The 2015 Volkswagen emissions scandal, which laid bare European consumers’ difficulties in obtaining monetary compensation for mass harm, is now fueling a continental shift toward group litigation—one that will give defrauded investors new legal options to consider.
In April, the European Commission unveiled a proposed directive that would require all 28 EU member countries to establish representative actions for collective redress. Two months later, the German parliament enacted a new law expanding the use of model proceedings.
While both measures fall far short of offering plaintiffs the advantages of U.S.-style class actions, they are seen by proponents and critics alike as a step in that direction. Under the proposed European Commission directive, the outcome of a representative action in one EU country will be binding on all similarly harmed consumers in that same country, and a finding of infringement will provide a rebuttable presumption for consumers harmed by the same behavior in any other EU country. The directive also would allow entities representing investors in various member states to join forces in a single action.
Of course, it will take years of real-life briefing, arguments, declaratory judgments, settlements, and appeals before the true impact of the new laws can be measured. Still, for institutional investors who purchase securities on international exchanges, the developments suggest legal protections will continue to expand in the European Union. This is important given that investors in non-U.S. markets cannot rely on U.S. federal law for protection since the Supreme Court’s sweeping Morrison ruling in 2010.
In announcing the two measures, both the European Commission and the German government cited the “Dieselgate” scandal that erupted in September 2015 when the U.S. Environmental Protection Agency accused VW of violating clean air laws by rigging diesel-powered vehicles to shut off anti-pollution devices when tested.
Volkswagen eventually admitted it had sold 11 million offending vehicles worldwide, including 8.5 million in Europe, where executives have been jailed and the company has paid billions of euros in fines. But while U.S. consumers benefited from class action settlements providing generous cash compensation and the right to sell their vehicles at pre-scandal prices, VW offered European owners only a free “fix” to reduce emissions to lawful (arguably still dangerous) levels.
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