Assignment of group claims was invalid, rules German court

Johanna Weißbach and Michèle Heil of Pinsent Masons, the law firm behind Out-Law, were commenting after the Regional Court of Ingolstadt ruled that a legal service provider was not entitled to assign car owners to a group action it was raising against automotive manufacturer Audi on the basis that the terms of that assignment put the car owners at an unreasonable disadvantage.

Group claims are legal proceedings lodged against businesses allegedly responsible for wrongdoing that impacts multiple individuals – sometimes a very large group. To address the cost to those impacted of raising typically low-value claims in litigation on an individual basis, legal service providers organise a single action through which individuals can participate. Group claims are perhaps best known in the context of US-style 'class actions'. German litigation, however, is based on individual actions, which may change in the future due to new European legislation introducing EU mass claims.

In the case before the Regional Court of Ingolstadt, Myright had initiated a group claim in relation to allegations made about diesel emissions from Audi vehicles. While the court confirmed in accordance with case law in Germany that the assignment of individuals to group claims is legitimate in principle under German law, the assignment of Audi owners to the claim in this case was not in line with the requirements of Germany's Legal Services Act and that this invalidated the legal action.

The judge reached that view after considering that the car owners would have been subject to economic pressure had they not agreed with the terms of any settlement Myright might have reached in the case. This pressure would have arisen from the fact that the individuals' participation in the claim was only free to them if they agreed in advance to support a settlement Myright might negotiate. Myright had otherwise set a 35% commission on any compensation paid in the event the claim was successful as part of the terms of assignment.

Weißbach of Pinsent Masons said: "Following the landmark decision by the German Federal Court of Justice in November 2019 on claims bundling by legal service providers, several regional courts have ruled on similar business models. According to the Federal Court of Justice a case by case analysis is required when assessing these kinds of business models. So far, this analysis has mainly resulted in a negative outcome for the involved service providers."

Heil, also of Pinsent Masons, said: "One learning from the recent judgment by the Regional Court of Ingolstadt is that legal service providers should carefully phrase their general terms and conditions and that defendants should carefully scrutinise these terms in order to undermine the business model."