The Amsterdam Court of Appeal denied approval of the €1.204 billion collective settlement of former Fortis (now Ageas) shareholders’ claims unless the parties agree to restructure the allocation of the settlement amount among class members and the compensation for the organizations that filed the proceeding. The court’s June 16, 2017 decision does not undermine the use of the Dutch Act on Collective Settlement of Mass Claims (the “WCAM”) to resolve transnational disputes, but it constrains the ways in which parties can allocate the settlement amount and pay attorneys’ fees.

The proposed settlement arose from shareholder litigation filed against Fortis in Belgium, the Netherlands, and elsewhere following the 2007/2008 financial collapse. Such global securities problems had often been resolved in U.S. courts under the federal securities laws.  However, in 2010, the U.S. Supreme Court held in Morrison v. National Australia Bank that the federal securities laws apply only to misstatements or omissions made in connection with the purchase or sale of (i) securities listed on a U.S. exchange or (ii) any other securities in U.S. transactions.  Thus, persons who had bought securities of Fortis (a Belgian company) in non-U.S. transactions could not pursue their claims under the U.S. securities laws.

In 2005, the Netherlands enacted the WCAM, which authorizes settlement of classwide claims on an opt-out basis – unlike most other non-U.S. procedural rules, which, if they allow classwide resolutions at all, generally do so only on an opt-in basis. The settling parties must file a petition asking the Amsterdam Court of Appeal (which has exclusive jurisdiction over WCAM proceedings) to approve the proposed settlement and declare it binding on the class members, who are viewed as defendants in the petition proceeding.

The WCAM procedure is somewhat analogous to what U.S. lawyers know as a settlement class action, but with at least two key differences: (i) the statute cannot be used to litigate claims on a classwide basis, but only to settle them, and (ii) class members do not need to decide whether to opt out until after objections have been filed and the court has approved settlement.

The WCAM assumed a truly international scope in two global securities settlements: one involving Royal Dutch Shell (an Anglo-Dutch company) in 2009 and another involving the former Converium Holding AG and its parent (both Swiss companies) in 2012.  Both settlements involved significant numbers of non-Dutch shareholders.  In fact, only about 3% of the shares in the Converium case were owned by Dutch residents.  But the Amsterdam Court of Appeal approved both settlements and upheld jurisdiction over the global classes.

The proposed Ageas settlement divided the class of eligible shareholders into Active Claimants and Non-Active Claimants. Active Claimants, who had initiated (or had joined organizations that had initiated) timely proceedings against Ageas, would receive a larger portion of the settlement amount than would Non-Active Claimants, who had not taken those steps.

The Amsterdam Court of Appeal disapproved of this allocation. The court did not object to differential treatment among class members based on substantive differences in their claims.  That position was consistent with the court’s 2012 Converium decision, which had overruled an objection that the WCAM settlement was unfair because it provided less money to non-U.S. class members than a parallel U.S. settlement provided to U.S. class members.  The Dutch court concluded that the differential treatment was not unfair because U.S. class members had more options for securities class-action litigation under U.S. law than the non-U.S. class members had under non-U.S. law.

But the Ageas court held that differences in compensation could not depend solely on whether a class member was active or inactive in pursuing litigation.  However, the court did not object to incentive awards for lead or active claimants as long as those awards are related to the claimants’ reasonable costs and expenses.

The court gave the parties until October to decide whether to amend the proposed settlement to conform to the court’s decision. We will continue to watch for developments in this case.

The proposed Ageas settlement illustrates the difficulties that non-U.S. legal regimes have faced in dealing with what some commentators (such as Ianika Tzankova) have called the “free-rider” effect in class or collective actions. In a legal system such as the Netherlands’ – where money damages are not currently available in collective actions, contingency fees for plaintiffs’ counsel are not allowed, and a common-fund doctrine for attorneys’ fees does not exist – allegedly injured persons and their counsel have fewer incentives than they have in the United States to step up and initiate litigation on behalf of others (or even themselves).  The Amsterdam Court of Appeal did not reject the concepts of risk premiums and incentive fees, but it refused to allow allocation of the settlement amount based on class members’ relative activity or inactivity.

We previously blogged about the proposed Ageas settlement here and here.