There may be no more glaring example of the shifting terrain for securities litigation than the case against the Royal Bank of Scotland. Back in January 2011, RBS was one of the early beneficiaries of the U.S. Supreme Court’s bar on shareholder suits against foreign defendants. U.S. District Judge Deborah Batts of Manhattan dismissed most of a class action claiming that the bank misled investors about its subprime exposure and the success of its ABN Amro deal. The judge tossed the few remaining claims last September, erasing any chance that RBS would be held liable to shareholders in U.S. courts. The American plaintiffs’ firms that sued RBS and the U.S. pension fund clients that vied to lead the litigation were plumb out of options.
But their counterparts in the United Kingdom pressed on. Shareholder litigation has been a relative rarity in England, not least because of the loser-pays rule, said London lawyer Robin Ellison of Pinsent Masons, who counsels pension funds, insurance companies and other institutional investors on their litigation rights. But in recent years, as England has relaxed old prohibitions on outside investment in litigation, insurers have begun issuing so-called After the Event policies, taking over the risk that plaintiffs will have to pay defendants’ fees if they lose. That innovation, Ellison told me, has made shareholder litigation a realistic prospect in the UK. His group, the Institutional Investors Tort Recovery Association, evaluates about 20 or 30 potential claims a year, Ellison said, and follows up with a suit in about one-third of the cases. Ellison informally refers to shareholder suits in the UK as class actions, but they’re really not class actions in the U.S. sense. The cases are akin to American mass tort or consolidated litigation.
In the last week, two shareholder groups have initiated actions against RBS in the UK, claiming that the bank’s prospectus for a $23 billion offering in April 2008 contained material misstatements. One of the groups consists of British and international institutional investors represented by Stewarts, which filed a one-page claim on their behalf at London’s High Court last week. The second group filed an actual complaint against RBS and several board members at the High Court on Wednesday. That group, which is represented by Bird & Bird and includes about 12,000 individual RBS shareholders and more than 100 institutional investors, has said that its claims could top 4 billion pounds. Ellison, who said he has clients “across the board in this litigation,” told me that these are the biggest claims in UK history.
Not much is publicly known about the Stewarts group, and lead counsel Clive Zietman didn’t return my call. The Bird & Bird group, which has a website, has been somewhat more transparent, announcing that its litigation would be funded through subscriptions by shareholders who joined the case (with any eventual recovery apportioned the same way). The second group, known as Royal Bank of Scotland Shareholders Action Group, also made a public announcement in January when it obtained insurance to cover RBS’s legal fees in the event that it loses the case. Given the sky-high cost of litigating in London, that policy must be for tens of millions of dollars. (A representative of the group declined to comment.)
So where does this leave American securities class action lawyers? According to Ellison, the UK pension fund lawyer, a U.S. firm is involved in the institutional investor case against RBS, but he wouldn’t give its name. We’ve previously seen the Delaware shareholder firm Grant & Eisenhofer venture overseas, to the Netherlands, to reach a settlement with Royal Dutch Shell on behalf of European institutional investors. (I called the firm to see if it’s involved in the RBS case but didn’t hear back.) Perhaps the future of securities litigation for American lawyers is going to involve getting to know the securities laws of Canada, Holland and England as well as those of the United States.