Model procedure – does not exist

How to spoil the game for class action clubs

Resourceful consumer lawyers and self-proclaimed consumer interest groups are trying to generate revenue as so-called “class action associations” with model lawsuits (which are not even possible in Germany). The only exception is the “Act on Model Proceedings in Disputes under Capital Market Law”, in particular where public capital market information or contractual performance claims under the “Securities Acquisition and Takeover Act” are concerned.

However, this is the practical exception, as in the case of the Telekom share. The marketing idea of bundling proceedings initially appears to be a good one, because in the financial investment and insurance business in particular, masses of consumers are often affected by the same problem and often by the same potential litigant. The individual consumer may have a claim for damages, but he does not yet know about it, or the amount is not high enough that he would go to the trouble of taking legal action.

And for lawyers, too, the effort of research and familiarisation is out of all proportion to the chargeable fee in individual cases where the amount in dispute is often too low. In practice, often only about 3% of claimants go to a lawyer or only about 1% go to court. However, if the lawyer or the consumer association working with him actively markets the concept to potential clients, the potential turnover can multiply and the effort can pay off.

Then the bank, insurance company or distributor is confronted with a mass of possible opponents who assume almost identical case scenarios. The idea of then bringing one or a few “model actions” and, after a positive judgment, subsequently also claiming the receivables for the remaining estate, is obvious. And so the question is how to deal with it as a defendant. The approach here must be: that there are generally no class action proceedings at all – and model lawsuits only within very narrow limits. Each case is fundamentally its own and must be dealt with again by the court as its own.

This is because res judicata can only arise between the parties affected by the court proceedings: Only the Constitutional Court can “invalidate” a law, so that non-parties to the proceedings are also affected, as the current example of the commuter allowance shows. In this respect, a lost case means that one can do better in the next case, which may even be of the same nature. Proceedings are not infrequently conducted erroneously – then the judgment is no better than the defendant’s submission was, so it is also erroneous in the result. So with a new better presentation, the defendant also has a new chance. In most cases, good reasons can also be found as to why the rest of the case is different after all. The civil procedure law gives further possibilities – so one has a right to the legal judge. If there is another jurisdiction, the new court may follow a different assessment.

If the place of jurisdiction is the same, a different chamber or senate may nevertheless have jurisdiction in accordance with the allocation of cases – e.g. if the first letter of the applicant’s surname is different. All evidence has to be taken again – possible witnesses may say something different when asked more closely. Experts could be declared biased because of the first procedure – the new expert will certainly come to a different conclusion, at least in nuances. Consumer attorneys are usually out to get a judgment.

If this happens, it will be widely publicised and used to attract new clients. Then the defendant must be prepared for a further increase in potential plaintiffs. Better not to let it come to a verdict – at least not a publishable one – in the first place. One way of doing this is to drag out the proceedings by means of extensive hearings of evidence and motions – in terms of procedural tactics, there are many possibilities.

The work overload of the courts has already led to the finding that 11 years of proceedings is still constitutional – but 23 years is not. Even if, for example, misadvice appears to have been given – the amount of damages must still be proven, which is often much more difficult, including the question of whether damages were incurred at all.

The involvement of a private actuarial expert, for example, has already proved to be an adventurous way of calculating damages. Every single point can be disputed – proceedings lasting years and involving several instances are then often the result. A banker in the countryside recently said to his ex-customer “You may be completely in the right – but you won’t get a final judgement in this lifetime”. Heirs are regularly much more interested in settling disputes through compromise. Early settlement negotiations are also part of the process – the lawyer will have no choice but to let his client make the economic decision about the good settlement offered, even if as a “consumer” lawyer he would prefer a judgment.

The settlement does not have to mean the recognition of a legal obligation – it may have been a good customer who is completely in the wrong but whom you do not want to leave alone with his problem for advertising reasons. This need not then apply to the next potential claimants – if their claims have not by then become time-barred anyway or they have lost interest in pursuing them further over the long years. Not infrequently, the consumer does not have a sufficient war chest, or has to fear that other contracts with the same business partner will be affected.

Communities of interest can also be initiated by “affected persons” themselves:

Thus in the bank range an office became well-known, which is to have collected thousands of investors, over years with pretty circulars supplied, some few procedures with bravura lost, and meanwhile the requirements of the remaining claimants without individual case examination are in the meantime time-barred. However, even plain negligent inaction on the part of commercial providers to make subsequent insurance claims can lead to a mass statute of limitations.

What such offers have in common is that they distract from the complexity of conceivable claims and the multiplicity of potential opponents (possibly including the initiator of the community) by one-sidedly focusing on a single opponent and certain selected grounds for claims. This can also benefit the defendant financial services provider at trial. Some investor protection, insurance victim or consumer lawyer was shot out from “its” procedures also already, because it is forbidden for a concrete order to recruit – for example by investor circular letters to as well known concerning or by switching on of (if necessary also created) an “association”. Even more so, the payment for contract mediation, e.g. by “donation” to interest groups is unfair – there are said to be offers for fees of up to 70%.

And finally some still as non-profit recognized association, which actually operates a trade as marketing agency, got already successful attendance of the tax investigation. Also with the investor protection lawyer the finance moves occasionally, if he manages for instance the commercial business of the community of interests beside his mandates. A house visit by the public prosecutor’s office also occurs in practice when interest groups provide legal advice on the side without a permit, and possibly also broker insurance policies, among other things.

If none of this helps – and if the consumer lawyer is aiming for a judgment, you can also summarily acknowledge the claim before a foreseeable judgment is reached. Then there is a judgment of acknowledgement, which, however, does not contain any reasons for the judgment and thus cannot really be published in a way that is effective for advertising – ultimately a disappointing result for the consumer lawyer. Recognition can also take place for purely economic reasons – because the effort to defend the legal claim, which does not exist in itself, has simply become too high.

At the very least, this deprives the consumer lawyer of the reward for his efforts – after all, he was not really interested in the economic outcome of just the one individual case. Such behavior can completely disqualify you as a potential victim of consumer advocates – who can find plenty of other victims who don’t turn out to be killjoys.

by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm

by courtesy of

www.schornsteinfeger.de (published in Schornsteinfeger Handwerk 03.2009, pages 41-43)

and

www.hm-infinity.de (published in Halstenbeker Magazin 01-2009, page 20-21)

and

www.kohlhammer.de (published in The Municipal Budget 07-2010, pages 158-159).

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About the author

Dr. Johannes Fiala
PhD, MBA, MM

Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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