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September 2010 
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Managing Mass Tort Litigation |
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Pauline Renaud, December 2009 |
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Page 3 of 3 |
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Such cases highlight the various risks faced by companies in mass tort litigation lawsuits. “Issues are numerous, with the most obvious being the financial exposure that a company may face in the form of jury verdicts, settlement costs, attorneys’ fees – both defence attorneys and plaintiffs’ attorneys in certain actions – treble damages, litigation expenses, and punitive damages,” says Mr Meyer. Huge expenditures of money, resources and time are the top risks, which can financially cripple a company and damage its reputation. “Such mass tort litigation can generate a public relations nightmare,” confirms Mr Rosenberg. “Even if the litigation is ultimately won, business can be significantly adversely impacted as a result of the bad publicity. In addition, the possibility exists that officers and directors may be brought in as defendants, thereby exposing them personally to liability.” In order to limit the impact of bad publicity, some companies have had to change their name. Europay Austria, a market leader in card-based transactions, was found guilty of abuse of dominance by the Austrian Supreme Court a few years ago.
The damage on the company’s image was expected to be so great that it subsequently decided to change its name to Paylife.
Solutions to limit damages
In addition, international companies run the risk of being sued not only in their own jurisdiction but also abroad, particularly in countries that permit mass tort litigations. Businesses that are not familiar with such proceedings must therefore be particularly careful. Besides jurisdictional issues, companies may also be held accountable for the conduct of a predecessor or acquired entities. “In the US, the successor liability laws have unfortunately created a key source of potential exposure for any company contemplating a merger or an acquisition,” points out Mr Goldstein. Indeed, under the successor liability doctrine, a buyer who purchases the assets of a business may be held accountable for the seller’s debts and liabilities in several circumstances. There again, caution is the key word for businesses. But there is no magic panacea applicable in mass tort litigation – mitigation strategies will depend on the jurisdiction, the sector in which a company operates, and also on the facts of the case itself. However, involving external advisers early in the process can be a great help. “Upon identifying potential exposure, experienced outside counsel can work closely with the company to put together a core strategy to address the potential liability,” says Mr Goldstein. “This will be a multi-faceted approach and includes, for example, analysis of product issues, review of relevant company documentation, interviews of appropriate company personnel and consideration of successor liability issues.” One of the main aspects of this strategy should be coordination with all attorneys representing the company in different jurisdictions, so that a common approach can be reached regarding the outcome of the litigation.
Companies should determine whether it would be better to seek an early settlement or not, depending on the nature of their products, the nature of the allegations against it, the possibility that such a settlement may lead to even more claims, and the potential damage to their brand’s reputation if litigation proceeds. “Regardless of what the end-game actually is, you must understand it in order to avoid wasteful and potentially damaging decisions at each turn in the litigation. Deciding whether to challenge venue, oppose the creation of a multidistrict litigation, or assert certain defences, all can be impacted by the strategy for ultimately resolving the litigation,” explains Mr Jackson. He adds that understanding the facts behind the litigation and the surrounding issues – such as insurance, securities law, criminal law, relations with regulators and shareholders – is essential to making the right decisions. These decisions need to be made early in the process. Indeed, once the suit has been filed, several options exist. In Austria, for example, the first rule is to reduce the number of claims in the class action, according to Mr Geréd. “The main argument is always that the claims are not based on the same facts and therefore do not raise the same points of law, which may lead to the class action being rejected outright. However, by pointing out any difference between the claims, at least a reduction of the number of claims is possible,” he says. Such a move may help to limit potential damages to the company. Voluntarily recalling products can also be an effective tool in Austria, not only to reduce the number of potential claims, but also to limit media coverage. Conversely, in the US, whenever a product has to be recalled, mass tort litigation may well ensue.
But of course, one of the main solutions to limit potential risks would be to prevent mass tort litigation from happening in the first place. Although it remains difficult for companies to know exactly if and when litigation will happen, monitoring steps and pre-emptive actions can be very useful from that perspective. Companies should, for example, structure their operations to address risks. This may include efficient product and environment risk management and an appropriate insurance coverage. Providing training to employees regarding potential issues, structuring strong relationships with subsidiaries to avoid imposition of derivative liability based on the assumption that such subsidiaries are “mere instrumentalities” of the parent, as well as thoroughly planning the acquisition of new businesses to understand historical liabilities and minimise successor liability risks, should also be part of the overall process aimed at managing mass tort litigation.
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