Italian Class Actions Eight Months In: The Driving Forces

Article by Dr. Renzo Comolli, Dr. Massimiliano De Santis, and Dr. Francesco Lo Passo*

On 1 January 2010, it became possible to file consumer class actions in Italy.1 An explosion of media coverage, loud proclamations, and filings purportedly claiming billions of Euros in damages saluted the new law. Since then, the pace of filings has slowed down somewhat, though alleged damages are still in the billions. Both Italian and foreign companies have been called to the mat.

In this paper, we provide an overview of the first eight months of the Italian class action experience, from 1 January 2010 to 31 August 2010, through our economists' eyes.2 We focus on the economic incentives created by the law and by the role of consumer associations as de facto plaintiffs. In particular, because consumer associations are nonprofit and do not stand to gain directly from a settlement or damage award, they may not necessarily aim to maximize settlements or recoverable damages, as demonstrated, for example, by their choices in the recent Intesa case. We then analyze the goals that consumer associations seem to pursue and derive the implications that these have for damage claims and future settlements. For these and other reasons discussed below, expectations based solely on the US experience would likely often be off the mark. In addition, we review some of the damage claims that have been made in recent actions and find that, while large, they do not appear to be consistent with the opt-in model of the Italian class action. It is also unclear whether plaintiffs have yet refined their estimates to make them consistent with economic principles.

Partly because the law is so recent, there are uncertainties about its interpretation and about the players that will establish their dominance. Future developments could therefore differ substantially from current expectations.

The paper proceeds as follows. We begin with a brief overview of the law—readers already familiar with the law can skip this section. We then provide details on the class actions filed in these first eight months. Lastly, we come to our main focus: the economic incentives, the damage claims, and future settlements.

A VERY BRIEF OVERVIEW OF THE ITALIAN CLASS ACTION LAW

How the Law Came to Pass

Before the introduction of the new class action law, forms of collective action already existed in Italy with respect to consumer rights and labor law, but were limited to injunctive relief (they did not contemplate damages).3 Debates about the enactment of a means of collective redress in the Italian legal system had been going on for years.4 The Cirio, Parmalat, and other financial scandals in which many small investors lost substantial amounts of money catalyzed such debates.5 At the end of 2007, a new article was added to the Consumer Code—article 140-bis—introducing class actions in Italy.6 This article was scheduled to come into force on 30 June 2008, but its application was postponed several times.7 In July 2009, the original version of article 140-bis was replaced in its entirety with the current one.8

Who May File

Under the new law governing Italian class actions, each consumer who is a member of the proposed class has the right to file.9 Only individuals are considered consumers under the law.10 Consumers of both goods and services are encompassed. The plaintiff may give a mandate to a consumer association or committee to sue on his behalf.11 The law does not require the plaintiff to be a member of the consumer association to which he gives a mandate, and does not set forth provisions about the remuneration of the consumer associations specific to class actions.

Because of their role, consumer associations and committees are sometimes referred to as "promoters." Outside of the legal proceeding, they are often loosely described as if they were a plaintiff in the action—a reflection of the fact that they are the de facto engine behind the class action—while the individual consumer, who is an actual plaintiff, is often ignored.

Who May be Sued

Only companies can be named as defendants under the law. More precisely, the law uses the word "impresa" to describe defendants. The word "impresa" seems to include what is referred to as a "company" in English, but there is dispute over what that word exactly encompasses even in Italian.12

Both Italian and foreign companies may be sued in Italy.13

Timeframe of Applicability

On 1 January 2010 it became possible to file consumer class action lawsuits, but those lawsuits can only cover conduct by defendants subsequent to 15 August 2009.14 This restriction is now being challenged on constitutional grounds.15

Types of Claims That Can be Brought

The types of claims that can be brought are limited to those that involve:16

Contractual rights Product liability Anti-competitive practices Unfair commercial practices Note that a product liability claim may be brought against the producer even when there is no direct contractual relationship between the consumer and the producer.

While there seems to be little dispute that financial contracts fall under the purview of the class action law (provided that the other conditions are satisfied, e.g., that the purchaser is a consumer),17 commentators are inclined to exclude class actions that are legally similar to what in the US is covered under Section 10 of the Securities Exchange Act of 1934 and SEC Rule 10b-5.18 Yet certain consumer associations appear to claim 10b-5-like damages.19

The Proceeding

Broadly speaking, a class action involves two main stages: first, an admissibility stage, and second, a liability and damages stage. Between the first and the second stage, publicity and opt-in take place.

The courts have broad leeway to structure the proceeding,20 and can consider expert reports both at the admissibility phase and the liability and damages phase.

Admissibility

In Italy, the admissibility stage resembles the class certification stage in the US, but the court is additionally charged with making a preliminary inquiry regarding the merits of the case. A class action is deemed inadmissible in one or more of the following cases:21

The claim is manifestly unfounded; There is conflict of interest; The rights infringed upon are not homogenous; and/or The lead plaintiff is unable to adequately represent the interests of the class. In addition to satisfying the specific requirements for class actions, a proposed class action also needs to satisfy the general requirements for any consumer action:22

The lead plaintiff must be a consumer;23 The lead plaintiff must have "an interest" in the suit.24 If a proceeding on the same issue is pending in front of a government authority or an administrative judge, the court may suspend the admissibility phase until the administrative proceeding is completed.25 This provision seems relevant to class actions claiming anti-competitive conduct.

The admissibility phase ends with a court decision. If the decision finds the class admissible, it determines the requirements that each member must fulfill to be part of the class.

Publicity and Opt-Ins

The Italian class action is based on an opt-in model. Members must affirmatively opt in to the class if they want the decision on damages (or the settlement) to apply to them.

If a court decision finds the class admissible, the decision also orders public dissemination of the admissibility finding and establishes a deadline for consumers to opt in. This deadline for opting in can be no later than 120 days after the deadline for public dissemination. If members do opt in, they are bound by the decision on liability and damages. If they do not, they retain the option to undertake their own individual lawsuit.

Liability and Damages

Subsequently, the proceeding moves on to the phase in which liability and, potentially, damages are determined. If the court finds the defendant liable, the court's decision specifies either a damage amount or a uniformly applicable criterion to be applied to all claims to calculate the damage for each individual claim.26

There is no provision for punitive damages in the Italian class action law.27

No More Than One Class Action for Each Matter

No more than one class action for each matter will be allowed to proceed. If more than one is initiated, they will be consolidated into one.28 If a class action is considered admissible, any subsequent class action on the same matter will be dismissed (though each plaintiff can still propose individual actions).29 Only if the class action is found inadmissible can a new one be filed for the same matter.

Lengthy Adversarial Proceedings With No Pre-Trial Discovery

There are general features of the Italian civil proceeding that apply to class actions too. In the Italian civil procedure there are no pre-trial proceedings, no pre-trial discovery, and no trial by jury.30 Civil proceedings are adversarial: the judge cannot go beyond the parties' pleadings or the evidence that the parties have presented.31 Moreover, in Italy, commercial judicial proceedings can take three years or more just at the lower court stage.32 If that were the case for class actions, too, the time delays could be a central shaping force of the class actions.

SIX CLASS ACTIONS FILED AND AT LEAST 15 MORE ANNOUNCED

From 1 January through 31 August 2010, at least six consumer class actions were filed in Italy.33 These cases spanned issues ranging from banking services to flu vaccines. All were filed through a consumer association: Codacons, Unione Nazionale Consumatori, or Adoc. The table below lists the consumer association promoting the action, the defendants, and the subject matter of these six suits.

Italian Consumer Class Actions Filed

1 January 2010 – 31 August 2010

Consumer Association Promoting the Action

Defendant

Matter

Codacons

Intesa San Paolo34

Bank fees

Codacons

Unicredit35

Bank fees

Codacons

Voden Medical Instruments36

Flu vaccine

Codacons

British American Tobacco...