Antitrust Law and Merger Control14.02.2020 Newsletter

Newsletter: District court rejects class action in truck cartel

On 7 February 2020, the District Court of Munich I has rejected the up to now most extensive civil damage claim concerning the truck cartel (reference 37 O 18934/17). The judgment has put a severe damper on the business model of the legal service provider Financialright.

1. Provider organised class action for 3.000 forwarders
In the legal proceedings heard before the 37th civil chamber of the District Court of Munich I, Financialright Claims GmbH filed a suit against several truck manufacturers and claimed compensation of over 600 million euros. Financialright had (alleged) claims for damages assigned to it from more than 3000 forwarders in order to file a bundled claim for damages. According to reports from the press, the legal service provider supported by a litigation financer would have retained one third of the sum recovered as a success commission.

2. District Court of Munich: Dismissal of action for lack of capacity to act
The decision of the District of Court of Munich is in close connection with the discussion about the admissibility of legal tech offers and class action lawsuits in Germany. Already in November 2019, the Federal Court of Justice (Bundesgerichtshof, BGH) has developed principles on the basis of which the admissibility of such business models is to be evaluated. In the case to be decided by the BGH, Lexfox GmbH took legal action in its role as a registered collection service provider (Section 10 (1), no. 1 of the Legal Services Act, Rechtsdienstleistungsgesetz, RDG) based on the assigned right to claim damages arising from a rental agreement. The BGH decided, that the concept of collection services was to be interpreted widely and that the specific circumstances were to be acknowledged thereby taking into consideration the protective purpose of the RDG. The aim of the RDG was to protect persons seeking legal advice, the provision of legal services and the legal system against unqualified legal services. According to the BGH, the business action of Lexfox GmbH fell under the scope of the RDG.

However, the District Court of Munich held a different opinion in the truck lawsuit. It identified crucial differences between the business model of Financialright and the model assessed by the BGH. For this reason, after taking all circumstances and the protective purpose of the RDG into consideration, the court held that the business activities of Financialright did not fall under the scope of its collection authorisation and that the assignments were insofar void (Section 134 of the German Civil Code, Bürgerliches Gesetzbuch, BGB in conjunction with Section 3 RDG).

2.1 Exclusive judicial activity does not fall under the scope of the collection authorisation
The District Court of Munich has based its decision, among other things, on the focus of the service provider’s activities. According to its opinion, Financialright’s business model was exclusively focused on the judicial and not on the extrajudicial assertion of claims. The exclusive judicial activity was not a collection activity within the meaning of the RDG. After assessing the contractual provisions, the plaintiff’s conduct and the actual implementation, the court concluded that “the overall impression of the offer was aimed at participating in a class action lawsuit”. Insofar, Financialright did not operate in the typical function of a collection company.

2.2 Endangering interests of clients by means of bundling claims
The court has identified another infringement of the RDG in the involvement of Financialright’s clients in the risks to be borne by other clients. Since the action instigated by Financialright bundles many claims, some of which are different from each other in detail (for example in respect of vehicle type), the risks inherent in some individual claims could, according to the court, have a negative impact on other claims. In settlement negotiations between plaintiffs and defendants, chances of success of asserted claims typically played a major role in respect of the size of the settlement amount. The provisions of the agreement between Financialright and the forwarders, however, provided for a proportionate participation in the settlement amount independent from the chances of success of the individual claims. After all, according to the opinion of District Court of Munich, there was the risk that claims of customers with small chances of success reduced the settlement amount and, consequently, have a negative impact on claims of other customers which seem very likely that they can successfully be enforced.

2.3 Conflict of interest caused by litigation financing
According to the court, litigation financing led to conflicting interests between the plaintiff Financialright on the one hand, and its clients on the other hand. Firstly, the plaintiff was financially supported by a litigation financer and, secondly, it was indemnified from proceeding costs. Whereas the litigation costs were in this respect not a deciding factor for the plaintiff, the plaintiff being dependent on the litigation financer could lead to the fact that the client’s interests were superseded by economic considerations of the litigation financer and, thus, were endangered. The plaintiff’s self-interest in a successful outcome of a lawsuit on the basis of a success commission could not eliminate the conflict of interests.

3. Outlook
Even though the decision puts a damper on Financialright and the operated business model, it will probably be sooner or later for the BGH to decide if the business model is legal. The plaintiff has already announced its intention to appeal against the decision.

The decision rendered by the District Court of Munich shows that “the devil is in the details”. Whereas the intra-group assignment of claims for damages to a company for the purpose of enforcing claims is admissible according to the RDG, the masses bundling of third-party claims – especially, across various industries - could become more difficult in future. Lawsuits supported by litigation financers are also likely to remain permissible. However, business models in which the economic risk does not lie with the plaintiff, but with the process financier or the assignor (e.g. in the form of an additional profit-sharing in the event of a successful conclusion of the proceedings), but where the latter no longer has the opportunity to intervene strategically/directly in the process due to the assignment of the claim, could be critically questioned.

In any case, companies that suffered damage should carefully evaluate in future, whether they want to further increase the risk of litigation by assigning their claims to a legal services provider. Often, significant cost savings can be realised also in the event of the enforcement of individual claims, for example with respect to a joinder of parties (also with the participation of a litigation financer), or the joint commissioning of an economic expert for damage assessment.

You can find further information on the issue of antitrust damages here. There you will find, among other things, an overview of the most important measures aimed at ensuring and enforcing antitrust damage claims.

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