Much to the chagrin of corporate America, a key European Union legal affairs committee has passed a proposal to allow class action lawsuits in the EU—a major step in becoming law.

While some EU member countries allow types of class action suits, others do not. Since 1998, the EU has offered only injunctive relief, allowing “qualified entities designated by the member states, such as consumer organizations or independent public bodies, to bring representative actions for the protection of the collective interests of consumers with the primary aim of stopping both domestic and cross-border infringements of EU consumer law.”

The new proposal, according to the committee, is specifically aimed at giving all EU consumers the opportunity of collective redress for mass harm—that is, the right to seek damages as a class, and not just an injunction to stop the harm.

After the committee's Dec. 6 vote, Lisa Rickard, president of the U.S. Chamber Institute for Legal Reform, released a statement calling the proposal “poorly written and lack[ing] clear safeguards to prevent fraud and abuse. Still missing is a requirement that consumers give their consent or 'opt-in' to join a collective claim, and clear criteria to eliminate meritless claims.”

Rickard added that the law would “create a whole new world of litigation in Europe, and it is crucial that EU lawmakers get it right the first time. The new directive must be for the benefit of European consumers and not import the abuses of the U.S. class action system, which primarily benefits lawyers and profit-seeking third-party investors in lawsuits.”

The American Association for Justice (formerly the American Trial Lawyers Association), which represents the plaintiffs' bar, did not immediately have a response about the bill.

The proposal now goes to the full Parliament and the European Council, a strategic group made up of the heads of individual governments in the EU who provide general political directions and priorities. The European Commission can also have a say in the final wording.

The Institute for Legal Reform plans to ask those institutions to change the bill before Parliament votes on it, according to Scevole de Cazotte, the ILR's senior vice president for international initiatives.

De Cazotte said in an interview Dec. 7 that the global business community has concerns with the proposal. “And I mean companies of all sizes, from all business sectors, and not just from one country but from everywhere,” he added.

Although the ILR was still obtaining a final draft of the latest proposal, De Cazotte said from what ILR has learned, the most troubling aspects of the bill include:

•  There is no certification rule, similar to U.S. Rule 23 of the Federal Rules of Civil Procedure, which requires a group to be certified as a class and to meet certain requirements.
•  It leaves the use of contingency fees for lawyers up to the member states. The ILR wants to see contingency fees excluded, De Cazotte said, because they incentivize lawyers to sue.
• The bill follows the Dutch model by requiring consumers who don't want to be a party to specifically opt out of the litigation in domestic markets. But consumers must specifically opt in to the litigation when they are located outside the jurisdiction involved. The U.S. Chamber of Commerce ILR favors requiring all plaintiffs to opt in, he said.
• It allows multiple and overlapping claims in the EU and in member countries, with no overall EU management of duplicated claims. “This issue is very important to general counsel, who want to have finality in a case,” De Cazotte said. “Companies will have a hard time knowing when they can settle. We may ultimately see chaos.”

He said there is a bucket of other issues. They include the probability of plaintiffs' forum shopping for a friendly jurisdiction; the layering of the EU law on top of existing countries' laws, which would mean more complexity and higher legal costs; and the use of “qualified entities,” such as consumer associations to bring claims on behalf of consumers is not a real safeguard against meritless claims, he contends.

De Cazotte said, “We have seen in the Netherlands that they have qualified entities, which are in fact set up by law firms to pursue these claims. They [the entities] will work with law firms and litigation funders, who will collect contingency fees. They are basically just a front.”

The legal affairs committee vote was an important one, he explained, but what happens next is, too. He noted, “We think there's room for serious improvements.”