On January 17, 2012, the Amsterdam Court of Appeal declared binding two international settlement agreements in In re Converium/SCOR Holding AG Securities Litigation – an aggregate recovery of $58.4 million to a class of European and other non-U.S. investors who were excluded from participating in the U.S. securities class action against the Swiss reinsurer Converium Holding AG (“Convarium”) and Zurich Financial Services (“ZFS”).
This is the first cross-border securities litigation case of its kind settled on a Trans-Atlantic basis.
Cohen Milstein was Co-Lead Counsel in this matter.
The decision is significant for investors around the globe. These non-U.S. investors – who previously brought U.S. federal claims and were excluded from the U.S. action because they were not U.S. residents and because they purchased their shares on the Swiss Stock Exchange (the “SWX”) – now have access to $58.4 million in settlement monies. Moreover, the Amsterdam Court’s decision confirmed that the Dutch Collective Settlement Act, which allow claimants to reach a collective settlement with a defendant or group of defendants, is available to a broad range of securities plaintiffs and corporate defendants-inside and outside the Netherlands-and that the Amsterdam Court is a pragmatic and investor-friendly forum.
In approving the Settlements, the Amsterdam Court endorsed its landmark ruling on November 12, 2010 that it had jurisdiction to declare the settlements binding even though the alleged wrongdoing took place outside the Netherlands, and none of the alleged liable parties – and only a limited number of the potential claimants – were based in the Netherlands. That decision recognizes that all other European Union Member States, as well as Switzerland, Iceland, and Norway, must recognize the Court of Appeal’s ruling, under the Brussels I Regulation and the Lugano Convention.
Because the Netherlands is the only European country with such a collective settlement procedure it has become an attractive venue for settling international mass claims, irrespective of whether any litigation has taken place in the Netherlands. The approach taken in the Netherlands is important for all investors. This was underscored by the U.S. Supreme Court’s recent decision in Morrison v. National Australia Bank, which restricted the rights of investors to bring claims before U.S. courts for shares not purchased on a U.S. exchange. Thus, when U.S. courts will not hear their claims, European (and American) investors will more readily look to resolve them in European courts. The Dutch Collective Settlement Act, and the Court of Appeal’s decision in Converium, will make it easier for them to do so. The Court of Appeal noted the significance of its judgment in creating an alternative venue to declare international collective settlements in mass claims binding on all class members. The Court of Appeal explicitly referred to the limitations of the U.S. courts in securities cases as a result of the U.S. Supreme Court’s decision in Morrison v. National Australia Bank.
Converium, a major multi-line re-insurance company based in Switzerland, was spun-off from its former parent, ZFS, in December 2001. Converium was subsequently acquired in 2007 by the French company SCOR and is now known as SCOR Holding (Switzerland) AG.
In September 2005, Cohen Milstein and co-cournsel filed a consolidated amended class action complaint against Converium before the Southern District of New York on behalf of Lead Plaintiffs, the Public Employees’ Retirement System of Mississippi (“Mississippi”) and Avalon Holdings, Inc. on behalf of investors who purchased Converium common stock on the SWX and American Depository Shares (“ADS”) on the New York Stock Exchange (“NYSE).
Plaintiffs alleged that when ZFS spun off Converium in an initial public offering (IPO) and over subsequent quarters, Converium’s earnings were materially overstate. Specifically, Plaintiffs claim that Converium concealed a massive deficiency in its North American loss reserves. This allegedly caused the price of Converium’s stock and American Depositary Shares (ADS) to be artificially inflated from December 11, 2001 through September 2, 2004. Ultimately, in September 2004, Converium increased its loss reserves by $562 million, reported a loss for 2004 of $761 million and announced that it would place its North American operations into “run-off” and would no longer write reinsurance policies out of its U.S. offices. This caused the price of Converium’s stock and ADS to drop, resulting in losses to investors.
On March 6, 2008, the U.S. federal court certified a class of investors and Mississippi as the class representative. However, the court limited the class exclusively to U.S. investors and investors who purchased ADS on the NYSE. The court excluded Avalon as a class representative and all non-U.S. purchasers who bought shares on the SWX, concluding that there was insufficient evidence of subject matter jurisdiction over their claims. Converium and ZFS ultimately agreed to settle investors’ claims for a total of $143 million. Because of the U.S. court’s decision, this settlement was split between those who purchased Converium shares in the U.S. and those who purchased them on SWX. The U.S. federal court presided over the former and the Amsterdam Court of Appeal is currently presiding over the latter. Case name: In re Converium/SCOR Holding AG Securities Litigation, 04-cv-7897, United States District Court for the Southern District of New York