Transnational class actions and interjurisdictional preclusion.

• Author: Wasserman, Rhonda

INTRODUCTION

As global markets have expanded and transborder disputes have multiplied, American courts have been pressed to certify transnational class actions--i.e., class actions brought on behalf of large numbers of foreign citizens or against foreign defendants. (1) The Supreme Court's recent decision in Morrison v. National Australia Bank Ltd. (2) is likely to reduce the number of "foreign-cubed" or "f-cubed" securities fraud class actions filed in the United States, at least in the short term. (3) But Morrison is unlikely to inhibit the filing of transnational class actions involving securities listed on domestic stock exchanges, transnational class actions raising claims that arise under federal laws that apply extraterritorially, or transnational class actions against defendants whose conduct within the United States is the "focus" of Congressional concern. In short, even after Morrison, class counsel are likely to keep filing transnational class actions and defense counsel are likely to keep opposing them.

Defendants in transnational class actions often oppose certification by arguing that the superiority prong of Rule 23 (b) (3) is not satisfied. (4) In particular, defendants argue that a class action is not superior to alternative means of dispute resolution because European courts will not recognize or accord preclusive effect to an American class action judgment in the defendant's favor. Thus, defendants fear repetitive litigation on the same claim in foreign courts even if they were to prevail in an American court. (5)

In considering this argument against certification, American courts often use judgment recognition and preclusion terminology interchangeably. They discuss the "'possibility' that a foreign court may not recognize a judgment" (6) and the fear that an American class action judgment "might not be given preclusive effect in foreign courts" (7) as though recognition and preclusion analyses are identical. But they are not.

American courts are conflating what should be a two-step analysis into one. They should be asking, first, would the foreign court recognize the American class action judgment? And second, if it would, what preclusive effect, if any, would the American class action judgment have in the foreign court? Instead, while employing both recognition and preclusion terminology, the American courts typically focus only on the former question, examining only whether the foreign court would decline to recognize the American class action judgment because it violates "international public policy." (8) The American courts rarely, if ever, consider the second step: the preclusive effect, if any, that an American class action judgment would receive if it were recognized abroad. The failure to address this second step is problematic because even if a foreign court were to recognize an American class action judgment, the defendant could face a risk of relitigation if the judgment were not accorded robust preclusive effect.

This Article seeks to analyze the missing second step--the preclusive effect of an American class action judgment--drawing heavily on a project by the British Institute of International and Comparative Law (BIICL) undertaken to assess the preclusive effects of judgments under the national laws of a select group of European countries. (9) Even in Europe, where the Brussels/Lugano Regime governs the recognition and enforcement of Member State judgments in civil and commercial matters, (10) little attention has been paid to the question of the preclusive effects to be afforded to such judgments. (11)

The Article is divided into three Parts. Part I examines the preclusive effects of class action judgments in U.S. courts. A defendant who raises the risk of repetitive litigation abroad to oppose certification of a transnational class action at home assumes that, in a purely domestic case, a class action judgment in its favor would shield it from duplicative individual suits by absent class members in American courts. Accordingly, the defendant argues that the American court should not certify a transnational class unless its judgment would be accorded the same preclusive effects abroad. (12) Part I assesses the accuracy of the defendant's assumption regarding the nature and scope of the protection that American preclusion law affords successful class action defendants. As we will see, while American preclusion doctrine provides defendants with meaningful protection against repetitive individual suits following a class action victory, it does not guarantee defendants protection from all follow-up litigation that individual class members may bring.

With the American preclusion landscape as background, Part II of the Article assesses the magnitude of the risk that an American class action judgment will not be accorded preclusive effect in Europe. As noted above, this inquiry is distinct from, and logically follows resolution of, the recognition issue. Subpart A of Part II introduces BIICL and its Judgments Project, upon which the Article draws. Subpart B analyzes important basic differences between American preclusion doctrine, on the one hand, and the preclusion doctrines of the participating European countries, on the other. Subpart C then considers the extent to which the participating European countries permit class actions or other forms of group litigation in their own courts and the extent to which their domestic class action or group litigation judgments are accorded preclusive effect in the courts of the rendering country. Subpart D of Part II considers the extent to which these European countries accord preclusive effect to the class action or group litigation judgments of other countries.

Finally, drawing upon the data gathered in Part II, Part III of the Article seeks to draw tentative conclusions regarding the risk that American class action judgments will not be accorded the same preclusive effects in European courts that they would receive in American courts. Part III also makes recommendations for further study.

1. THE PRECLUSIVE EFFECTS OF CLASS ACTION JUDGMENTS IN U.S. COURTS

   1. Claim Preclusive Effects of Class Action Judgments

      Defendants in transnational class actions pending in American courts often oppose class certification by arguing that class action judgments will not be given preclusive effect abroad. (13) The unspoken assumption is that the preclusive effects of class action judgments provide defendants in American courts with robust protection against repetitive individual lawsuits by absent class members seeking to relitigate the claim adjudicated or settled in the class action. The first order of business, then, is to assess the accuracy of this assumption and to gauge the extent to which a judgment rendered against a plaintiff class precludes absent class members from pursuing the same claim against the same defendant. (14)

      Outside the class action context, a valid and final judgment in the defendant's favor extinguishes the plaintiff's entire claim and bars a subsequent action by the same plaintiff against the same defendant on the same claim. (15) According to the Restatement (Second) of Judgments:

      (1) When a valid and final judgment rendered in an action extinguishes the plaintiff's claim pursuant to the rules of merger or bar .... the claim extinguished includes all rights of the plaintiff to remedies against the defendant with respect to all or any part of the transaction, or series of connected transactions, out of which the action arose.

      (2) What factual grouping constitutes a "transaction", and what groupings constitute a "series", are to be determined pragmatically, giving weight to such considerations as whether the facts are related in time, space, origin, or motivation, whether they form a convenient trial unit, and whether their treatment as a unit conforms to the parties' expectations or business understanding or usage. (16)

      Under this transactional test, a judgment's claim preclusive effect will bar a second action by the same plaintiff as long as the facts underlying the claims are the same, even if the legal theory relied upon, the evidence offered, or the relief sought is different. (17) This ban on claim splitting would, for example, preclude an individual who lost an employment discrimination action in which she sought injunctive relief from suing her employer a second time for the same discriminatory conduct even if the second suit sought money damages or pursued a different legal theory. (18)

      Claim preclusion affords a prevailing class action defendant meaningful protection from follow-up suits by absent class members. As the Supreme Court stated in the leading case of Cooper v. Federal Reserve Bank, (19) "a judgment in a properly entertained class action is binding on class members in any subsequent litigation.... A judgment in favor of the defendant extinguishes the claim, barring a subsequent action on that claim." (20) In Cooper, the class representatives alleged that the defendant bank had engaged in a pattern of racial discrimination. (21) The district court found that the bank had discriminated against employees in pay grades four and five, but otherwise found insufficient evidence of a pattern of discrimination to justify relief. (22) Individual employees in pay grades above five, who had been absent class members, then filed individual suits against the bank, alleging racial discrimination. (23) The defendant argued that the plaintiffs were bound by the determination that there was no discrimination in their pay grades. (24)

      In explaining the preclusive effects of the class action judgment, the Court explained that the judgment in Cooper

      (1) bar[red] the class members from bringing another class action against the Bank alleging a pattern or practice of discrimination for the relevant time period and (2) preclude[d] the class members in any other litigation with the Bank from relitigating the question...