Corporate victims of anticompetitive practices by their suppliers regularly consider their possibilities to exercise their rights in the best interest of their company. On 13 July 2021, the Federal Court of Justice (Bundesgerichtshof, ‘BGH’) held that the ‘class action collection’ (Sammelklage-Inkasso) is permissible. Correcting a contrary trend followed by lower courts, the landmark AirDeal judgment of Germany’s supreme court fundamentally confirms the legality of the opt-in ‘assignment model’, i.e. the contractual transfer of claims for damages of numerous victims of the same infringement to a specialised third party for the purpose of bundling, analysis, and joint enforcement of these claims. This approach from a procedural economy perspective has become increasingly important all over Europe in recent years, especially for private antitrust cases due to a lack of effective collective redress mechanisms. In Germany, it has also been approved by a current reform of statutory law.
Benefits of the assignment model
The assignment model is not limited to antitrust matters. For instance, it is also widely used by so-called ‘legal tech’ platforms enforcing consumer rights such as claims of air passengers for reimbursement under Regulation (EC) No 261/2004. However, according to the Advocate General at the European Court of Justice in CDC Hydrogen Peroxide, the emergence of players on the judicial scene, whose aim it is to combine assets particularly based on claims for damages resulting from infringements of EU competition law, shows that, ‘in the case of the more complex barriers to competition, it is not reasonable for the persons adversely affected themselves individually to sue those responsible for a barrier of that type.’
In fact, even in a ‘follow-on’ situation with a binding decision of a competition authority establishing the infringement as such (e.g., a market-wide price-fixing cartel), it is often only the bundling of rights of several affected parties that offers a realistic prospect of compensation and economically justifies its enforcement. Aggregating damages claims from multiple harmed companies significantly realises economies of scale that even large multinationals cannot achieve alone. For example,
- it allows a profound analysis of price effects of anticompetitive practices, based on market-wide data collected from all assignors, thereby reducing the information asymmetry especially between the members of a secret cartel and their victims;
- it strengthens the bargaining power in settlement negotiations and increases the pressure on cartelists to provide full compensation, while a ‘once-and-for-all’ settlement may be desirable for them too;
- by outsourcing litigation, it prevents the affected companies from a confrontation with their business partners and enables them to focus on their core business;
- it provides procedural synergies, by reducing litigation costs, relieving the courts from multiple submissions of evidence and limiting the risk of contradictory decisions. This benefits the claimants, the judicial system and even the defendants.
Legal uncertainty after several judgments of lower courts
For many years, there were no serious doubts that the assignment model, especially in antitrust cases, was in principle allowed in Germany, provided that the collecting party (i.e. the assignee/plaintiff), a non-lawyer, has a state permission for providing out-of-court debt collection services pursuant to the Legal Services Act (Rechtsdienstleistungsgesetz, ‘RDG’) and is, in case of a lawsuit, represented by an external lawyer before the court.
However, following an unprecedented campaign of legal expert opinions commissioned by the defence side in the well-known, non-antitrust, Diesel Emission case as from 2017, which were also spread through different law journals (often concealing the authors’ role in that case), several courts of first and second instance were convinced that claim transfers under the assignment model would be legally null and void. In their view, this model, also because of its combination with certain aspects of renumeration, funding and litigation (see below), would exceed the statutory limits of the permission under the RDG. The collecting party would thus lack standing to pursue the claims in question.
The first judgment dismissing an action therefore, attracting attention outside Germany too, was rendered by a regional court in Munich in the follow-on Trucks Cartel litigation in February 2020. It was followed by similar decisions of the Hanover regional court in Sugar Cartel, as well as by other courts outside the area of antitrust (but there were also exemptions approving the assignment model). Claims amounting to billions of euros were suddenly put at risk, without assessing their validity on the merits at all.
Clearance by the Federal Court of Justice
This restrictive case law of the lower courts was at odds with the viewpoint of the BGH from the outset. On several actions under the law of tenancy in the so-called LexFox cases, most notably in its judgments LexFox (2019) and LexFox IV (2020), the BGH had already pointed out the liberal, ‘future-proof’, approach of the RDG, which is open to new business models with regard to the enforcement of a legal claim. Anything else would rather conflict with fundamental rights of both the provider of legal services and its clients assigning their claims to it. Thus, the BGH held that
- the permission of legal services in the form of collection services under the RDG is not limited to the collection of undisputed claims in the sense of an auxiliary commercial activity, but encompasses comprehensive and fully-fledged legal advice and assistance related to claims enforcement, even in complex matters;
- RDG permission holders may, unlike lawyers, agree a contingency fee and the assumption of costs with their clients.
Now, the BGH’s AirDeal judgment expands these findings to the collection of a multitude of bundled claims and provides further guidance. On the basis of assigned rights and contingency fee agreements, the plaintiff in that case, a limited liability company, enforced claims for damages from several customers of the meanwhile insolvent airline Air Berlin against Air Berlin’s former executive director, as he had filed for insolvency too late. Overruling both lower instances, the BGH found that the plaintiff’s activity is covered by its permission for debt collection services under the RDG. Thus, the assignment contracts between the plaintiff and the customers of Air Berlin are effective. The BGH has referred the case back for further findings on the claims themselves.
In its reasons, the BGH expressly considers, and universally rejects, the main arguments of the above-mentioned jurisprudence of the lower courts. Namely against the judgments in Munich and Hanover (and others), the BGH concludes that
- the concept of debt collection includes business models that are exclusively or primarily aimed at the judicial collection of the claim;
- this also applies to ‘class action collection’, in which several claims are collected and asserted in court jointly. There are no conflicts of interest (despite, e.g., different prospects of success of the individual claims, complexity of litigation or insufficient solvency of the defendant facing a multitude of claims);
- the fact that the plaintiff, as agreed with its assignors, is entitled to enter into an irrevocable settlement with the defendant does not lead to such a conflict either;
The BGH rather acknowledges the general benefits of the assignment model. It facilitates access to justice.
Further support of the assignment model by the legislator
The BGH is fully in line with the expressed will of the German legislator. In June 2021, a reform of the RDG has been adopted, entering into force on 1 October 2021. It shall strengthen the rights of consumers asking for debt collection services, provide such services (also for B2B claims of corporate clients) with legal certainty, and clarify the relationship between legal service providers under the RDG and professional lawyers.
Contrary to the lower courts, the legislator particularly presupposes that the permission of debt collection services under the RDG also covers, inter alia,
- the agreement of a contingency fee;
- third-party litigation funding;
- claims bundling, including collective settlements reached by the service provider.
In this regard, there are new, explicit, statutory information obligations of the service provider if its client is a private consumer. The revised RDG also clarifies that reporting obligations of the service provider vis-à-vis a litigation funder do not constitute a conflict of interest. Further, to obtain a permission for legal services it is necessary in future to verify the expertise for the envisaged field of activity (e.g., competition law) in advance.
Before adopting the law reform, the Bundesrat, the federal legislative body representing the German Länder, expressly tried to amend the RDG by proposing a prohibition of actions under the assignment model in the field of antitrust (and some other areas). Several Länder are themselves defendants in pending antitrust damages proceedings based on collectively assigned claims for forming alleged roundwood cartels. But that attempt failed due to the resistance of the Federal Government, pointing out (pp. 61-62):
‘Insofar as in certain cases claims of several litigants are bundled and thus asserted in a certain way on a lump-sum basis, if necessary with the involvement of a litigation funder, this can make sense in the interest of an inexpensive and effective enforcement of the claim. […] Debt collection service providers have a high level of expertise in complex areas of law, in particular regarding the business or technical assessments that may be necessary, such as in antitrust law. There are already established offers on the market today, without any problems having become known here.’
The Bundestag, the German federal parliament, followed the Government’s proposal on that front, and the Bundesrat gave finally in.
Towards a European way of private antitrust enforcement
Both the case law of the BGH and the 2021 RDG reform leave no doubt that the assignment model and actions like the ones in Munich and Hanover make sense, have been lawful under German law all along and shall be possible in future as well. The ‘claims assignment class action’ has finally been acknowledged in Germany too, like in several other European countries (e.g., the Netherlands, Finland, Austria). In antitrust cases, an opposing view would conflict with EU law anyway. The Damages Directive 2014/104/EU provides the possibility that a claim for damages may be brought before a national court by a natural or legal person that ‘acquired’ it from the injured party (Article 2(4), 3rd alternative). As the European Commission points out, ‘[t]he goal of such acquisition may be to bring a joint action which may contribute to ensuring consistency between damages actions that are related to the same competition law infringement’ (here, para. 27), independent of any mechanism of ‘collective redress’ under national law (for this, ibid., para. 28; the Directive’s Article 2(4), 2nd alternative). This development is a further step to an effective enforcement of the competition rules in Europe.
By Carsten Krüger