).

The legislation will affect companies in a large number of sectors, as it provides for class action claims to redress three situations:

  1. Harm to consumers and users of both public and private goods and services;
  2. Damage to the environment; and
  3. Damages resulting from anti-competitive practices.

A class action can be commenced by a representative from the class members. However, standing is also provided to certain non-class-member entities to commence a proceeding on behalf of a class. In particular, standing is provided to non-profit associations whose corporate purpose includes protecting the rights under the alleged threat of violation, and also to the federal attorney general and other government officials charged with protecting consumer rights, users of financial services, competitive markets and the environment (for example, the Federal Environmental Protection Agency and the Federal Antitrust Authority).

The legislation divides class actions into three categories:

  1. Diffuse actions, which protect rights that belong to society in general, not to any individual (for example, environmental claims);
  2. Collective actions, which protect rights that belong to a group of persons linked by a non-contractual relationship (for example, many consumer protection cases); and
  3. Homogeneous individual rights actions, which protect a group linked by a contractual relationship (for example, standard form contract cases).

In Canada, class members must opt-out of a defined class if they do not want to be bound by any settlement or judgment. However, the Mexican legislation provides for a mixed opt-out/opt-in system. For the first category of actions – diffuse actions – class members must opt-out. But for the latter two categories of class actions, members must actually opt-in to the class action. Members will have the ability to opt-in for up to 18 months following the final settlement or judgment. The opt-in mechanism may be helpful to defendants as it has the potential to limit the size of classes; however, it also creates significant uncertainty, as there is no way to conclusively determine how much liability a defendant will face upon settlement or judgment.

The legislation includes requirements for certification familiar to Canadian practitioners, including common factual or legal circumstances, adequate representation, class definition, and a clear relationship between the action and the damages to the class. In addition, the subject matter of the claim must be deemed proper for class-wide disposition. This certification procedure is not often seen in other class actions statutes in Latin America, such as Brazil, and appears to be adopted from the U.S./Canadian model. The Mexican legislation also includes a minimum class size of 30 members.

The legislation is designed to expedite class proceedings, which puts a heavy burden on defendants to respond quickly to complaints. There is a wide variety of remedies provided to courts: restitution, damages and/or injunctive relief. Courts can also order the recall or seizure of goods and products directly related to any irreparable harm that threatens the class. Therefore, the court has authority to make orders that go outside the scope of the class before it and, as such, could also play a more general consumer protection role. There is also authority to take any other step that the court may deem advisable to protect the rights and interests of class members.

In order to obtain damages, class members face a two-step procedure. The first is obtaining judgment or settlement in the class action. Class members must then proceed to an individual trial in which they must prove their own damages and a causal link to the defendant's conduct. Class members have one year, following judgment or settlement, to commence this individual proceeding. This two-step procedure could potentially increase the number of class proceedings that may be certified. By legislating this twostep procedure, the Mexican legislature has made it clear that it envisions significant follow-on litigation by individual class members after the resolution of class wide issues. It puts a potentially significant burden on individual class members wishing to recover damages from a class proceeding.

The legislation adopts a loser-pays rule, but fees will be subject to certain caps, legislated in order to avoid abuse.

One potentially significant feature includes the creation of a collective actions fund for the deposit of judgments in certain cases where the remedy of restitution is unavailable. The fund can be used to promote class actions in Mexico, as well as collective rights research and awareness. The fund may also be used to pay the class representative's fee, and other costs, where justified in the public interest.

On its face, there is some indication that this legislation is not plaintiff friendly. For example, it is only available for use in federal courts, and the concept of individual trials following any settlement or judgment presents a long and cumbersome process for plaintiffs. On the other hand, some of its features are present in Ontario and other provinces in Canada, particularly the need for post-certification damages trials. Further, it would appear to put a new tool in the hands of government enforcement agencies. Accordingly, it must be assumed that there is still a significant new risk for potential defendants with the passage of this legislation. As such, any companies with operations in Mexico should take note of this new legislation.

While its true impact remains to be seen, there is little doubt that it could be a significant tool in the hands of private litigants, consumers' rights groups, as well as governmental entities. As Mexico's first foray into the world of class actions, this legislation and its corresponding decisions will be closely watched. In any event, there is a new risk for companies as well as insurers who do business in Mexico.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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