In a groundbreaking class-action case last spring, the Grant & Eisenhofer law firm of Wilmington, Del., represented 90 pension and investment funds and other foreign shareholders who settled for $450 millionafter accusing Royal Dutch Shell of inflating its oil and gas reserves from 1997 to 2003.
If the Netherlands case had been filed in the USA, it would have ranked as the third-largest U.S. shareholders' case against a foreign firm, based on PricewaterhouseCoopers' study.
More to come
"As foreign companies start taking large roles in the markets, we're going to see them subject to lawsuits as much as U.S. companies," says plaintiffs' attorney Stuart Grant at Grant & Eisenhofer. "They're no more immune to fraud than U.S. corporations."
In Europe, policymakers, shareholders, executives and consumer groups are battling about whether their countries should adopt stronger laws and civil litigation practices for investors.
Without tougher legal avenues, shareholders' attorneys argue that investors have little or no recourse to recoup their losses — especially in the wake of financial scandals involving Parmalat in Italy, HIH Insurance in Australia and other troubled companies.
Business leaders such as the U.S. Chamber of Commerce warn that aggressive, U.S.-style litigation and class actions will flood other countries, hurt multinational companies and scare foreign businesses from investing in the USA.
Lisa Rickard, president of the chamber's Institute for Legal Reform, says other countries "need to be very careful not to create the same type of abusive litigation environment that we've seen here in the United States."
In Canada, for one, lawmakers debated for years before strengthening the country's securities act in 2005 to give shareholders greater legal license to sue executives, auditors, attorneys and others for securities fraud.
Paul Steep, an attorney at the Canadian law firm of McCarthy Tétrault, says there are caps on dollar liability for businesses that have been sued. But companies in Canada still fear a rise in frivolous shareholders' lawsuits as Canadian attorneys start to team more with U.S. law firms, he says.
The cross-border cases in all countries also raise vexing new legal issues, such as clashing jurisdictions and regulations, according to securities-fraud attorneys and legal scholars.
In U.S. federal courts, shareholders clearly can sue foreign companies with shares listed on U.S. stock exchanges. Judges also can add foreign shareholders to securities-fraud lawsuits.
Differing views abroad
But many foreign courts do not recognize U.S. court rulings, nor are there international treaties that require other countries to enforce U.S. court judgments, says attorney Ilana Buschkin at the Williams & Connolly law firm.
In one case earlier this year, the U.S. judge in a shareholders' lawsuit against Vivendi Universal granted class-action status to English, French and Dutch investors because their countries recognize U.S. rulings.
But the judge refused to add German shareholders, because German courts typically do not honor U.S. court decisions.
John Coffee, a Columbia University law professor, cautions that when U.S. courts certify foreign investors as class-action plaintiffs, it exposes foreign firms to a worldwide class of investors and potentially devastating judgments here.
"Do we want our courts to be the securities policemen of the world?" Coffee says.
As securities-fraud lawsuits go global, attorneys and judges will have plenty of time to hash out the legal issues.
"The challenge for everyone will be to keep up with it and respond to it," Wegener says. "I think we're just at the beginning."