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Litigation - Germany

Background

The exposure to risk for companies litigating in common law countries is much greater than in civil law jurisdictions such as Germany, in particular because of the availability of certain procedural and substantive instruments in common law countries, including:

  • a pre-trial discovery procedure permitting plaintiffs to conduct pre-trial 'fishing expeditions' in search of proof to support their claim;
  • the unpredictable outcome of jury decisions;
  • contingency fees for the plaintiff's attorneys;
  • multimillion or even billion-dollar damages compensation and punitive damages claims; and
  • exorbitant legal fees and expert costs which may have to be (partially or wholly) borne by the winning party.

In order to avoid these risks and limit the negative impact on a company's reputation, it is in the interest of German companies to fight such complaints effectively from the very start - that is, as soon as the complaint is filed and service of the complaint is carried out under the Hague Convention on the Service Abroad of Judicial (and Extrajudicial) Documents.

 

In 2003 the Federal Constitutional Court provided injunctive relief to German company Bertelsmann AG by ordering the relevant German authority not to issue proof of service of a US multibillion-dollar class action compensation claim brought by music industry representatives against Bertelsmann because it had owned shares in Napster, which had allegedly infringed the plaintiffs' copyrights.

 

Following this decision German companies hoped that they could limit their exposure to such US complaints in the future.

 

Ultimately the injunction was not upheld because Bertelsmann later withdrew its constitutional appeal against the service issue. In another case, the Federal Constitutional Court recently decided whether the service of a US multimillion-dollar compensation complaint on a German company violated the company's constitutional rights.

 

Facts

The former executive manager of a Puerto Rican sister company sued the German parent company for $11.114 million, alleging that the company had discriminated against him when it had not awarded him an executive position and had ultimately terminated his contract.

 

The US complaint was served through the appropriate channels pursuant to the Hague Convention. The German defendant company filed a motion against the decision to issue the proof of service of the complaint with the Frankfurt High Court. However, the court rejected the defence motion. The German defendant company filed an appeal against this decision with the Federal Constitutional Court, claiming that its institutional rights had been violated.

 

Decision

The Federal Constitutional Court's decision (2 BvR 1133/04) rejected the appeal on the grounds that the appellant's constitutional right to freedom had not been infringed.

 

It held that it (and the Constitution) allows the service of US complaints in Germany because Germany is a party to the Hague Convention. A country can reject service of a complaint only if its sovereignty or safety is endangered. Such endangerment is rarely caused by such service.

 

Even though the amount claimed in the procedure was significant (and unusual for German claims), the claim did have some connection to the alleged damage. The court held that the mere possibility of exposure to a US-style discovery procedure does not constitute a violation of the essential principles of a liberal constitutional country. Before a German company is confronted with a discovery procedure, other German authorities have to respect the defendant's rights in the separate international intrajudicial assistance procedure.

 

The court also held that the fact that the defendant would be unable to recover all its fees and costs if the US complaint were subsequently dismissed did not constitute an infringement of its constitutional rights. The court made it clear that a company that carries out business needs to bear the risks associated with such actions.

 

Comment

This latest decision demonstrates that German companies can no longer protect themselves against multimillion-dollar complaints filed in a common law jurisdiction merely by contesting the service of the complaint. If available, companies should concentrate on other defences (eg, those attacking jurisdictional decisions or international intra-court judicial aid decisions on requested discovery procedural instruments). In this respect, it is still particularly valuable for a German company to work with experienced defence attorneys in order to prepare defence experts well for their testimony during a discovery or court procedure in a common law jurisdiction.

 

In order to limit the risks associated with complaints filed in common law jurisdictions and to defend against them as effectively as possible, German companies should retain and rely on an experienced defence counsel in Germany with links to experienced defence counsel in the relevant common law country.

 

 

International Law Office