Declaratory Model Action in Germany – first practical experiences

Since the introduction of the Musterfeststellungsklage (Declaratory Model Action or DMA) on 1 November 2018, five DMAs have been filed so far. In the last six months, courts and lawyers in Germany have therefore been faced with various questions concerning this new type of lawsuit.

At the same time, the European Union is headed for a new Directive on representative actions where similar issues may arise. The proposed EU collective redress mechanism was approved by the majority during its first reading in the European Parliament on 26 March 2019. It remains to be seen what position the EU Council will adopt and what the future of this Directive on Representative Actions will look like.

Summary: Procedure of a DMA

The DMA is a collective redress procedure which can only be brought by a qualified entity (QE). A QE has to consist of at least 10 consumer associations or 350 individuals and needs to be registered for at least four years in an official register in order to file a DMA. Moreover, a QE may not pursue DMAs for commercial purposes.

After filing the claim, the court publishes the DMA in the federal Klageregister (i.e. the federal class action register). In order for a DMA to be admissible, there must be – within a time period of two months after public announcement in the Klageregister – at least 50 consumers having opted into the DMA. Registration remains open to consumers until the day before the first hearing, however registered consumers may withdraw their claim until (including) the day of the hearing. 

A declaratory judgment of a Higher Regional Court (Oberlandesgericht) – most likely to be reviewed on appeal on a point of law by the Federal Court of Justice – will be binding for for the QE and the defendant as parties to the proceedings as well as all consumers having validly opted into the proceedings. A judgment in a Declaratory Model Action will not determine the amount of damages to be awarded. In the aftermath of a declaratory judgment with positive declarations for the registered consumers, each consumer needs to file an individual action to claim their respective individual damages. As a result, defendants may face in the aftermath of a declaratory model judgment (Musterfeststellungsurteil) thousands of individual claims raised in parallel before courts all over Germany.

Alternatively, the parties may agree on a settlement of the case. The parties may decide on a comprehensive settlement which can cover any aspect of the dispute, even a specified amount of compensation. Any possible settlement has to be approved by the court and will only enter into force if at least 70% of the registered consumers agree with the settlement instead of opting out within a month.

The first cases

Of the expected 450 DMAs per year, so far only five actions have been filed within the first six months after entry into force of the law. 

The first DMA was brought by the Bundesverband der Verbraucherzentralen (Federation of German Consumer Organisations) against Volkswagen AG regarding compensation for cars using an allegedly illegal emission software. The claimant undoubtedly qualifies as a QE, since pursuant to German law there is an irrefutable presumption for such consumer organisations law. The DMA’s prayers for declaratory relief were only partially published in the Klageregister on 23 November 2018, as the court also dismissed some of the claimant’s requests. The scope of this DMA is still subject to an appeal pending before the German Federal Court of Justice (Bundesgerichtshof). The number of registered consumers increases constantly, amounting to more than 420,000 today. 

Three further of these actions were filed by the Schutzgemeinschaft für Bankkunden e.V. (registered association for the protection of bank customers) – two against Volkswagen Bank and Mercedes Benz Bank related to allegedly deficient revocation instructions in consumer loan agreements and another one against a financial services company specialised in providing ratings.

In the DMA against Volkswagen Bank, the Oberlandesgericht Braunschweig (Higher Regional Court Braunschweig) refused to publish the DMA in the Klageregister, as the claimant could not prove that he had met the QE requirements. The court stated that providing anonymised lists of members is insufficient to satisfy the requirements for a QE.

In another case, the Oberlandesgericht Stuttgart announced and opened the registration for consumers but declared the case inadmissible after a first oral hearing. Many registered claimants had no connection to the case, as a material share of them did not even own a vehicle of the Mercedes brand. The court also stated that the association’s major task lay in the enforcement of claims against banks using unlawful terms and thereby following commercial interests. However, pursuing one’s own commercial interest disqualifies from acting as a QE.

Only the third DMA brought by the Schutzgemeinschaft für Bankkunden against a company offering online business information is still pending. The claimants seek damages for deficient ratings on registered bonds before the Oberlandesgericht Frankfurt am Main (Higher Regional Court Frankfurt am Main). A first hearing has not been scheduled yet.

Finally, another DMA was filed by the DMB Mieterverein München (Munich Tenants Association) filing a Declaratory Model Action concerning the apportionment of costs relating to modernisation works in an apartment complex in Munich. This DMA was published on 10 May 2019. A first hearing will take place in October 2019.

Joining a DMA as a strategic tool for consumers ?

Especially by looking at some of the DMAs already filed, it appears that joining a DMA may also be used as a strategic tool by consumers. Consumers who have filed an individual claim can still join the DMA to avoid a possibly negative individual judgment. By joining a DMA, the individual proceedings become stayed.

Vice versa, consumers who joined a DMA in the first place now arguably benefit from an extended limitation period and gain time to prepare their individual case. After having sufficiently prepared their case, some consumers may seek to withdraw their registration, which is possible until the end of the day of the first hearing, and could therefore profit from a six month extension of the limitation period. It is being discussed whether and how such behaviour should be dealt with by the courts. One discussed solution proposes the ineffectiveness of the registration to the DMA as such behaviour could be regarded as abusive and therefore unlawful. Another option for the courts would be to stay individual claims after the public announcement of a DMA.

Meanwhile in Brussels…

The European Institutions are working on a new draft directive on representative actions. A report on the directive proposal was adopted by the European Parliament in plenary session on 26 March 2019 by 579 votes to 33, with 43 abstentions.

As opposed to the German DMA that is limited to declaratory judgments, the proposed European collective redress mechanism provides also for compensatory judgments. However, discussions on the specifics of the Directive are ongoing and a declaratory model could possibly suffice with regards to minimum harmonisation. Nevertheless, it is also conceivable that the European Parliament may insist on means of compensatory collective redress, at least for cases with widespread but minimal damages (problem of rational apathy).

For the directive to enter into force, both Parliament and Council need to find an agreement. After the European elections having occurred at the end of May 2019, the draft directive is an issue that the next European Parliament and the European Commission need to address and it remains to be seen to what extent the Member States, especially Germany, are willing to let the EU influence provisions that are at the core of their national civil procedure system.

Further reading on DMAs: Christian Nordholtz, Martin Mekat (Eds.) – Musterfeststellungsklage [Practice Handbook Declaratory Model Action – including contributions by all authors of this blog post], Baden-Baden: Nomos, 2019, ISBN 978-3-8487-5255-3; Mekat, Martin / Nordholtz, Christian, Die Flucht in die Musterfeststellungsklage [The "Escape" into Declaratory Model Proceedings], NJW 2019, 411 et seq.