ACHIEVING GLOBAL PEACE IN INVESTOR CLASS ACTIONS IN AN OPT-OUT WORLD
Since the European Union (EU) adopted Directive 2020/1828 four years ago, the number of European countries allowing for collective action regimes has steadily risen, as have the number of class actions filed in European courts. While many EU countries have now enacted legislation allowing for consumer class actions, the landscape is still fluid as member states continue to settle on their preferred policies.
One policy decision that is of consequence to companies operating in EU countries is the adoption of an ‘opt-in’ versus an ‘opt-out’ regime. An ‘opt-in’ regime allows class members to affirmatively opt into an action brought by a representative, whereas an ‘opt-out’ regime provides that any individuals who fall within a defined class are automatically part of the class action unless they affirmatively opt out. Conventional wisdom holds that opt-out regimes come with higher litigation risks for defendants. By automatically placing similarly situated plaintiffs in a defined class, an opt-out regime enables larger class sizes, higher (aggregate) potential damages and increased litigation costs. This, in turn, increases the availability of third-party funding and the financial ability of claimants to prosecute the case and negotiate settlements. However, although opt-out regimes may increase a defendant’s potential exposure in the short term, opt-out regimes also offer a more promising route to achieving another important goal of any defendant in a class action: global peace.
Jan-Mar 2025 issue
Cleary Gottlieb Steen & Hamilton LLP