As the role of US courts in transnational litigation decreases, businesses need to brace themselves for the rise of EU collective actions.
Why businesses need to adjust to a multijurisdictional disputes landscape:
- According to conventional wisdom, the level of transnational litigation in US courts is steadily increasing. This is due to plaintiff-friendly features that set the US legal system apart from other jurisdictions.
- Current empirical research by Professor Christopher A. Whytock challenges this common perception. Despite an increase in globalization and cross-border disputes, the number of transnational cases in US courts has actually been decreasing.
- While changes in US law have diluted the formerly stand-alone features of the US legal system, other jurisdictions have taken measures that draw plaintiffs into their courts.
- This holds especially true for Europe, where multiple new collective redress regimes draw in plaintiffs. Combined with the EU legislator’s activity in the fields of consumer and data regulatory, this development calls businesses to update their risk management.
Extensive pre-trial discovery, civil jury trials and spectacularly high damages awards: Anecdotes of the US as a plaintiff-friendly jurisdiction are so abundant that it has become conventional wisdom among counsel, judges and scholars that US courts draw in an ever-increasing number of foreign forum-shoppers. This narrative is also used by interest groups promoting protection of corporate defendants by limiting forum shopping. The propositions seem plausible on their face. But what if they relied on anecdotal evidence that was re-stated over time, rather than on empirical data? Could businesses suffer from a potentially risky misconception about their litigation exposure?
In his highly recommended new research paper, Christopher A. Whytock, Professor of Law and Political Science at the University of California, Irvine, School of Law, challenges common wisdom. His empirical research examined approximately eight million civil actions filed in the US district courts since 1988 (irrespective of the value in dispute) and reviewed the impact of US Supreme Court case law and legislative reforms since the 1980s on the features that are commonly described as drawing plaintiffs into the US courts.
Professor Whytock’s analysis depicts a nuanced picture of transnational litigation. He suggests that we are transitioning from an era of US-centric transnational litigation towards a multijurisdictional transnational dispute regime, which will increasingly take place outside the US. While Professor Whytock acknowledges that globalization triggers a rising number of cross-border disputes, he identifies key drivers that over the past years have diluted the attractiveness of US courts:
Changes in the US legal system restrict forum shopping
Professor Whytock’s challenges
US law sets minimal limits on personal jurisdiction, inviting plaintiff forum-shoppers.
From the 1980s throughout the 2010s, the US Supreme Court restricted personal jurisdiction in transnational disputes. In addition, it expanded the forum non conveniens doctrine, giving US courts broad discretionary power to deny jurisdiction.
The US offers broad pre-trial discovery, presenting plaintiffs with a great opportunity to build their case.
Since the mid-1980s, procedural reforms have progressively narrowed the scope of discovery. The US Supreme Court’s stricter plausibility pleading standard suggests that some transnational claims are less likely to advance to the discovery stage.
Juries sympathize with the plaintiff and award enormous damages.
The US Supreme Court’s heightened pleading standards and its case law on summary judgements allow courts to dispose of claims more liberally before trial stage. Stricter constitutional limits reduce the extent to which juries can award damages.
The US has a unique class action system that draws plaintiffs into its courts.
The class action doctrine has been subject to continuous limitations by US federal law. The US Supreme Court also raised the bar for certain class certification requirements, making them especially hard to meet for foreign class members.
The US has a plaintiff-friendly tort law regime.
Over the past decades, the pro-defendant “tort reform” movement succeeded in diluting plaintiff-friendly features of US tort law, i.e. by introducing caps on certain forms of damages and limits on joint and several liability. There is a correlation between the spreading of tort reform across the US and a decrease in transnational tort claim filings.
“Americanization” of jurisdictions outside the US: EU collective actions
Professor Whytock notes that in particular European jurisdictions have recently adopted different forms of representative actions. The EU takes this a step further: Under the EU Representative Actions Directive, Member States are obligated to implement a consumer collective redress regime by 2023, enabling consumer protection organizations to file a representative action on behalf of European consumers. The new features – implementation of which will vary across Member States – include document disclosure and the awarding of economic relief to a class of consumers. Both features are new to many European civil law regimes.
In combination with the EU’s tendency to continuously expand its consumer regulatory and data protection legislation, businesses whose products and services are directed at consumers should re-assess whether a US-centric risk management reflects the cross-border litigation exposure they could face in Europe.