A class action is a lawsuit filed or defended by an individual acting on behalf of a group. It has been possible for class actions to be brought in Italy since January 2010. Article 140-bis of Italy’s ‘Codice del Consumo’ (Consumer Code) provides a broad scope for class actions in the Italian legal system, however, for the purposes of this comment piece I shall discuss securities class actions.
A class action is a lawsuit filed or defended by an individual acting on behalf of a group. It has been possible for class actions to be brought in Italy since January 2010. Article 140-bis of Italy’s ‘Codice del Consumo’ (Consumer Code) provides a broad scope for class actions in the Italian legal system, however, for the purposes of this comment piece I shall discuss securities class actions.
Securities class actions trends are globalising rapidly and moving away from their original home, the US. Italy has developed legislation to meet the demand of its citizens and to account for the fact that US federal courts have banned F-cubed actions (when a non-US shareholder, whose stock was purchased on a non-US exchange, sues a non-US company within the US). Analysis has shown that the typical European share portfolio has become strongly international.
The average weighting is currently at 60 percent in domestic shares and 40 percent in cross-border shares. These weightings have highlighted to European shareholders (and responsible fiduciaries) that they could be left out of securities class actions in the US or in any other cross-border legislature unless they take an active role in a lawsuit. Although Article 140-bis does not state this exactly, Italian and European Commission rules could reasonably allow residents from other jurisdictions to bring an action within Italy’s courts.
Our research at Goal Group shows that between 2000 and 2012, European investors’ non-participation in US securities class actions has resulted in over $4 billion being left unreclaimed by the relevant parties. We have also predicted that non-US settlements will rise to $8.3 billion annually by 2020, yet $2.02 billion of investors’ rightful returns will still be left unreclaimed each year. Investors and fiduciaries must be vigilant when monitoring their ability to participate in relevant securities class actions internationally.
In reference to securities class actions in particular, Article 140-bis protects “the homogenous rights to compensation for the prejudice suffered by the same consumers and users as a consequence of unfair business practice or unfair competition”. It allows class members to progress a lawsuit in which investors can collectively sue to recoup losses suffered as a result of fraudulent corporate behaviour or mismanagement.
Although there is no minimum threshold of plaintiffs required to process a class action, those who seek to join it must opt-in. Certification orders are reported to the Ministry of Economy for mention on its website, and in the initial stage of a class action, the judge will declare the appropriate forms of advertisement in order to publicise the filing to other potential class members. The judge also outlines the criteria, that would need to be met to join. In Italy, no other class actions may be filed for the same facts and against the same defendant after the expiration of the criteria for joining set by the judge.
In a securities class action, the outcome of the leading plaintiff’s case will apply to all who joined. The leading plaintiff bears the litigation costs relating to a class action, however, they may ask for ‘joining fees’ from class members who decide that they would like to be included in the action. Following a successful claim, the defendant is ordered to pay the final amounts to the class members as well as the lead plaintiff’s legal costs.
Any level of non-participation in a securities class action presents fiduciaries with a major legal headache. Experience in the US shows they may be sued if they do not monitor and ensure participation in relevant securities class actions. All parties should acknowledge cross-border opportunities in legislatures such as Italy and reclaim damages to which they are legally entitled. With cross-border developments in mind, keeping track of opportunities and the claims process can be daunting. However, there are now specialist service providers that can automate the complex process of class action participation across international legislatures at a relatively low cost.
