Leonor Martins Machado à conversa com Jeremy Lieberman no Global Class Actions Symposium 2024

Leonor Martins Machado, associada coordenadora que integra a equipa de contencioso e arbitragem da Morais Leitão, participou como oradora no evento Global Class Actions Symposium 2024, que teve lugar nos dias 12 e 13 de novembro no SUD Lisboa Hall, em Lisboa. O evento foi promovido pelo Global Legal Group (GLG) e reuniu especialistas internacionais para discutir as mais recentes tendências e desafios nas ações coletivas.

A advogada esteve à conversa com Jeremy Lieberman, Managing Partner da Pomerantz LLP, uma das mais prestigiadas sociedades de advogados norte-americanas, especializada em ações de valores mobiliários.

Durante a troca de ideias, foram abordados temas como:

• A expansão global das ações coletivas, impulsionada pela globalização e decisões judiciais, como o caso Morrison nos EUA;
• As características que tornam o sistema norte-americano único, como o regime de opt-out, os honorários contingentes e a inexistência da regra do loser-pays;
• O papel crescente das ações coletivas na governança corporativa e na promoção de objetivos ESG (ambientais, sociais e de governança).

Leia a entrevista completa abaixo.  

Fireside Chat with Jeremy Lieberman and Leonor Martins Machado

LEONOR MACHADO: So, to kick off, I would start by asking you to comment on the rise of securities class actions across the globe. We know that the USA has a long history of securities class actions, but we have seen a lot more class actions emerging around the globe—in the UK, Canada, and Israel. Do you think that this rise of class actions around the globe has to do with the Morrison decision issued by the Supreme Court, or are there any other reasons?

JEREMY LIEBERMAN: I think there are two key reasons. One is globalization. The world is smaller, attorneys from different regions become familiar with one another, and you have conferences like this where systems are discussed, and there are conversations about the best ways to get redress for investors, consumers, etc. Through these discussions, you learn that there's a very robust system in the United States, where there can be recovery for investment losses when fraud occurs, and where real money is at stake.

In the U.S., since 1995, when major reforms in securities class actions heightened the bar for bringing cases, over $200 billion has been recovered. That’s real money—serious money for investors—most of it going to institutional investors, but also a significant portion to retail investors. This is a real business, a real industry. You see many advertisements here from litigation funders, claims administrators, and law firms, and it’s clear that this is an established and significant industry.

There's real money being recovered, and European, Asian, or Australian colleagues often say, "This is real money; this is a real recovery. It shows that it's not just lawyers trying to make a few dollars." While that may be part of it, let's be honest, it's a real business with significant importance to investors. Europe and the rest of the world are rightly asking, "What about us? What does this mean for us, and why don't we have a similar system?"

Globalization is one explanation for the exportation of the class action concept to non-U.S. regions. The Morrison decision also contributed significantly to this growth and awareness, as well as to the adaptation of the class action mechanism in Europe and other regions. Before Morrison, if a class action had some U.S. nexus—such as fraud occurring or false statements being made in the United States—it was possible to include non-U.S. securities in U.S. jurisdiction and recovery. This was somewhat limited, but Morrison attempted to establish a bright-line rule: if you list and trade in the U.S., you can recover; if not, you're out of luck as far as U.S. jurisdiction is concerned.

This created a dual class of shareholder rights. For example, in the BP and Vivendi cases, if you purchased shares in the United States, you were covered; if you purchased shares on the London Stock Exchange, you were not. This disparity struck many as patently unfair. The ruling balkanized jurisdictions, creating different rights based on the location of transactions. Investors and regimes worldwide saw this as inequitable, leading to the same "What about me?" attitude in places like the Netherlands and the UK. This has since resulted in cases like Volkswagen in Europe, Tesco in the UK, and Petrobras in Brazil.

Ironically, Morrison sought to limit cases and was an attempt by the U.S. Chamber of Commerce to reduce litigation and class actions. However, attempts to snuff out litigation in one area often create a much larger problem elsewhere. Europe, for instance, strongly adopted the class action regime as a result of Morrison. Even before Morrison, the U.S. system was not an open door for all litigants—it was limited to cases where a significant portion of the fraud occurred in the U.S. Now, with that door closed, new opportunities have opened across Europe.

This demonstrates the unintended consequences of Morrison, which was largely a pro-business lobby decision. It serves as a cautionary tale: shutting the door in one jurisdiction can lead to widespread litigation across the globe in cases that might never have existed otherwise. Such is life.

LEONOR MACHADO: Despite the fact that Morrison, as you mentioned, has contributed to class actions being brought in other jurisdictions, I believe you also noted that there have been attempts to sidestep the Morrison decision to bring class actions back to the U.S. What are the characteristics that make the U.S.-style class action so appealing to investors?

JEREMY LIEBERMAN: I think there are three key ingredients that still make the U.S. the best regime for class actions and redress. By no means is the U.S. system perfect—it’s very flawed. We could have an entire session on what needs to be corrected in the U.S. system. However, there are three elements that make it superior to what exists elsewhere in the world.

The first is the opt-out regime. This mechanism automatically represents everyone, and it has two advantages. One, it is a powerful tool: as lead counsel in the U.S., you speak on behalf of a very strong group, giving you significant leverage when negotiating with defendants. On the flip side, for defendants, resolving the case becomes very valuable because it offers global peace on the issue. The opt-out mechanism is a major strength of the U.S. system.

The second is the availability of contingency fees, which I believe makes the U.S. system much stronger. In Europe, litigation funders are commonly used, and while I think litigation funders are important and beneficial, they introduce extra costs and complexity into the system. Questions arise about who is really running the show, and the decision-making often follows the money. In the U.S., the lawyer taking a case on a contingency fee basis has direct control. They are the most skilled at making decisions, understanding the risks, rewards, and intricacies of the case.

Even in the U.S., there is room for litigation funding, and I applaud its growing normalization. More capital in the system raises its value. However, in Europe, the lack of contingency fees makes litigation funders a necessary component, which slows down the process. Introducing a third party adds confusion and detracts from the efficiency, incentives, and ultimate recovery compared to the U.S. system.

The third element is the absence of a loser-pays rule. This feature significantly affects settlement dynamics. For instance, in the Petrobras case, defense costs likely exceeded $150 million. If we had faced the risk of adverse costs, our settlement calculus would have been entirely different. Not having to consider such exposure allows plaintiffs to focus solely on the value of the case.

These three ingredients—opt-out regimes, contingency fees, and the absence of a loser-pays rule—clearly make the U.S. system more robust.

LEONOR MACHADO: I was going to ask you if the fact that contingency fees for attorneys and the inexistence of the loser-pays rule make the U.S. system less appealing or necessary for funders. I believe you already explained that, but do you have any disclosure obligations in the U.S. regarding third-party funding?

JEREMY LIEBERMAN: I think contingency fees make litigation funding unnecessary in many cases, depending on the firm's resources. However, litigation funders are still getting involved in class actions. This option is available, though we rarely use it. In particularly risky cases, we might consider involving a litigation funder as another source of capital, which can add value to the claims. So, while it is less necessary, we are seeing litigation funding increase in the U.S., even in class actions with contingency fees.

As for disclosure requirements, it depends on the jurisdiction. In the U.S., there is no uniform rule. There is definitely a push—mainly from the defense bar—for more disclosure, often based on concerns about conflicts of interest or inadequacy in class representation. For example, some jurisdictions, like the District of New Jersey and the Northern District of California, require disclosure of third-party funding. The bar association is also grappling with this issue, and it's a fair debate about what type of disclosure should be required.

LEONOR MACHADO: Do you think contingency fees and the inexistence of the loser-pays rule create space for abusive litigation by plaintiffs? Also, are there mechanisms within the U.S. system to prevent abusive or nuisance litigation?

JEREMY LIEBERMAN: As far as contingency fees are concerned, I don’t see how they incentivize abuse. Attorneys are incentivized to spend their money and resources on claims they believe in, knowing they will recover their fees only if the case is successful. The lack of adverse costs, however, could be argued to incentivize abusive litigation, as the cost-benefit analysis for filing a case is different without a loser-pays rule.

That said, I believe the benefits outweigh the risks. Reintroducing adverse costs might prevent abusive litigation, but it would also deter many meritorious claims. Litigation is inherently uncertain, and the threat of massive financial losses could discourage valid cases.

The U.S. has guardrails to prevent abusive litigation. Rule 11 of the Federal Rules of Civil Procedure imposes sanctions for frivolous claims. The PSLRA mandates court reviews at the end of securities class actions to determine if the case was frivolous or brought in bad faith. These mechanisms ensure accountability and deter abuse. Defense firms are aware of these rules, and so are we. Avoiding sanctions is crucial for maintaining reputation and the ability to lead future cases.

The argument for adverse costs is understandable, but the negatives outweigh the positives. Just because a case is lost doesn’t mean it was abusive. Litigation often involves complex issues, and juries may side with defendants despite valid claims. If plaintiffs faced tens of millions of dollars in potential costs, they would simply seek insurance, increasing costs for the plaintiffs and the class as a whole. Adding a third party like an insurer is unnecessary and counterproductive.

LEONOR MACHADO: Interesting. In 2023, according to Broadreach Annual Reports, there was a cumulative settlement value exceeding $5.5 billion in what they call investor recovery class actions. I believe this is a broader concept that includes more than securities class actions strictu sensu. In 2022, this number was $7.4 billion. Do you think securities class actions are more prone to settlement agreements than other kinds of class actions?

JEREMY LIEBERMAN: I don’t think they’re more prone than other class actions. Any large, high-stakes case is likely to end in settlement. These cases are typically “bet the company” situations, or even “bet the firm.” Plaintiffs’ firms spend millions of dollars on a case, and losing would have significant consequences. Rational actors on both sides—whether it's the company or the firm—will often prefer to sit down and assess the risks, ultimately agreeing on a settlement to avoid the uncertainties of trial.

There have been only about 24 securities class action cases that have gone to trial and verdict out of more than 20,000 cases. This statistic shows that most parties are rational actors. Historically, verdicts have been split 50/50 between plaintiffs and defendants, which reinforces the risk of taking these cases to trial. Settlement makes sense for both parties under such circumstances.

Settlements typically occur after key litigation milestones. For example, motions to dismiss must often be resolved, and class certification is usually granted before large settlements happen. These are not quick resolutions where a plaintiff's firm files a case and walks away with billions. Cases are rigorously litigated and tested before reaching settlement. When a court allows a case to proceed beyond dismissal, it indicates a high likelihood of fraud. Class certification further confirms that the case should move forward. If a case survives summary judgment, it means there’s enough evidence for a jury to potentially rule in the plaintiff’s favor. At that point, settlements become more likely.

In Europe and non-U.S. jurisdictions, cases tend to drag on without resolution. Rulings in favor of plaintiffs are often appealed, and the process returns to lower courts. This prevents cases from moving forward and ultimately settling. Cases in these jurisdictions often stagnate and remain unresolved.

LEONOR MACHADO: That’s very interesting. I’d like to ask: can securities class actions be viewed as a corporate governance tool? Can they also be used to achieve ESG goals, and to what extent?

JEREMY LIEBERMAN: Yes, to both. Courts are increasingly receptive to ESG-related claims under securities laws. For example, we recently handled a case against Wynn Resorts involving Steve Wynn, who for decades engaged in sexual harassment and, unfortunately, acts of assault against employees. The board was aware of these activities and used corporate funds for settlements. We settled the case for $70 million, which included contributions from executives. The court initially struggled with whether this belonged under securities law, debating whether there was a material false statement that investors relied upon. Ultimately, we convinced the court that there was, demonstrating that such cases can fit within the framework of securities law.

We’re also involved in environmental cases, such as the AT&T and Verizon lead cable cases. These companies misrepresented efforts to clean up miles of lead cables from the fiber optic network era. They claimed to have cleaned the cables but left hundreds of thousands of miles in the environment, causing significant public harm. This is a clear ESG-related claim. Courts are increasingly recognizing the materiality of these issues to investors and the market, even if such cases are not always straightforward.

These claims show that securities laws can address governance and environmental concerns when they materially affect investors. While not always easy to prove, courts and clients are beginning to recognize their importance.

O vídeo integral desta conversa está disponível abaixo.