United States: Building The "Courthouse For The World"

The crisis of class action abuse in America is assuming global proportions. If you think your international business can't be touched by these American excesses, think again.

Within America, the recent $145 billion award against the tobacco industry sounded loud alarms. But the threat of American class action litigation is also being felt internationally. Recently, German government and industry settled class action claims arising from WWII slave labor activities, even though the claims had proved unsuccessful in U.S. courts. Reportedly, the $5.1 billion agreement was delayed by haggling with American lawyers, who hoped to secure large contingency fees. Attorney payments were capped at $50 million, with arbiters to ensure that legal fees would not be exorbitant. Unfortunately, the victims recovered a mere pittance — between $2,500 and $7,500 each.

The class action threat was obviously a major factor in the Germans' decision. Similar class action claims are pending against numerous Austrian companies. Apparently, in view of political and moral pressures, neither the Germans nor the Austrians intend to defend the American class actions, irrespective of the lawsuits' lack of legal merit. The Swiss banks recently bowed to similar threats by paying $1.25 billion to settle American class actions filed by Holocaust victims — without even waiting for the court to rule on their motions to dismiss.

Although Nazi-era claims raise heinous allegations, other claims might produce similar results. Think of tobacco, guns, toxic substances, prescription drugs, or tires. The message is unspoken, but clear — some products and some defendants are so evil that they don't deserve a defense. Collect enough claims and defendants will settle. They can't afford to "bet the company." But when any litigant's opportunity to be heard is denied, the integrity of the entire process is compromised.

These cases have transformed the American class action into an "international" proceeding. American private litigation now impacts businesses far beyond the United States' borders — irrespective of whether the companies' home nations empower their own courts to entertain similar proceedings.

Presently, the power of "international" class actions is exerted through moral and political pressures. But many nations are considering the enactment of American-style class action rules. Some, such as Canada, have already done so. Soon, American class action awards may be enforced through international treaties. If these rules are adopted, international businesses may not resist enforcement by arguing that American class actions are contrary to their homeland's laws.

Can there be any doubt that entrepreneurial American lawyers will seize this opportunity to transform the United States into the "Courthouse for the World?" The "long arm" of American justice will then impact companies globally. If sovereign states, such as Germany, are currently bowing to U.S. class action pressures even without existing enforcement mechanisms, the threat of collectible judgments will be overwhelming.

Enhancing American power in this manner encourages legal imperialism. Reforms which permit the proliferation of class actions should be evaluated to ensure that they do not surrender currently exempt assets to the "blackmail" of oppressive aggregation. Otherwise, global opportunities may become global liabilities — liabilities assessed by American juries and judges in remote forums which may prove utterly insensitive to foreign cultures.

Is the global marketplace worth the risk? At the very least, companies lured by its rewards should enter with their eyes wide open.