Vestas Wind Systems and the Potential for International Securities Class Actions

† David J. Harris, Jr.

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I. Introduction

In 2010, the United States Supreme Court’s landmark decision in Morrison v. National Australia Bank[1] introduced new challenges for class action plaintiffs’ counsel seeking to bring claims under the Securities Exchange Act of 1934 (“the Exchange Act”). Morrison explicitly eliminated the “conduct” and “effects” tests that had rather liberally delineated securities class membership in U.S. courts prior to 2010.[2] Replacing these tests with a “bright-line transactional test,” Morrison limits the reach of § 10(b) of the Exchange Act to securities listed on an American exchange and securities transactions occurring in the United States.[3] While the contours of securities class membership in the United States remain somewhat obscure,[4] one thing is clear: many defrauded purchasers who would have been able to seek redress in U.S. courts under previous precedent will be denied this access under Morrison. These purchasers will likely look to foreign jurisdictions for relief.

This article uses a developing case against Vestas Wind Systems (“Vestas” or “the Company”) to examine some collective action opportunities available outside the United States to displaced securities plaintiffs. Section II of this article provides the factual background of plaintiffs’ claims against Vestas. Section III explores collective action frameworks in the European jurisdictions that are most accessible to non-U.S. plaintiffs in the Vestas case. Section IV examines a relatively new Dutch procedure for the global settlement of international class claims. Finally, Section V concludes that global settlement in the Netherlands may become the preferred option for litigants both in the Vestas case and in future international securities class actions.

II. The Vestas Fraud

Vestas is a Denmark-based corporation that manufactures and installs wind turbines worldwide.[5] With more than €7 billion—approximately $10 billion—in assets and a global market for its securities, Vestas is the largest wind energy company in operation.[6] Leading up to October 2009, about 40% of Vestas’s revenue accrued from “supply-and-installation” contracts for its wind turbines; that ratio increased to more than 80% over the next twelve months.[7] The Company had historically recognized revenue from these contracts on an incremental basis according to the percentage of individual project completion.[8]

In 2008, however, the International Financial Reporting Interpretation Committee issued Interpretation 15 (“IFRIC 15”), which prohibited the recognition of supply-and-installation revenue until the risk of ownership transfers to the customer upon full project completion.[9] The European Commission adopted IFRIC 15 in July 2009, and EU-based companies were required to implement the new accounting rule as of January 1, 2010.[10] Throughout the first half of 2010, Vestas provided favorable revenue and earnings guidance while telling investors it had implemented IFRIC 15 as required.[11] The Company cited a large volume of expected orders to substantiate its forecast and continuously touted lucrative deals as evidence of significant near-term growth.[12] In March 2010, fixed-income investors clamored for a piece of Vestas’s €600 million five-year Eurobond offering at a low coupon rate of 4.625%.[13] The company described its successful debt issuance as a “significant recognition of Vestas’s performance . . . .”[14]

These representations produced a steady wave of positive press and inflated the Company’s market capitalization for most of 2010.[15] Later in the year, however, Vestas slashed revenue guidance by 14% and earnings guidance by more than half, explaining that revenue from key contracts would not be recognized until fiscal year 2011.[16] Vestas admitted that the change spawned from its failure to implement IFRIC 15, and revealed that its previous financial statements would also need to be revised to comply with International Accounting Standards.[17] The Company’s shares and American Depositary Receipts (“ADRs”) plunged nearly 50% after these announcements.[18] Meanwhile, the yield on its Eurobonds climbed almost thirty basis points, as creditors demanded a higher interest rate for their assumption of increased company-specific risk.[19]

On March 18, 2011, a class action suit was filed on behalf of Vestas investors in the United States District Court for the District of Colorado, alleging fraud under § 10(b) of the Exchange Act.[20] After Morrison, however, countless purchasers of Vestas stock hang in limbo without a right to relief in the United States, as the Company’s securities trade on numerous exchanges and trading platforms throughout Europe.[21] The following section introduces the collective action regimes of several European countries that might prove receptive to investor actions against Vestas.

III. Collective Action Frameworks in Selected European Nations

Several European Union member states have developed some forms of collective action, which differ in scope and procedure from the United States class action system. European collective action systems, while viable, generally remain less plaintiff-friendly than U.S. courts, as Europe remains leery of perceived abuses that might occur within an American-style framework.[22] The following jurisdictions are those most closely connected to Vestas and its securities, and hence the most promising potential forums for non-U.S. plaintiffs in that case. Nevertheless, defrauded investors in other international securities cases might explore similar options in an effort to seek damages or gain strategic leverage in global settlement negotiations.

A. Denmark

As the Company’s “home court,” Denmark is the most obvious forum in which aggrieved investors might seek collective redress. The Danish Administration of Justice Act (“the Danish Act”) established Denmark’s first class action system effective January 1, 2008.[23] However, the system contains numerous hurdles. Under § 254b of the Danish Act, a class action may be brought only if (1) the action consists of common claims, (2) a venue for each claim exists in Denmark, (3) the court is the proper venue for at least one claim, (4) the court has the requisite expertise to handle at least one claim, (5) a class action is the best mechanism for adjudicating the claims, (6) class members can be identified and notified of the action in an appropriate manner, and (7) a class representative can be appointed pursuant to § 254c.[24]

The default rule for defining a Danish class is that only claimants who affirmatively join—“opt in”—to the action are bound by it.[25] A court may, however, require an American-style “opt-out” structure in cases where two conditions are satisfied.[26] First, the constituent claims must be so small that they are unlikely to be brought as individual actions because the risk or cost of litigation is disproportionate to the size of the individual claims.[27] Explanatory notes accompanying the Danish Act suggest that typically this condition will only be satisfied if individual claims do not exceed DKK 2,000—roughly $400.[28] Second, the court must deem an opt-in structure to be unfit for the action at hand.[29] This may occur if, for example, the action consists of a claimant population so large that providing opt-in notices would be unduly expensive.[30] In an opt-out class action, however, only a designated public authority may act as class representative.[31]

Denmark’s first class action commenced in mid-2008 on behalf of almost 5,000 former minority shareholders of Trelleborg Bank.[32] The common assertions among constituent claims were that certain statutory conditions for the compulsory redemption of shares had not been satisfied during a particular acquisition, and that the redemption price was artificially low.[33] Both the city court and the Eastern High Court adjudicated these claims as an opt-in class action under the Danish Act, with the Association for Minority Shareholders in Trelleborg Bank acting as class representative.[34] The Eastern High Court declared the compulsory redemption unlawful in 2010, but found that shareholders suffered no damages because they would not have otherwise obtained a higher price for their shares.[35]

B. Germany

While Vestas is headquartered in Denmark, it has a major presence in Germany and its shares trade on the Frankfurt Stock Exchange.[36] German law provides for collective actions in securities cases under the Capital Investors’ Model Proceedings Act (Kapitalanleger-Musterverfahrensgesetz, or “KapMuG”).[37] Under KapMuG, investors must file individual claims at the trial court level, and plaintiffs or defendants may subsequently apply for their case to be adjudicated as the “model case.”[38] The Higher Regional Court selects a model case if at least ten applications are filed containing common issues of law and fact.[39] The court then defines the set of pending claims to be bound by its holdings in the model case, and new claimants may opt into the model proceedings.[40] Pending actions dependent on the model case are stayed until it concludes, and then proceed in trial courts bound by the Higher Regional Court’s decision.[41]

The German legislature passed KapMuG in 2005 in response to 16,000 individual investor claims filed against Deutsche Telekom alleging deficiencies in the company’s stock prospectus.[42] KapMuG was intended to alleviate the resultant docket backlog, but model proceedings have lingered for over five years as individual claimants cause delays.[43] Perhaps most importantly, the model plaintiff cannot settle the case on behalf of other claimants without their unanimous consent.[44] Once the model proceedings end, the trial courts will still have to judge thousands of pending claims on an individual basis.[45] These and other inefficiencies make it likely that KapMuG will soon be amended to provide a more streamlined process for securities litigation.[46]

C. The Netherlands

Vestas has a relatively modest presence in the Netherlands, but its listing on the Dutch-regulated NYSE Arca Europe platform leaves it susceptible to a Dutch action.[47] Although Dutch law prohibits collective actions for damages, it allows representative organizations to bring collective actions for declaratory judgment.[48] Any resultant declaration against a defendant empowers individual claimants to obtain damages through individual actions.[49] Under Dutch Civil Code, a securities class action might take the form of a collective tort claim alleging “unfair commercial practices” or “misleading public announcements.”[50]

A representative organization can initiate a collective action for declaratory judgment by serving the defendant with a writ of summons and filing the same in a district court.[51] The defendant then responds with a statement of defense that introduces its contentions and offers evidentiary support for its position.[52] The organization counters with a statement of reply, and the defendant may respond again with a statement of rejoinder.[53] Unlike the American system, the parties can include the functional equivalent of motions to compel discovery within their initial pleadings.[54] The court will then hear oral argument at the parties’ request and subsequently issue an interim judgment, which may order additional document production, witness examination or expert testimony.[55] After these proceedings there will be either another interim judgment or a final declaration on the matter.[56]

D. Other Jurisdictions

Additional Vestas securities listings in the United Kingdom, Luxembourg, and the Nordic countries suggest that these nations may contain a significant fraction of the Company’s non-U.S. investors.[57] Except for Luxembourg, each country has some form of “opt-in” collective action that could facilitate investor claims.[58] The New York Stock Exchange (NYSE) Arca Europe platform further extends the reach of Vestas securities and thus could catalyze collective or individual actions in several other jurisdictions.[59]

IV. World Peace – Global Settlement in the Netherlands

While several European jurisdictions offer collective action mechanisms that could be effective for non-U.S. plaintiffs, some are unproven in the context of securities cases. The Netherlands, however, provides a far more manageable alternative for parties that wish to avoid the risk and expense of complex actions in various countries. The Netherlands offers a young and developing global opt-out framework for collective settlement, which derives from the Dutch Act on Collective Settlement of Mass Damages (Wet Collectieve Afwikkeling Massaschade, or “WCAM”).[60]

Though this framework is contingent upon plaintiffs’ counsel and defendants reaching an acceptable settlement agreement, it is nevertheless a powerful alternative to adversarial proceedings outside the United States. WCAM allows parties to a settlement agreement to request that the Amsterdam Court of Appeal (“the Court” or “the Amsterdam Court”) declare the settlement binding on all persons and entities covered by its terms (“the class”), regardless of class members’ places of domicile.[61] This section first examines the three key procedural conditions for obtaining such a declaration: representation, jurisdiction, and notification. Second, it describes the procedural histories of the only two global settlements ever to go before the Court, as these are early examples of what could take place not only in the case against Vestas, but in many future international securities cases.

A. The Procedural Conditions for Obtaining the Court’s Declaration that a Global Settlement is Binding

1. Representation

Under WCAM, an association or foundation (“organization”) may be formed to represent class interests in settlement negotiations with potentially liable parties.[62] If a settlement agreement is reached, the parties to it may petition the Court to declare it binding on class members that do not opt-out.[63] The Court will bind the class only if the organization’s articles of association specifically convey an objective of representing class member interests.[64] The Court may also conduct a fact-intensive inquiry into the adequacy of the organization’s representation by examining the organization’s activities, the number of class members, and class members’ acceptance or denial of the organization as their representative.[65]

More than one organization may jointly represent the class, provided that each passes the test for representation of a subclass.[66] Not every organization representing a subclass needs to be a direct party to the settlement agreement.[67] For instance, in an international settlement for securities fraud, a single Dutch organization might coordinate with, and obtain the written approval of, different shareholder organizations dispersed across Europe. Acknowledging such an approval, the Court would likely find that Dutch organization to be sufficiently representative of the whole international class.[68]

2. Jurisdiction

To declare a settlement agreement binding on an international class, the Court exercises jurisdiction with respect to class members domiciled in the Netherlands, another EU member state, or a nation-party to the Lugano Convention (together, the “contracting countries”) pursuant to Council Regulation 44/2001 (“the Brussels I Regulation”) and the Lugano Convention.[69] The Court interprets these authorities to regard class members as the persons “sued” in a petition for international settlement, because a binding declaration eliminates class members’ rights to other redress.[70] Jurisdiction over Dutch class members attaches under Article 2 of the Brussels I Regulation, which provides the default rule that persons are sued in their home country.[71]

Under Article 6 of the Brussels I Regulation, class members domiciled in another contracting country may be bound to settlement in the Netherlands if their underlying claims are sufficiently connected to those of a Dutch claimant.[72] This condition currently constitutes a low hurdle in settling international securities cases.[73] With respect to class members not domiciled in a contracting country, Section1 of the Dutch Code of Civil Procedure (“DCCP”) allows the Court to exercise jurisdiction if any party to the settlement resides in the Netherlands.[74] This is why class organizations tend to associate and reside within Dutch borders. Even without a Dutch petitioner, borderless jurisdiction may attach if “the legal proceedings are otherwise sufficiently connected with the Dutch legal sphere.”[75]

3. Notification

The Court requires that class members be notified of a petition for a binding declaration and any resultant declaration, but the appropriate notification procedure can sometimes vary among subclasses.[76] At the petitioning stage, Council Regulation 1393/2007 (“the Service Regulation”) governs notification of class members known to be domiciled in an EU member state.[77] Other instruments, including the Hague Service Convention of 1965, control the notification of class members known to be domiciled outside the EU.[78] In addition to service by mail, the Court requires petitioners to place notices online and in various newspapers where unknown shareholders may reside.[79] The Court’s decision in Royal Dutch Shell contained detailed notification instructions for an array of subclasses in compliance with the Service Regulation and similar treaties.[80] Upon a binding settlement declaration, the Court determines at least a three-month opt-out period within which class members may send their representative organizations a written request to be excluded from the agreement.[81] Procedures for notifying class members of the declaration and opt-out period are similar to those required at the petitioning stage.[82]

B. Two Previous Examples of Global Settlement in the Netherlands

1. Royal Dutch Shell

In January 2004, the Netherlands-based Royal Dutch Petroleum Company and UK-based Shell Transport and Trading Company (collectively, “Royal Dutch Shell”) announced a re-categorization of oil reserves that significantly devalued both companies on American and European exchanges.[83] The U.S. Securities and Exchange Commission and the British Financial Services Authority commenced enforcement actions against Royal Dutch Shell that later settled for $120 million and £17 million, respectively.[84] American and international investors followed suit with fourteen securities class actions in U.S. courts, which were consolidated before the United States District Court for the District of New Jersey (“D.N.J.”).[85] Two American pension funds (“Lead Plaintiffs”) represented a global class of Royal Dutch Shell investors in alleging materially false and misleading statements about Royal Dutch Shell’s reserves over a five year class period.[86]

In August 2005—before Morrison—D.N.J. claimed subject matter jurisdiction with respect to foreign purchasers of Royal Dutch Shell securities on foreign exchanges.[87] The parties subsequently carried out extensive discovery and mediation that revealed new evidence of the alleged fraud.[88] Royal Dutch Shell and class-representative organizations eventually reached an agreement to settle the claims of all non-U.S. purchasers and filed an application with the Amsterdam Court to declare the settlement binding in April 2007.[89] The settlement parties simultaneously notified the New Jersey court and Lead Plaintiffs of their agreement, which was contingent upon D.N.J.’s dismissal of non-U.S. purchasers’ claims.[90]

After Royal Dutch Shell announced its settlement with foreign claimants, D.N.J. appointed a Special Master to reconsider the issue of subject matter jurisdiction over foreign purchasers.[91] The Special Master concluded that D.N.J. lacked jurisdiction, and the court adopted his decision to dismiss foreigners’ claims on November 13, 2007.[92] American claimants responded by executing their own settlement with Royal Dutch Shell in D.N.J. the following year.[93] Finally, on May 29, 2009, the Amsterdam Court declared the international settlement binding on all non-U.S. purchasers of Royal Dutch Shell securities.[94] Even after this binding declaration, however, uncertainty loomed regarding the Court’s willingness to exercise jurisdiction in global securities cases without a Dutch “defendant” and without sizeable ties to Dutch investors.[95] Converium settled this issue.

2. Converium

Converium denotes a current petition before the Amsterdam Court seeking a binding declaration of related settlements between international investors and two Swiss companies. Before and shortly after Zurich Financial’s 2001 spin-off of its wholly owned subsidiary, Converium Holding, both companies allegedly made misleading statements that masked Converium’s insufficient reinsurance reserves.[96] As the newly public company unveiled its true financial state in subsequent months, American and international investors suffered substantial stock declines.[97] Converium’s shares traded on the SWX Swiss Exchange—which is now the SIX Swiss Exchange—and its ADRs traded on the New York Stock Exchange.[98] In a class action before the United States District Court for the Southern District of New York (“S.D.N.Y.”), an American pension fund and a foreign institutional investor sued on behalf of Converium shareholders and ADR-purchasers worldwide.[99] On motion for class certification in March 2008, S.D.N.Y. excluded foreign purchasers of the Swiss-listed Converium securities for lack of subject matter jurisdiction.[100]

Two years later, Converium, Zurich Financial, and two Dutch organizations representing all non-U.S. purchasers asked the Amsterdam Court for a preliminary ruling on its jurisdiction to declare a proposed settlement binding.[101] Interestingly, the source of foreign claimants’ leverage in settlement negotiations remains unknown, as no collective action for damages commenced outside the United States. In its recent provisional ruling on jurisdiction, the Amsterdam Court merely acknowledged that non-U.S. purchasers “hold Converium and [Zurich Financial] culpable for acting . . .” in violation of U.S. securities laws.[102]

The international class consisted of approximately 12,000 non-U.S. investors, only 200 of which were known to reside in the Netherlands.[103] Other known class members resided in a contracting country or elsewhere outside the U.S.[104] In its decision on jurisdiction, the Amsterdam Court relied on the Dutch organizations’ articles of association to find they satisfied the prerequisites for representing all non-U.S. investors.[105] Then, making repeated references to the void of relief left in Morrison’s wake, the Amsterdam Court proudly proclaimed itself the unrestrained savior of America’s outcasts.[106]

The Amsterdam Court repeated its jurisdictional analysis from Royal Dutch Shell to derive authority to bind class members in contracting countries, pursuant to Articles 2 and 6 of both the Brussels I Regulation and Lugano Convention.[107] It buttressed its reasoning with Article 5, which, in matters of contract, permits persons domiciled in one contracting country to be sued in another containing the place of performance.[108] The Amsterdam Court found Article 5 fulfilled by the fact that Zurich Financial and Converium would compensate representative organizations—perform its contractual obligations—through a Dutch bank account, from which the organizations would distribute money to class members.[109] With respect to class members domiciled outside the contracting countries, DCCP Section 1 again permitted Dutch jurisdiction because a petitioner resided in the Netherlands.[110] The Court’s decision to exercise jurisdiction remains provisional until class members have the opportunity to comment, but this appears to be a formality.[111]

V. Conclusion

The case against Vestas Wind Systems illustrates a fundamental shift in global securities litigation after Morrison. Left claimless in United States courts, many investors in foreign securities that suffer losses from illegal issuer conduct must now find new routes to recovery. While numerous countries in the EU and elsewhere have built collective action structures, some of these structures are unproven or pose economic barriers. Others show significant promise for shareholder action. For Vestas investors, it appears that several jurisdictions would welcome some form of collective action for damages, but multiple proceedings across multiple borders could prove costly for plaintiffs and defendants alike.

The Netherlands offers an efficient solution for litigants, both in the Vestas case and in future international securities class actions. With its global settlement mechanism, the Netherlands may become a safe haven, where plaintiffs seek the ease and certainty of imminent recovery and defendants seek to convert indeterminate long-term risks into quantifiable short-term liabilities. International settlement negotiations will depend on a multitude of variables, which include the merits of particular claims, procedural peculiarities, and funding options in each jurisdiction. Recent Dutch cases, however, provide reason for optimism that international class settlements could become a beneficial norm in the near future of securities litigation.

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† David Harris is a third-year student at Boston University School of Law, where he serves as Notes & Comments Editor of the Review of Banking & Financial Law and is a member of the Criminal Practice Clinic. He was a Summer Associate at Robbins Geller Rudman & Dowd LLP in 2011 and will join the firm as an Associate in 2012.

[1] 130 S.Ct. 2869, 2888 (2010).

[2] Id. at 2879-80.

[3] Id.; see also Quail Cruises Ship Mgmt. Ltd. v. Agencia de Viagens CVC Tur Limitada, 645 F.3d 1307, 1310 (11th Cir. 2011) (interpreting Morrison).

[4] Justice Scalia’s opinion does not define what it means for the purchase or sale of a security to “occur” in the United States. Morrison v. Nat’l Australia Bank, 130 S.Ct. 2869 (2010). There is, however, some authority for the proposition that a securities transaction “occurs” where it clears. See Lorber v. Beebe, 407 F. Supp. 279, 286-87 (S.D.N.Y. 1975) (“[It] seems clear that the transaction was completed when [delivery of the stock] was made . . . to the clearing house. When that transaction cleared, plaintiff acquired the rights—including the remedies—in the shares . . . .”) (citing U.C.C. §§ 1-201, 8-102, 8-301).

[5] Complaint at 4, City of Sterling Heights Gen. Emp. Ret. Sys. v. Vestas Wind Sys. A/S, 1:11-cv-00678-PAB -MJW (D. Colo. Mar. 18, 2011) [hereinafter Colorado Complaint] (voluntarily dismissed without prejudice).

[6] Vestas Wind Systems A/S, Interim Financial Report, First Quarter 2011, Company Announcement No. 18/2011, available at http://www.vestas.com/en/investor/financial-reports.aspx.

[7] Colorado Complaint, supra note 5, at 8; see also Vestas Wind Systems A/S, Company Announcement No. 40/2010 at 8, available at http://www.vestas.com/files//Filer/EN/Investor/Company_announcements/2010/101122_CA_UK_44.pdf; Vestas Wind Systems A/S, Interim Financial Report, First Quarter 2010, Company Announcement No. 21/2010 at 1, 14, available at http://www.vestas.com/files//Filer/EN/Investor/Company_announcements/2010/100428_CA_UK_21.pdf; Vestas Wind Systems A/S, Interim Financial Report, First Quarter 2010, Company Announcement No. 40/2010 at 1, 17, available at http://www.vestas.com/files//Filer/EN/Investor/Company_announcements/2010/101026_CA_UK_40.pdf.

[8] Colorado Complaint, supra note 5, at 8.; Int’l Accounting Standards Board, International Accounting Standard 11, at ¶¶ 22-25 (May 1999), available at http://eifrs.iasb.org/eifrs/bnstandards/en/ias11.pdf.

[9] See Int’l Fin. Reporting Interpretation Comm., IFRIC Interpretation 15, at ¶ 16 (July 2008), available at http://eifrs.iasb.org/eifrs/bnstandards/en/ifric15.pdf.

[10] Commission Regulation 636/2009, 2009 O.J. (L 191) 5 (EC), available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:191:0005:0009:EN:PDF.

[11] Colorado Complaint, supra note 5, at 9-13; Vestas Wind Systems A/S, Vestas Annual Report 2009, at 11, available at http://www.vestas.com/en/investor/financial-reports/financial-reports-2009.aspx; Vestas Wind Systems A/S, Interim Financial Report, First Quarter 2010, Company Announcement No. 21/2010, available at http://www.vestas.com/en/investor/financial-reports/financial-reports-2010.aspx.

[12] Colorado Complaint, supra note 5, at 9-13; Vestas Wind Systems A/S, Vestas Annual Report 2009, at 11, available at http://www.vestas.com/en/investor/financial-reports/financial-reports-2009.aspx; Vestas Wind Systems A/S, Interim Financial Report, First Quarter 2010, Company Announcement No. 21/2010, available at http://www.vestas.com/en/investor/financial-reports/financial-reports-2010.aspx.

[13] Press Release, Vestas Wind Systems A/S, Vestas Successfully Places a EUR 600m Eurobond (Mar. 15, 2010) (on file with author).

[14] Id.

[15] Colorado Complaint, supra note 5, at 16.

[16] Vestas Wind Systems A/S, Interim Financial Report, Second Quarter 2010, Company Announcement No. 29/2010, available at http://www.vestas.com/en/investor/financial-reports/financial-reports-2010.aspx.

[17] Vestas Wind Systems A/S, Interim Financial Report, Third Quarter 2010, Company Announcement No. 40/2010, available at http://www.vestas.com/en/investor/financial-reports/financial-reports-2010.aspx.

[18] Colorado Complaint, supra note 5, at 15.

[19] See Bourse de Luxembourg, https://www.bourse.lu/application?_flowId=ValueSummaryObligationFlow&cdVal=159735&cdTypeVal=OBL (last visited Jun. 13, 2011), for a chart illustrating the decline of Vestas Eurobonds.

[20] Colorado Complaint, supra note 5, at 22.

[21] Among these are Denmark’s Copenhagen Stock Exchange, Germany’s Frankfurt Stock Exchange, the Dutch-regulated NYSE Arca Europe platform, London-based BATS Europe, and the Swedish-regulated Burgundy platform for Nordic securities. See Vestas Wind Systems, Bloomberg Businessweek, http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?ticker=VWDRY:US (last visited Jun. 7, 2011).

[22] See, e.g., European Commission, Towards a Coherent European Approach to Collective Redress, at 9 (Feb. 2011), available at http://ec.europa.eu/justice/news/consulting_public/0054/sec_2011_173_en.pdf (listing characteristics of American class action procedure that Europe has generally avoided).

[23] Erik Werlauff, Class Actions in Denmark, 622 Annals Am. Acad. Pol. & Soc. Sci. 202 (March 2009).

[24] Id. at 203.

[25] Ministry of Justice Law Department, New Rules on Class Actions under Danish Law (Jun. 26, 2007), available at http://www.justitsministeriet.dk/fileadmin/downloads/rules.pdf.

[26] Id. at 5.

[27] Id.

[28] Id. at 6.

[29] Id.

[30] Id.

[31] Werlauff, supra note 23, at 204.

[32] Moalem Weitemeyer Bendtsen, The Eastern High Court Finds Compulsory Acquisition Unlawful (Dec. 8, 2010), http://www.mwblaw.dk/en/Nyheder/07122010Oestre%20Landsret%20finder%20tvangsindloesning%20ulovlig.aspx.

[33] Erik Werlauff, Civil Procedure in Denmark 60 (2d ed. 2010).

[34] Id.

[35] Moalem Weitemeyer Bendtsen, supra note 32.

[36] See Find Vestas, Vestas.com, http://www.vestas.com/en/about-vestas/find-vestas.aspx (last visited July 15, 2011); Bloomberg Businessweek, supra note 21.

[37] Ina Brock & Stefan Rekitt, Germany, in The International Comparative Legal Guide to: Class and Group Actions 2011, 93 (2011), available at http://www.iclg.co.uk/khadmin/Publications/pdf/3977.pdf.

[38] Linklaters, Collective Actions Across the Globe – A Review 8 (2011), available at http://www.linklaters.com/pdfs/mkt/london/A13187695%20v0.0%201103_Collective%20actions.pdf.

[39] Brock & Rekitt, supra note 37, at 93.

[40] Linklaters, supra note 38, at 8.

[41] Id. Individual actions initiated after the model decision are not bound by it. Id.

[42] Mark C. Hillard & Jan Kraayvanger, Class Actions and Mass Actions in Germany, Litigation Committee Newsletter (Sept. 2007), at 40, available at http://www.mayerbrown.com/germany/article.asp?id=3800&nid=495.

[43] Deutsche Telekom AG, Annual Report 2010, at 118, available at http://www.download-telekom.de/dt/StaticPage/98/66/44/DTAG_GB10_E_Gesamt_1.3.11.pdf_986644.pdf; James M. Newland et al., Multi-party Litigation in Germany: the KapMug in Action, Class Action, Spring 2008, at 426, available at http://lernersclassactiondefence.ca/@assets/uploads/articles-17/classactionmultipartylitigationingermanythekapmuginaction.pdf.

[44] Newland et al., supra note 43, at 426.

[45] Hillard & Kraayvanger, supra note 42, at 40.

[46] Linklaters, supra note 38, at 9.

[47] See Find Vestas, supra note 36; Bloomberg Businessweek, supra note 21.

[48],See Brecht Publishers, Dutch Civil Code, at arts. 3:305a, 6:162(1), available at http://www.dutchcivillaw.com/civilcodegeneral.htm (last visited Jun. 13, 2011) [hereinafter Dutch Civil Code] for an unofficial English translation of the relevant provisions of the Dutch Civil Code

[49] Id. at art. 6:162(1).

[50] English Translation of Writ, at 42-46, Stichting Investor Claims Against Fortis, Publications (Jan. 10, 2011), http://investorclaimsagainstfortis.com/Attachment/191_English%20translation%20of%20Writ%20(00028785).PDF [hereinafter Fortis Complaint]; see also Dutch Civil Code, supra note 43, §§ 6.3.3A, 6.3.4.

[51] Memorandum from Loyens Loeff to Robbins Geller Rudman & Dowd LLP, at 2 (July 29, 2011) [hereinafter Loyens Loeff Memo] (on file with author).

[52] Id.

[53] Id.

[54] Fortis Complaint, supra note 52, at 82.

[55] Loyens Loeff Memo, supra note 51, at 3.

[56] Id.

[57] Bloomberg Businessweek, supra note 21; Bourse de Luxembourg, supra note 19.

[58] See Linklaters, supra note 38, for an overview of the collective action laws in various countries. See also The International Comparative Legal Guide to: Class and Group Actions 2011 (2011), available at http://www.iclg.co.uk/index.php?area=4&kh_publications_id=166.

[59] Bloomberg Businessweek, supra note 21. The potential for actions in these jurisdictions will depend on the substantive and procedural laws of each.

[60] Rob Polak & Ruud Hermans, International Collective Settlements in the Netherlands After the Morrison and Ahold Decisions, in The International Comparative Legal Guide to: Class and Group Actions 2011 6 (2011), available at http://www.iclg.co.uk/khadmin/Publications/pdf/3964.pdf.

[61] Id.

[62] The relevant provisions of WCAM are codified in Title 7.15, Articles 7:907 and 7:908 of the Dutch Civil Code. See Dutch Civil Code, supra note 43.

[63] Id.

[64] Id. Pension funds fail to meet this criterion. See Decision by the Amsterdam Court of Appeal in case no. 106.010.887 rendered on 29 May 2009, 37 (trans. A.J.B. Burrough) (June 15, 2009), available at http://www.shellsettlement.com/docs/English-JudgmentTranslation29May09.pdf [hereinafter Royal Dutch Shell].

[65] Polak & Hermans, supra note 60, at 8.

[66] Royal Dutch Shell, supra note 64, at 48-49.

[67] Id.

[68] See id. at 49-51 (reasoning that written support from various institutional investors and shareholder associations demonstrated adequate class representation).

[69] These two authorities are identical in all relevant provisions, so reference to a single article refers to that article of both documents. Council Regulation 44/2001, 2000 O.J. (L 12) (EC), available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2001:012:0001:0023:EN:PDF; Convention on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters, 2007 O.J. (L 339) (EU) [hereinafter Lugano Convention]. The Brussels I Regulation and Lugano Convention differ only insofar as the latter is a treaty adopted by non-EU countries, which are not otherwise subject to the provisions of the Brussels I Regulation. Id.

[70] Royal Dutch Shell, supra note 64, at 31. Whether other nations will enforce a collective settlement under WCAM remains a hazy issue. For a detailed analysis of the potential grounds for non-recognition outside the Netherlands, see Helene van Lith, The Dutch Collective Settlements Act and Private International Law 85-110 (Research and Documentation Centre, Ministry of Security and Justice, 2010), available at http://english.wodc.nl/onderzoeksdatabase/internationaal-privaatrechtelijke-aspecten-van-de-wet-collectieve-afhandeling-massaschade-wcam.aspx.

[71] Council Regulation 44/2001, supra note 69, art. 2(1).

[72] Id. art. 6(1); Lugano Convention, supra note 69, art. 6(1).

[73] See Royal Dutch Shell, supra note 64, at 32 (holding that the underlying claims of investors domiciled in other contracting countries were sufficiently connected to those of Dutch investors under Article 6(1) of the Brussels I Regulation and Lugano Convention); see also Decision by the Amsterdam Court of Appeal in case no. 200.070.039/01 rendered on 12 November 2010 16-17 (trans., A.J.B. Burrough) (Feb. 24, 2011), available at (http://www.blbglaw.com/cases/00172_data/Judgmentof12Novermber2010CourtofAppeal.pdf [hereinafter Converium].

[74] See Brecht Publishers, Code of Civil Procedure, § 1 art. 3(a) (last visited Jun. 13, 2011), available at http://www.dutchcivillaw.com/civilprocedureleg.htm,[hereinafter Dutch Code of Civil Procedure] for an unofficial English translation.

[75] Id. §1 art. 3(c).

[76] Polak & Hermans, supra note 60, at 7.

[77] Council Regulation 1393/2007, art. 1, 2007 O.J. (L 324).

[78] Royal Dutch Shell, supra note 64, at 25.

[79] Id. at 24-26.

[80] Id.

[81] Dutch Civil Code, supra note 43, art. 7:908(2).

[82] van Lith, supra note 70, at 63-78.

[83] Royal Dutch Shell, supra note 64, at 7-9.

[84] Id. at 9.

[85] Id.

[86] In re Royal Dutch/Shell Transp. Sec. Litig., 380 F. Supp. 2d 509, 515 (D. N.J. 2005).

[87] Id. at 539-40.

[88] In re Royal Dutch/Shell Transp. Sec. Litig., 522 F. Supp. 2d 712, 715 (D. N.J. 2007).

[89] Royal Dutch Shell, supra note 64.

[90] In re Royal Dutch/Shell Transp., 522 F. Supp. 2d at 715.

[91] Id. at 714.

[92] Id.

[93] Royal Dutch Shell, supra note 64, at 12.

[94] Id. at 22-38, 48-51.

[95] See, e.g., Polak & Hermans, supra note 60, at 7.

[96] Converium, supra note 73, at 3.

[97] Id.

[98] In re SCOR Holding (Switzerland) AG Litig., 537 F. Supp. 2d 556, 559 (S.D.N.Y. 2008).

[99] In re Converium Holding AG Sec. Litig., No. 04 Civ. 7897(DLC), 2006 U.S. Dist. WL 3804619, at *8 (S.D.N.Y. Dec. 28, 2006).

[100] In re SCOR Holding, 537 F. Supp. 2d at 560.

[101] Converium, supra note 73.

[102] Id. at 3-4.

[103] Id. at 5-6.

[104] Id. at 6.

[105] Id. One might expect a more robust representation analysis to accompany any forthcoming declaration that the settlement agreement is binding.

[106] See id. at 7-11.

[107] Id. at 15-18.

[108] Id. at 12-14; Council Regulation 44/2001, supra note 69, art. 5(1); Lugano Convention, supra note 69, art. 5(1).

[109] Converium, supra note 73, at 14.

[110] Id. at 17 (referring to the statute translated in Dutch Code of Civil Procedure, supra note 43, § 1 art. 3(a)-(c)).

[111] Id. at 19.

Copyright 2009 The Regents of the University of California. All rights reserved.

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II. The Vestas Fraud

Vestas is a Denmark-based corporation that manufactures and installs wind turbines worldwide.[5] With more than €7 billion—approximately $10 billion—in assets and a global market for its securities, Vestas is the largest wind energy company in operation.[6] Leading up to October 2009, about 40% of Vestas’s revenue accrued from “supply-and-installation” contracts for its wind turbines; that ratio increased to more than 80% over the next twelve months.[7] The Company had historically recognized revenue from these contracts on an incremental basis according to the percentage of individual project completion.[8]

In 2008, however, the International Financial Reporting Interpretation Committee issued Interpretation 15 (“IFRIC 15”), which prohibited the recognition of supply-and-installation revenue until the risk of ownership transfers to the customer upon full project completion.[9] The European Commission adopted IFRIC 15 in July 2009, and EU-based companies were required to implement the new accounting rule as of January 1, 2010.[10] Throughout the first half of 2010, Vestas provided favorable revenue and earnings guidance while telling investors it had implemented IFRIC 15 as required.[11] The Company cited a large volume of expected orders to substantiate its forecast and continuously touted lucrative deals as evidence of significant near-term growth.[12] In March 2010, fixed-income investors clamored for a piece of Vestas’s €600 million five-year Eurobond offering at a low coupon rate of 4.625%.[13] The company described its successful debt issuance as a “significant recognition of Vestas’s performance . . . .”[14]

These representations produced a steady wave of positive press and inflated the Company’s market capitalization for most of 2010.[15] Later in the year, however, Vestas slashed revenue guidance by 14% and earnings guidance by more than half, explaining that revenue from key contracts would not be recognized until fiscal year 2011.[16] Vestas admitted that the change spawned from its failure to implement IFRIC 15, and revealed that its previous financial statements would also need to be revised to comply with International Accounting Standards.[17] The Company’s shares and American Depositary Receipts (“ADRs”) plunged nearly 50% after these announcements.[18] Meanwhile, the yield on its Eurobonds climbed almost thirty basis points, as creditors demanded a higher interest rate for their assumption of increased company-specific risk.[19]

On March 18, 2011, a class action suit was filed on behalf of Vestas investors in the United States District Court for the District of Colorado, alleging fraud under § 10(b) of the Exchange Act.[20] After Morrison, however, countless purchasers of Vestas stock hang in limbo without a right to relief in the United States, as the Company’s securities trade on numerous exchanges and trading platforms throughout Europe.[21] The following section introduces the collective action regimes of several European countries that might prove receptive to investor actions against Vestas.

III. Collective Action Frameworks in Selected European Nations

Several European Union member states have developed some forms of collective action, which differ in scope and procedure from the United States class action system. European collective action systems, while viable, generally remain less plaintiff-friendly than U.S. courts, as Europe remains leery of perceived abuses that might occur within an American-style framework.[22] The following jurisdictions are those most closely connected to Vestas and its securities, and hence the most promising potential forums for non-U.S. plaintiffs in that case. Nevertheless, defrauded investors in other international securities cases might explore similar options in an effort to seek damages or gain strategic leverage in global settlement negotiations.

A. Denmark

As the Company’s “home court,” Denmark is the most obvious forum in which aggrieved investors might seek collective redress. The Danish Administration of Justice Act (“the Danish Act”) established Denmark’s first class action system effective January 1, 2008.[23] However, the system contains numerous hurdles. Under § 254b of the Danish Act, a class action may be brought only if (1) the action consists of common claims, (2) a venue for each claim exists in Denmark, (3) the court is the proper venue for at least one claim, (4) the court has the requisite expertise to handle at least one claim, (5) a class action is the best mechanism for adjudicating the claims, (6) class members can be identified and notified of the action in an appropriate manner, and (7) a class representative can be appointed pursuant to § 254c.[24]

The default rule for defining a Danish class is that only claimants who affirmatively join—“opt in”—to the action are bound by it.[25] A court may, however, require an American-style “opt-out” structure in cases where two conditions are satisfied.[26] First, the constituent claims must be so small that they are unlikely to be brought as individual actions because the risk or cost of litigation is disproportionate to the size of the individual claims.[27] Explanatory notes accompanying the Danish Act suggest that typically this condition will only be satisfied if individual claims do not exceed DKK 2,000—roughly $400.[28] Second, the court must deem an opt-in structure to be unfit for the action at hand.[29] This may occur if, for example, the action consists of a claimant population so large that providing opt-in notices would be unduly expensive.[30] In an opt-out class action, however, only a designated public authority may act as class representative.[31]

Denmark’s first class action commenced in mid-2008 on behalf of almost 5,000 former minority shareholders of Trelleborg Bank.[32] The common assertions among constituent claims were that certain statutory conditions for the compulsory redemption of shares had not been satisfied during a particular acquisition, and that the redemption price was artificially low.[33] Both the city court and the Eastern High Court adjudicated these claims as an opt-in class action under the Danish Act, with the Association for Minority Shareholders in Trelleborg Bank acting as class representative.[34] The Eastern High Court declared the compulsory redemption unlawful in 2010, but found that shareholders suffered no damages because they would not have otherwise obtained a higher price for their shares.[35]

B. Germany

While Vestas is headquartered in Denmark, it has a major presence in Germany and its shares trade on the Frankfurt Stock Exchange.[36] German law provides for collective actions in securities cases under the Capital Investors’ Model Proceedings Act (Kapitalanleger-Musterverfahrensgesetz, or “KapMuG”).[37] Under KapMuG, investors must file individual claims at the trial court level, and plaintiffs or defendants may subsequently apply for their case to be adjudicated as the “model case.”[38] The Higher Regional Court selects a model case if at least ten applications are filed containing common issues of law and fact.[39] The court then defines the set of pending claims to be bound by its holdings in the model case, and new claimants may opt into the model proceedings.[40] Pending actions dependent on the model case are stayed until it concludes, and then proceed in trial courts bound by the Higher Regional Court’s decision.[41]

The German legislature passed KapMuG in 2005 in response to 16,000 individual investor claims filed against Deutsche Telekom alleging deficiencies in the company’s stock prospectus.[42] KapMuG was intended to alleviate the resultant docket backlog, but model proceedings have lingered for over five years as individual claimants cause delays.[43] Perhaps most importantly, the model plaintiff cannot settle the case on behalf of other claimants without their unanimous consent.[44] Once the model proceedings end, the trial courts will still have to judge thousands of pending claims on an individual basis.[45] These and other inefficiencies make it likely that KapMuG will soon be amended to provide a more streamlined process for securities litigation.[46]

C. The Netherlands

Vestas has a relatively modest presence in the Netherlands, but its listing on the Dutch-regulated NYSE Arca Europe platform leaves it susceptible to a Dutch action.[47] Although Dutch law prohibits collective actions for damages, it allows representative organizations to bring collective actions for declaratory judgment.[48] Any resultant declaration against a defendant empowers individual claimants to obtain damages through individual actions.[49] Under Dutch Civil Code, a securities class action might take the form of a collective tort claim alleging “unfair commercial practices” or “misleading public announcements.”[50]

A representative organization can initiate a collective action for declaratory judgment by serving the defendant with a writ of summons and filing the same in a district court.[51] The defendant then responds with a statement of defense that introduces its contentions and offers evidentiary support for its position.[52] The organization counters with a statement of reply, and the defendant may respond again with a statement of rejoinder.[53] Unlike the American system, the parties can include the functional equivalent of motions to compel discovery within their initial pleadings.[54] The court will then hear oral argument at the parties’ request and subsequently issue an interim judgment, which may order additional document production, witness examination or expert testimony.[55] After these proceedings there will be either another interim judgment or a final declaration on the matter.[56]

D. Other Jurisdictions

Additional Vestas securities listings in the United Kingdom, Luxembourg, and the Nordic countries suggest that these nations may contain a significant fraction of the Company’s non-U.S. investors.[57] Except for Luxembourg, each country has some form of “opt-in” collective action that could facilitate investor claims.[58] The New York Stock Exchange (NYSE) Arca Europe platform further extends the reach of Vestas securities and thus could catalyze collective or individual actions in several other jurisdictions.[59]

IV. World Peace – Global Settlement in the Netherlands

While several European jurisdictions offer collective action mechanisms that could be effective for non-U.S. plaintiffs, some are unproven in the context of securities cases. The Netherlands, however, provides a far more manageable alternative for parties that wish to avoid the risk and expense of complex actions in various countries. The Netherlands offers a young and developing global opt-out framework for collective settlement, which derives from the Dutch Act on Collective Settlement of Mass Damages (Wet Collectieve Afwikkeling Massaschade, or “WCAM”).[60]

Though this framework is contingent upon plaintiffs’ counsel and defendants reaching an acceptable settlement agreement, it is nevertheless a powerful alternative to adversarial proceedings outside the United States. WCAM allows parties to a settlement agreement to request that the Amsterdam Court of Appeal (“the Court” or “the Amsterdam Court”) declare the settlement binding on all persons and entities covered by its terms (“the class”), regardless of class members’ places of domicile.[61] This section first examines the three key procedural conditions for obtaining such a declaration: representation, jurisdiction, and notification. Second, it describes the procedural histories of the only two global settlements ever to go before the Court, as these are early examples of what could take place not only in the case against Vestas, but in many future international securities cases.

A. The Procedural Conditions for Obtaining the Court’s Declaration that a Global Settlement is Binding

1. Representation

Under WCAM, an association or foundation (“organization”) may be formed to represent class interests in settlement negotiations with potentially liable parties.[62] If a settlement agreement is reached, the parties to it may petition the Court to declare it binding on class members that do not opt-out.[63] The Court will bind the class only if the organization’s articles of association specifically convey an objective of representing class member interests.[64] The Court may also conduct a fact-intensive inquiry into the adequacy of the organization’s representation by examining the organization’s activities, the number of class members, and class members’ acceptance or denial of the organization as their representative.[65]

More than one organization may jointly represent the class, provided that each passes the test for representation of a subclass.[66] Not every organization representing a subclass needs to be a direct party to the settlement agreement.[67] For instance, in an international settlement for securities fraud, a single Dutch organization might coordinate with, and obtain the written approval of, different shareholder organizations dispersed across Europe. Acknowledging such an approval, the Court would likely find that Dutch organization to be sufficiently representative of the whole international class.[68]

2. Jurisdiction

To declare a settlement agreement binding on an international class, the Court exercises jurisdiction with respect to class members domiciled in the Netherlands, another EU member state, or a nation-party to the Lugano Convention (together, the “contracting countries”) pursuant to Council Regulation 44/2001 (“the Brussels I Regulation”) and the Lugano Convention.[69] The Court interprets these authorities to regard class members as the persons “sued” in a petition for international settlement, because a binding declaration eliminates class members’ rights to other redress.[70] Jurisdiction over Dutch class members attaches under Article 2 of the Brussels I Regulation, which provides the default rule that persons are sued in their home country.[71]

Under Article 6 of the Brussels I Regulation, class members domiciled in another contracting country may be bound to settlement in the Netherlands if their underlying claims are sufficiently connected to those of a Dutch claimant.[72] This condition currently constitutes a low hurdle in settling international securities cases.[73] With respect to class members not domiciled in a contracting country, Section1 of the Dutch Code of Civil Procedure (“DCCP”) allows the Court to exercise jurisdiction if any party to the settlement resides in the Netherlands.[74] This is why class organizations tend to associate and reside within Dutch borders. Even without a Dutch petitioner, borderless jurisdiction may attach if “the legal proceedings are otherwise sufficiently connected with the Dutch legal sphere.”[75]

3. Notification

The Court requires that class members be notified of a petition for a binding declaration and any resultant declaration, but the appropriate notification procedure can sometimes vary among subclasses.[76] At the petitioning stage, Council Regulation 1393/2007 (“the Service Regulation”) governs notification of class members known to be domiciled in an EU member state.[77] Other instruments, including the Hague Service Convention of 1965, control the notification of class members known to be domiciled outside the EU.[78] In addition to service by mail, the Court requires petitioners to place notices online and in various newspapers where unknown shareholders may reside.[79] The Court’s decision in Royal Dutch Shell contained detailed notification instructions for an array of subclasses in compliance with the Service Regulation and similar treaties.[80] Upon a binding settlement declaration, the Court determines at least a three-month opt-out period within which class members may send their representative organizations a written request to be excluded from the agreement.[81] Procedures for notifying class members of the declaration and opt-out period are similar to those required at the petitioning stage.[82]

B. Two Previous Examples of Global Settlement in the Netherlands

1. Royal Dutch Shell

In January 2004, the Netherlands-based Royal Dutch Petroleum Company and UK-based Shell Transport and Trading Company (collectively, “Royal Dutch Shell”) announced a re-categorization of oil reserves that significantly devalued both companies on American and European exchanges.[83] The U.S. Securities and Exchange Commission and the British Financial Services Authority commenced enforcement actions against Royal Dutch Shell that later settled for $120 million and £17 million, respectively.[84] American and international investors followed suit with fourteen securities class actions in U.S. courts, which were consolidated before the United States District Court for the District of New Jersey (“D.N.J.”).[85] Two American pension funds (“Lead Plaintiffs”) represented a global class of Royal Dutch Shell investors in alleging materially false and misleading statements about Royal Dutch Shell’s reserves over a five year class period.[86]

In August 2005—before Morrison—D.N.J. claimed subject matter jurisdiction with respect to foreign purchasers of Royal Dutch Shell securities on foreign exchanges.[87] The parties subsequently carried out extensive discovery and mediation that revealed new evidence of the alleged fraud.[88] Royal Dutch Shell and class-representative organizations eventually reached an agreement to settle the claims of all non-U.S. purchasers and filed an application with the Amsterdam Court to declare the settlement binding in April 2007.[89] The settlement parties simultaneously notified the New Jersey court and Lead Plaintiffs of their agreement, which was contingent upon D.N.J.’s dismissal of non-U.S. purchasers’ claims.[90]

After Royal Dutch Shell announced its settlement with foreign claimants, D.N.J. appointed a Special Master to reconsider the issue of subject matter jurisdiction over foreign purchasers.[91] The Special Master concluded that D.N.J. lacked jurisdiction, and the court adopted his decision to dismiss foreigners’ claims on November 13, 2007.[92] American claimants responded by executing their own settlement with Royal Dutch Shell in D.N.J. the following year.[93] Finally, on May 29, 2009, the Amsterdam Court declared the international settlement binding on all non-U.S. purchasers of Royal Dutch Shell securities.[94] Even after this binding declaration, however, uncertainty loomed regarding the Court’s willingness to exercise jurisdiction in global securities cases without a Dutch “defendant” and without sizeable ties to Dutch investors.[95] Converium settled this issue.

2. Converium

Converium denotes a current petition before the Amsterdam Court seeking a binding declaration of related settlements between international investors and two Swiss companies. Before and shortly after Zurich Financial’s 2001 spin-off of its wholly owned subsidiary, Converium Holding, both companies allegedly made misleading statements that masked Converium’s insufficient reinsurance reserves.[96] As the newly public company unveiled its true financial state in subsequent months, American and international investors suffered substantial stock declines.[97] Converium’s shares traded on the SWX Swiss Exchange—which is now the SIX Swiss Exchange—and its ADRs traded on the New York Stock Exchange.[98] In a class action before the United States District Court for the Southern District of New York (“S.D.N.Y.”), an American pension fund and a foreign institutional investor sued on behalf of Converium shareholders and ADR-purchasers worldwide.[99] On motion for class certification in March 2008, S.D.N.Y. excluded foreign purchasers of the Swiss-listed Converium securities for lack of subject matter jurisdiction.[100]

Two years later, Converium, Zurich Financial, and two Dutch organizations representing all non-U.S. purchasers asked the Amsterdam Court for a preliminary ruling on its jurisdiction to declare a proposed settlement binding.[101] Interestingly, the source of foreign claimants’ leverage in settlement negotiations remains unknown, as no collective action for damages commenced outside the United States. In its recent provisional ruling on jurisdiction, the Amsterdam Court merely acknowledged that non-U.S. purchasers “hold Converium and [Zurich Financial] culpable for acting . . .” in violation of U.S. securities laws.[102]

The international class consisted of approximately 12,000 non-U.S. investors, only 200 of which were known to reside in the Netherlands.[103] Other known class members resided in a contracting country or elsewhere outside the U.S.[104] In its decision on jurisdiction, the Amsterdam Court relied on the Dutch organizations’ articles of association to find they satisfied the prerequisites for representing all non-U.S. investors.[105] Then, making repeated references to the void of relief left in Morrison’s wake, the Amsterdam Court proudly proclaimed itself the unrestrained savior of America’s outcasts.[106]

The Amsterdam Court repeated its jurisdictional analysis from Royal Dutch Shell to derive authority to bind class members in contracting countries, pursuant to Articles 2 and 6 of both the Brussels I Regulation and Lugano Convention.[107] It buttressed its reasoning with Article 5, which, in matters of contract, permits persons domiciled in one contracting country to be sued in another containing the place of performance.[108] The Amsterdam Court found Article 5 fulfilled by the fact that Zurich Financial and Converium would compensate representative organizations—perform its contractual obligations—through a Dutch bank account, from which the organizations would distribute money to class members.[109] With respect to class members domiciled outside the contracting countries, DCCP Section 1 again permitted Dutch jurisdiction because a petitioner resided in the Netherlands.[110] The Court’s decision to exercise jurisdiction remains provisional until class members have the opportunity to comment, but this appears to be a formality.[111]

V. Conclusion

The case against Vestas Wind Systems illustrates a fundamental shift in global securities litigation after Morrison. Left claimless in United States courts, many investors in foreign securities that suffer losses from illegal issuer conduct must now find new routes to recovery. While numerous countries in the EU and elsewhere have built collective action structures, some of these structures are unproven or pose economic barriers. Others show significant promise for shareholder action. For Vestas investors, it appears that several jurisdictions would welcome some form of collective action for damages, but multiple proceedings across multiple borders could prove costly for plaintiffs and defendants alike.

The Netherlands offers an efficient solution for litigants, both in the Vestas case and in future international securities class actions. With its global settlement mechanism, the Netherlands may become a safe haven, where plaintiffs seek the ease and certainty of imminent recovery and defendants seek to convert indeterminate long-term risks into quantifiable short-term liabilities. International settlement negotiations will depend on a multitude of variables, which include the merits of particular claims, procedural peculiarities, and funding options in each jurisdiction. Recent Dutch cases, however, provide reason for optimism that international class settlements could become a beneficial norm in the near future of securities litigation.