On February 7, 2020, the Munich District Court dismissed financialright claims GmbH’s (“financialright”) claim of approx. €900 million against members of the truck cartel.[1] The judges squashed litigation vehicle financialright’s business model tailored to pursue a U.S. style class action in Germany, ruling that it lacked standing. Upon appeal, the Munich Court of Appeal is called to decide.

Factual Background

On July 19, 2016 and September 27, 2017, the European Commission fined the leading truck manufacturers €3.8 billion for fixing prices over a period of 14 years from 1997 to 2011.[2] While the 2016 decision is final, the 2017 decision is currently under appeal.[3] Financialright invited customers with (potential) damage claims against truck cartel members to assign their claims for a contingency fee of 33% plus tax. It bundled about 85,000 damage claims of more than 3,000 customers. A third-party litigation funder covered financialright’s costs and the trial costs.

Legal Background

Financialright is a registered debt collection agency under the German Legal Services Act (Rechtsdienstleistungsgesetz, “RDG”). The permitted scope of activities of a debt collection agency under German law remained somewhat open following a recent decision of the German Federal Court of Justice (“FCJ”) from November 2019 concerning debt collection agency Lexfox collecting claims of tenants against their landlords for a contingency fee. While the FCJ ruled in favor of Lexfox, it emphasized in its decision that “general standards cannot be established” and the details of each business model would need to be considered carefully.

The Court’s Decision

No Permitted Debt Collection Services

The Munich District Court held that debt collection services, as permitted by the RDG, require services to be tailored towards out-of-court activities. Financialright did not meet this requirement. Based on its online presentation, contractual agreements, terms and conditions, and its actual course of action, the court concluded that financialright only intended to pursue the claims in court.

Conflict Of Interests

Additionally, the court held that financialright violated Sec. 4 RDG, which prohibits out-of-court legal services in case of conflicts of interests.

Bundling Of Variety Of Heterogeneous Claims

First, the court found a possible conflict of interests between the large and heterogeneous number of customers whose potential claims were bundled.

While each customer’s situation (sector, company size, time and place of purchase/lease of trucks, purchase from manufacturer or dealer, etc.) and its claims’ prospects varied, the court found that bundling more and less promising claims could adversely affect the prospects of customers with higher chances of success.

As a lawsuit’s prospects are essential for settlement negotiations, the bundling would also benefit customers with less promising claims to the detriment of customers with more promising claims in a settlement. Additionally, any settlement sum would be distributed on a pro rata basis irrespective of each customer’s individual prospects of success. Finally, financialright had the right to conclude a settlement at its own discretion if the settlement offer as a whole appeared economically reasonable although the offer may not be economically reasonable for each individual customer.

The court also found the bundling to compromise efficient legal enforcement of the individual claims. Even if bundling would result in a small efficiency advantage because general legal or fundamental economic questions were to be decided on only once, the additional work required to evaluate each of the assignments to financialright would outweigh any such efficiency advantage. The judges therefore specifically did not follow financialright’s claim that it would be more efficient to have one court decide all claims rather than occupying different courts with the follow-on damage claims.

Third-Party Litigation Funding

Second, the court found the involvement of the third-party funder to give rise to potential conflicts of interests because financialright would need to consider the funding party’s interests both with respect to cost inducing procedural steps (e.g., expert opinions) and with respect to a potential settlement. These interests may clash with the customers’ interests. The court considered it irrelevant whether customers would have claimed their damages at all had they not participated in financialright’s model.

Evaluation And Outlook

The ruling sets high hurdles for bundling claims in German courts and demands a detailed analysis in each specific case. Whereas the RDG is not applicable for intra-group assignment of claims , bundling of third-party claims under the RDG will likely be more difficult the more heterogeneous the claims are. While lawsuits supported by third- party funders also remain permissible, the court rejected a system in which their influence may interfere with the assignors interests.

Financialright has appealed the decision.

In the meantime, companies that suffered damage from a cartel should carefully evaluate the risks associated with assigning their claims to a legal services provider, including the risk of a claim being time-barred if a court dismisses a service provider’s complaint. A large number of claims pursued by financialright will be subject to the statute of limitations and can no longer be pursued by the assigners if the courts ultimately deny financialright standing.

[1]      Munich District Court decision (37 O 18934/17) of February 7, 2020, only available in German here.

[2]      Trucks (AT.39824), Commission decision of July 19, 2016, available in English here, and Commission decision of September 27, 2017, Press Release available in English here.

[3]      Scania and Others v Commission, Case T-799/17, action brought on December 11, 2017, available in English here.