On 23 March 2017, the Ghent Court of Appeal (Hof van Beroep/Cour d’Appel) ("Court of Appeal") handed down a lengthy judgment on the merits in the well-known Lernout & Hauspie ("L&H") case. The judgment contains a specific section on the recognition in Belgium of two United States opt-out class action settlements.
Class action suits are legal devices that allow an individual (or a small group of individuals) to proceed in court on behalf of a much larger and unnamed group of individuals, who have suffered a similar injury and who share common claims.
While class actions form an integral part of the judicial system in the United States, European jurisdictions (with the notable exception of the Netherlands) tend to be very cautious with respect to this instrument. It is only in June 2013 that the European Union published a recommendation setting out a series of common, non-binding principles that EU Member States should adopt in order to put collective redress mechanisms in place. Based on this recommendation, some EU Member States that previously did not allow for collective redress mechanisms have since introduced them into their legal systems.
In contrast with the American class action system – where any individual who fulfils the conditions to be part of a class action will automatically be considered as part of the class bringing the action, unless that member expressively indicates his desire to be excluded from the proceedings (i.e., "opt-out" system) – most European systems have embraced an "opt-in" system. In such a system, plaintiff classes are formed through the express consent of their members.
The case at hand concerns an interesting scenario in which the Belgian court, belonging to a jurisdiction in which only opt-in class actions are allowed, was asked to recognise a U.S. opt-out class action settlement.
Facts
L&H was a Belgian company incorporated in the 1980's that specialised in voice recognition. The company had a spectacular growth and was listed both on NASDAQ and on the Brussels stock exchanges. At its peak, L&H was considered to be a leading company in its field.
However, L&H went bankrupt in the early 2000's following significant securities fraud engaged in by its management.
This gave rise to both civil and criminal cases in Belgium against L&H's key executives, L&H's bank (Dexia Bank) and L&H’s statutory auditor (KPMG).
In the meantime, class actions were also initiated in the United States against Dexia Bank and KPMG by investors who sought compensation for the loss suffered. Those cases were ultimately settled as KPMG agreed to pay USD 115 million and Dexia Bank agreed to pay USD 60 million. Importantly, because those cases arose in the United States, those settlements constituted opt-out settlements.
Issue
One of the key issues that arose during the proceedings before the Court of Appeal, was whether the decision of the American courts approving the class action settlements in the KPMG and Dexia Bank cases could be recognised in Belgium. This would consequently preclude the civil claimants who were part of the class that benefited from the settlement (but had not opted-out of those proceedings) from claiming damages in the Belgian procedure.
In order to answer this question, the Court of Appeal turned to the Belgian provisions governing the recognition and enforcement of foreign (i.e., non-EU) judgments. Those rules are contained in Articles 22, 23, 24, 25 and 26 of the Belgian Code of Private International Law ("CPIL").
Analysis of Court of Appeal's Reasoning
At the outset of its analysis, the Court of Appeal had no difficulty to establish that the class action settlements reached in the United States consisted of "judgments" (and were therefore subject to scrutiny under Articles 22, 23, 24, 25 and 26 of the CPIL), as they were enacted by courts in the United States.
The Court of Appeal then turned to the important question of whether there was any valid justification to refuse to recognise the class action settlement in Belgium. In this regard, the Court of Appeal turned to Article 25 of the CPIL which provides for various grounds for refusing to recognise and enforce a foreign judgment as follows:
A foreign court judgment shall not be recognised and enforced in Belgium if:-
1° the recognition or enforcement of this judgment would lead to a violation of public policy;
2° the rights of the defence have been violated; […]
7° only Belgian courts had jurisdiction to rule on the matter; and
8° the foreign court's jurisdiction was based on the mere fact that the defendant was located in this jurisdiction, but without any other substantial relationship with this jurisdiction.
The plaintiffs before the Court of Appeal contested the fact that the U.S. class action settlements should be recognised in Belgium (as this would result in a limitation of their rights to claim damages).
More specifically, the plaintiffs argued: (i) that recognising the U.S. class action settlements would be a violation of public policy (Article 25, §1, 1° of the CPIL) as Belgium only recognises "opt-in" (and not "opt-out") class action mechanisms; (ii) that the U.S. opt-out class action system violated their rights of defence (Article 25, §1, 2° of the CPIL); and (iii) that the American courts had exceeded this jurisdiction and that only the Belgian Courts should have been competent to rule on this matter.
First, with respect to the public policy argument, the Court of Appeal noted that class action mechanisms have recently been introduced in Belgian law as well (See, Title II of Book XVII of the Code of Economic Law) and that, when enacting those new legal provisions, Parliament had specifically emphasised that class action mechanisms complied with Article 6 of the European Convention on Human Rights (“ECHR”). Furthermore, the Court of Appeal methodically proceeded with a comparison of the American and the Belgian class action systems, it concluded that the U.S. class action regime did not offer less procedural guarantees than the Belgian system. Indeed, the American class actions system allows for the right to appeal, organises spread-out publications and provides for an assessment of adequacy and reasonability of the settlements before enactment.
Second, the plaintiffs argued that the Court of Appeal should refuse to recognise the U.S. class action settlements as their rights of defence had been violated. This is because some members of the class were not U.S. residents and had therefore not sufficiently been informed of the proceedings, including the legal consequences of the opt-out system. However, the Court of Appeal noted that: (i) all the identifiable members of the class actions had been personally notified of the class action proceedings; (ii) the class action proceedings had featured in several newspapers such as The Wall Street Journal and The Wall Street Journal Europe; (iii) articles had been published in De Tijd and other Belgian newspapers; (iv) a website had been set up solely for these class actions' purposes; and (v) the Belgian financial institutions had also relayed the information. Consequently, the Court of Appeal concluded that a normal and diligent investor, placed in the same circumstances, would have been aware of the action. As a result, the plaintiffs' rights of defence had not been violated.
Third, the plaintiffs relied on Articles 25 7° and 8° of the CPIL and alleged that the American courts had exceeded their jurisdiction as only the Belgian Courts should have been competent to rule on this matter. The Court of Appeal dismissed this claim as well.
With respect to the application of Article 25 7° of the CPIL, the Court of Appeal found that the plaintiffs did not sufficiently demonstrate that only Belgian Courts had jurisdiction over the dispute.
With respect to the application of Article 25 8° of the CPIL, the Court of Appeal found that the American courts had validly asserted jurisdiction since L&H had sufficient links with the United States (one of L&H's headquarters was located in Massachusetts and the company was listed on the NASDAQ stock exchange).
Therefore, the Court of Appeal held that none of the grounds listed under Article 25 of the CPIL could validly be raised in the case at hand and the U.S. class action settlements had to be recognised in Belgium.
As a consequence, all civil claimants in the proceedings before the Court of Appeal who were also part of the class that benefited from the U.S. settlements, but had not opted-out of those proceedings, were precluded from asserting their rights before the Court of Appeal.
Although the end result is not surprising, opt-out class action settlements will have to be handled with caution. Indeed, while it is likely that many L&H Belgian investors were aware of the existence and the consequences of those settlements, these investors probably never thought that the settlements would have consequences for their rights under Belgian Law. The judgment of the Court of Appeal does not imply that all class action settlements will automatically be recognised in the Belgian legal system. At the same time, the Court of Appeal's judgment confirms that U.S. opt-out class action settlements are not, per se, deprived of any legal effects in Belgium.
