Declaratory Model Action in Germany – The first year in review

One year ago, on 1 November 2018, the Musterfeststellungsklage (Declaratory Model Action or DMA) was enacted in Germany as a means of collective redress for consumers. Since then, German courts and litigators alike have been faced with numerous questions regarding this new type of lawsuit. While many central issues of procedure are yet to be filled with life, the courts have started to provide clarity on some of them. One year, six DMA lawsuits and three court rulings later, it is therefore time to look back at what has happened so far, and to look ahead to where things might go from here.

The diesel DMA - or, how it all began 

When the German legislator introduced the DMA, it was primarily concerned with providing a mechanism for German vehicle owners to prevent their (alleged) diesel emissions claims against Volkswagen from becoming time-barred. In line with this legislative intent, the first and most prominent DMA was brought by the Verbraucherzentrale Bundesverband (Federation of German Consumer Organisations) against Volkswagen AG regarding compensation for the owners of vehicles affected by the diesel NOx emissions issue (docket number 4 MK 1/18).

On 30 September 2019, the first of probably several oral hearings took place before the Oberlandesgericht Braunschweig (Higher Regional Court Brunswick). Given the enormous public interest in the case, which more than 468,000 consumers registered for, the court had to move the hearing venue to a conference center. The hearing itself was the headline story in all important German media, and was reported on in countries as far away as Australia.

While the court refrained from commenting on the merits of the case during the first hearing, it did provide preliminary guidance on several important matters. Thus, it inter alia deemed a number of the declaratory claims to be inadmissible, as they did not relate to issues that could be determined at a group rather than the individual consumer level. In the same vein, the court indicated that it cannot determine whether, and if so what, specific loss affected consumers suffered due to the diesel issue. Moreover, the court signaled that even if they should otherwise win, consumers would have to pay compensation for the use of the vehicles, thereby significantly reducing Volkswagen’s exposure.

Irrespective of the ultimate ruling of the court, unless the parties arrive at a settlement, the case is expected to ultimately be decided by the Bundesgerichtshof  (Federal Court of Justice). If successful, the consumers would then have to file individual follow-up lawsuits to inter alia prove their specific loss.

The next hearing before the Higher Regional Court of Brunswick is scheduled to take place on 18 November 2019 and will likely again focus on issues of procedure.

Beyond diesel – the first court rulings… 

While the Brunswick diesel DMA is still in its early stages, the Higher Regional Courts have already rendered rulings in three other DMA cases.

Two of those cases – pending in Brunswick (docket number 4 MK 2/18) respectively Stuttgart (6 MK 1/18) – concern claims against car manufacturer banks for alleged failures to correctly inform car finance customers about their contract revocation rights. In the first case, the Higher Regional Court Stuttgart rejected the DMA on procedural grounds, after the claimant organization had failed to convince the court during an oral hearing that it met the prerequisites that have to be met for an organization to be permitted to bring a DMA. In the second case, the Higher Regional Court of Brunswick’s doubts as to the same organization’s standing were so grave that the court refused to even publish the case for consumers to be able to register. Both decisions are being appealed to the Federal Court of Justice.

In the third case, regarding rent increases following the modernization of flats, the Higher Regional Court of Munich recently rendered the first substantive DMA judgment (docket number MK 1/19). Only permitting much more moderate rent increases than those sought by the defendant residential property company, this decision will also likely be appealed against before the Federal Court of Justice.

Meanwhile, there is one further DMA pending in Frankfurt in relation to a financial services company specialised in providing ratings (docket number 24 MK 1/18). The plaintiff association bases itself on allegedly deficient ratings. An oral hearing in this matter has been scheduled for February 2020, in which procedural matters will be discussed.

… and what to expect next 

While the Munich DMA judgment only affects approximately 140 tenants directly, the ruling received wide-spread attention in the German media. A number of Germany’s leading newspapers and magazines portrayed the judgment as a landmark victory for tenants – which make up more than 57 % of the German population. This decision has thereby given the DMA prominence beyond the car industry, with self-proclaimed consumer right advocates exploring the scope for further DMA litigation.

Moreover, as demonstrated by the DMA initiated against the Stadt- und Kreissparkasse Leipzig (Leipzig Savings Bank, docket number 5 MK 1/19) over the summer, regarding interest rate calculation methods, even quasi-public institutions like savings banks are now coming within the focus of DMA claimants.

While originally conceived in light of the diesel issue, the DMA now appears to be growing into a vehicle for litigation against companies regarding manifold different topics in a widening variety of industry sectors. In light of the potential for many thousands of consumers to register for a DMA, companies in many industries therefore now have to be prepared to defend against litigation in favour of large parts of their customer base.