Sarkozy, U.S. Lawyers Shift Class-Action Suits to Europe

LONDON — President Sarkozy of France, Deutsche Telekom AG shareholders, and American lawyers are laying the groundwork to make Europe the next battleground for American-style class-action lawsuits.

The unlikely allies are pushing for changes that encourage group litigation and send a chill through corporate Europe. Cohen, Milstein, Hausfeld & Toll PLLC set up a London class-action practice this year as European regulators plan to make it easier for consumers to sue cartels and monopolies.

There have been steps in that direction as Mr. Sarkozy called for the introduction of "class action à la Française." In the Netherlands, while investors cannot sue as a group, they can settle like one under a 2005 law that allowed Royal Dutch Shell Plc to reach a $353 million resolution of non-American securities claims in a case over misstated oil reserves.

"If you are confronted with litigation, be it in the U.S. or Europe, you are often immediately talking about millions of pounds or dollars," said Beat Hess, the 58-year-old legal director of Shell. "You can say that is part of doing business, it doesn't matter to a company like Shell. Well, it does matter."

Still, plaintiffs may have a long wait if they expect American-style payouts, such as the $7.2 billion set to go to Enron Corp. investors, the largest class-action settlement ever according to Stanford Law School in Palo Alto, Calif. Most European Union countries operate on a loser-pay principle, weeding out frivolous complaints. Only Spain has contingency fees that award lawyers a percentage of damages, said Matthew Newick, a lawyer at Clifford Chance LLP.

Companies are concerned that once a few countries adopt new laws that allow class-action lawsuits, it will be hard to stop them from spreading across the continent.

"I think one is more concerned about it in the U.S., but what is in the U.S. generally comes here a few years later," Helen Mahy, London-based lawyer for National Grid Plc, owner of the Britain's natural-gas and electricity transmission networks, said in a telephone interview.

American lawyers who represent shareholders and consumers in securities fraud and antitrust lawsuits are looking to Europe amid a decline in class-action suits at home. Just 59 securities-fraud lawsuits were filed in America in the first six months of 2007, almost half the semi-annual average over the previous decade, according to a July 10 study by Stanford Law School.

The numbers still sound better than in Europe. In Britain, there have only been 58 so-called "Group Litigation Orders" since 2000 and only one so far this year.

"It's a shop window effort to find a new feeding ground for the U.S. class action lawsuits, primarily the institutional investors in Europe," said Andrew Clark, a partner specializing in international commercial litigation at London-based Allen & Overy LLP.

The American lawyers have found support from European politicians, including Mr. Sarkozy. French officials and European Competition Commissioner Neelie Kroes have separately pushed for plans to promote private enforcement of national antitrust and price-fixing laws.

"It's necessary for consumers to become players" in promoting competition, Bruno Lasserre, France's chief antitrust regulator, said in an interview.

Shell's $353 million settlement with non-American shareholders was good for both the company and investors, Mr. Hess and lawyers for the plaintiffs say. If the Hague-based Shell can settle with European shareholders, the oil company may avoid the risk of a worldwide action brought before an American jury with the power to award even more money, Mr. Hess said.

"For plaintiff lawyers from the traditional European firms, it is good news because they have something to offer that is realistic and will get a settlement on the table," said Daan Lunsingh Scheurleer, a partner at Amsterdam's NautaDutilh who represented two Dutch pension funds in the Shell settlement.

The landscape is changing Germany as well. When 16,000 shareholders of Bonn-based Deutsche Telekom swamped a Frankfurt court with 2,500 suits in 2003, alleging the company made false statements when issuing shares, the German government responded by passing a 2005 law that introduced a special procedure for shareholder suits.

"There is a new emphasis on the rights of shareholders, and it's being driven by shareholder activists and legislators," said Ralph Stone, a lawyer at Shalov Stone & Bonner in New York, who worked on American aspects of the case with a German law firm representing Deutsche Telekom shareholders.

A Frankfurt court is currently deciding on two Deutsche Telekom test cases before lower courts decide individual claims. Andreas Leigers, a spokesman for Deutsche Telekom, called the suits "unfounded" in an interview.

Michael Hausfeld, a partner at Cohen Milstein in Washington, sees a future focused on European competition and securities law. The firm has hired three London partners and an associate, Mr. Hausfeld said.