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In 2016, following the Dieselgate scandal in which German carmaker Volkswagen was caught cheating on emissions tests, making their cars seem cleaner than they were, the American owners of 475,000 affected vehicles received a whopping $10 billion settlement.
Europeans, who own the largest share of the 11 million affected vehicles, have still not received anything. “The Americans got compensated in six months,” says Ursula Pachl, deputy director of the European consumers association BEUC. “Four years later, European consumers have still not been compensated at all.”
That’s because while the United States allows consumers to group together and sue companies for wrong-doing in class action lawsuits, such a legal mechanism has been mostly unheard of in Europe. That is about to change.
On Thursday, the 28 national governments in the European Union are set to approve a European Commission proposal to make such collective redress available in every EU country. Once it becomes law, it could allow VW drivers in Europe to finally get their day in court. It would mean EU consumers are able to fight back when they have suffered damages in a way that is more efficient and less daunting than taking on a company alone.
Five countries in the EU already offer a working system of collective redress, but they are not often used. Nine countries have no system at all, while the other 14 have systems that are in practice too difficult to use.
Consumer groups are already preparing Dieselgate lawsuits using new EU collective redress rights. This morning the Diesel Emissions Justice Foundation held a press conference in Brussels announcing an EU-wide coordinated mass claim for what they say are 8.5 million Europeans affected.
Invading American lawyers
Businesses are extremely concerned about the EU proposal. They fear that the EU is about to import the American class action model which has been notoriously abused by predatory law firms. Leading the charge against the proposal is the U.S. Chamber of Commerce, which is warning that the American class action system has harmed American businesses and it would be a disaster to expand such a system.
“The EU collective action proposal, as currently drafted, will allow claimants’ lawyers to “shop” their cases around EU Member States, encourage funding of cases by massive hedge funds that will take a large percentage of any award or settlement, and let claimants’ lawyers get paid before any consumer get any money,” says Scevole de Cazotte, the chamber’s senior vice president for international initiative.
“Now is the time to learn from the mistakes of the U.S. system and stop the EU justice system from turning into an abusive litigation machine that primarily benefits claimants’ lawyers, not consumers.”
Pedro Oliveira, director of legal affairs at the Brussels-based industry association BusinessEurope, believes that a lack of strict certification criteria for who can be a qualifying entity to launch a lawsuit and who is an affected will open the door to abusive suits. A system of punitive damages where there are no named victims would lead to abuse, he says, as would allowing big funders to come in and launch class actions.
“Punitive damages is an over-compensation that is not going to consumers,” he says. “There are three or four big funders from the U.S. setting up shop in the EU right now, so they’re getting ready.”
Big businesses do not like the version of the legislation passed a year ago by the European Parliament, the EU’s directly-elected lower legislative chamber, because they say it goes too far in allowing all kinds of consumer lawsuits and doesn’t contain these safeguards. They have been lobbying national governments furiously trying to add safeguards that would prevent abusive litigation. But consumer advocates say many of these suggested safeguards are just watering down the legislation to make it unusable.
The big fear is that the standardized EU system will be worse for consumers than the five existing national systems – and those countries will have to water down their collective redress legislation to meet the EU standard. The controversy has slowed down legislative debate in the Council, the EU’s upper legislative chamber made up of ministers from each of the 28 national governments.
“From the start, unlike in the Parliament, it was clear that member states [in the Council] were not keen on changing their national systems,” says Oliveira. “This made the discussions very complicated and a led to a certain lack of ambition. We agree with BEUC that there has been a watering down – but it is more on the side of safeguards.”
Crunch time
The Council will finally adopt its position at a meeting of national business ministers in Brussels on Thursday. Even in the last moments, the text is changing as national legal departments give their advice.
Once the position is adopted, representatives of the Council and Parliament will conduct negotiations over the next three months to agree a consolidated version of the legislation, as the House and Senate do in the United States in reconciliation. This final version must then must be signed off by the executive which first proposed the law, the European Commission.
Negotiations are set to be tough because the two versions are quite far apart. The Council has moved a bit from its initial skepticism by broadening the scope from traditional consumer issues to include product safety and medical devices. But including data protection and other issues of digital privacy, as the Parliament wishes to do, seems to be a bridge too far. The Council’s version also includes financing restrictions on consumer groups for launching such actions might mean many organizations are unable to launch costly court cases.
There are also questions about whether the system should be “opt-in” where affected consumers choose to join, or “opt-out”, where they have to actively turn down being part of the lawsuit.
On one thing, both sides agree: they do not want to import the U.S. class action system.
Advocates have been careful to not even use the same term, knowing it conjures up images of ambulance-chasing lawyers. They say this EU proposal is completely different from the American system, and the U.S. Chamber of Commerce is using the American failures to scare the EU away from enabling fair consumer compensation.
“U.S. class action is a dirty word here,” says Petra Cakovska, vice-chair of the Slovak consumer group SOS Poprad. “There is complete consensus that we are not for U.S.-style class action and strike suits. But that’s not what’s in this proposal. This type of law isn’t in the European tradition.”
Paolo Martinello, an Italian lawyer who specializes in consumer law, agrees. “It would be impossible to import into Europe a system of objective liability,” he says.
Whether or not national governments want to deal with this issue, they have no choice, he says. Because the EU waited so long before attempting to create an EU standardized system for collective redress, national governments have gone ahead in creating their own systems. Now there is a patchwork of different systems which, as the Dieselgate scandal shows, doesn’t work in a common market.
“Now we have to harmonize the different systems that were introduced,” he says. “We’re obliged to do this.”
