The Recognition of U.S. "Opt-Out" Class Actions in China

Article excerpt

TABLE OF CONTENTS

  I. INTRODUCTION
 II. FEDERAL RULE OF CIVIL PROCEDURE 23(B) (3): A GENERAL
     OVERVIEW OF "OPT OUT" CLASS ACTIONS
     A. The Issues Entailed in the Recognition of U.S. "Opt Out"
        Class Actions in Foreign Jurisdictions
     B. The Issue as Perceived by U.S. Courts: From Bersch to
        Vivendi and Alstom
III. THE OBSTACLES TO "OPT OUT" CLASS ACTION RECOGNITION IN
     CONTINENTAL EUROPE
 IV. U.S. "OPT OUT" CLASS ACTIONS AND CHINA
     A. China's Legal Background and Constitution: (Few)
        Similarities and (Many) Differences with Continental
        Europe
     B. How Would U.S. "Opt Out" Class Actions be Tested by the
        Chinese Legal System ? And How Would They Fare?
     C. Does the Chinese Legal System Contemplate Multiparty
        Litigation Schemes or Mechanisms Similar to U.S. "Opt
        Out" Class Actions?
  V. CONCLUSION

I. INTRODUCTION

In the past decades, as the epicentre of the financial world slowly drifted away from the Atlantic towards the Pacific, the trends in global investments and market transactions have seen the People's Republic of China (the PRC) rise as a key player on the international stage. Becoming a member of the World Trade Organization, as well as a recipient of consistently increasing foreign direct investments, China has welcomed both legal and financial reforms that have enabled the country to rank as one of the leading economies in today's world. (1)

Although China-bound deals no longer represent anything of a surprise, the increase in the opposite flow in investments (from China towards the European Union and the United States) is becoming ever more apparent. The economic growth propelled by Deng Xiao Ping's "Open Door" Policy and by the ensuing amendments to China's Constitution and legal framework have allowed China to grow as a country on one hand, while granting private entities and individuals--on the other--the opportunity to raise funds sufficient to become more actively involved on the global stage. (2) As a consequence, China's government and several Chinese individuals and corporate entities have started stretching back across the Pacific, viewing the United States as a fundamental trade partner and American companies as sound targets for their investments. (3)

More specifically, the rising interest shown by Chinese investors in the U.S. market may be highlighted, amongst other things, by the quantity and frequency of U.S. debt purchases carried out by the Chinese government itself. According to a note issued by the U.S. Department of the Treasury on December 17, 2012, (4) the People's Republic of China is currently the largest major foreign holder of U.S. treasury securities, counting on treasury securities for about U.S. $1,160 billion.

With a persistently rising number of corporations and nationals seeking growth opportunities in the United States, and with a rapidly increasing amount of transactions being negotiated and closed, the likelihood of controversies or disputes arising between Chinese actors and their counter-parties is also on the upswing.

This is particularly true if one considers large, public deals where parties trade high-yielding yet extremely volatile securities. During the financial crisis and global meltdown that hit capital markets in the recent past, U.S. courts saw a rapidly increasing number of securities fraud cases brought before them. (5) Moreover, as most cases involved a large number of injured parties and were targeted at similarly situated defendants (such as hedge funds, investment management firms, accounting firms, and custodian banks), it was often the case that--in lieu of bringing a myriad of individual claims against the same defendants at the same time--class action complaints were filed instead. (6)

The use of class actions in securities fraud cases is not unknown in the United States, and there is ample literature concerning the use of such litigation scheme in an American context. …

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