The American Advantage in Civil Procedure? An Autopsy of the Deutsche Telekom Litigation

Abstract

This article examines the influence of civil procedure on the legal framework that supports securities markets in the U.S. and in Germany, two very different legal systems. It does so by way of comparing parallel shareholder actions against Deutsche Telekom for securities disclosure violations arising out of the same facts and allegations – the first set of actions filed in federal district court in Manhattan, the second filed in district court in Frankfurt, Germany.

Deutsche Telekom was accused in both actions of misrepresenting the value of its real-estate holdings in its financial disclosures and for failing to disclose negotiations for the acquisition of the U.S. Company VoiceStream in its July 2000 offering prospectus.

But the cases proceeded very differently and produced dramatically different outcomes. Within five years, and after full discovery, the U.S. class action plaintiffs negotiated a $120 million settlement with the Deutsche Telekom defendants. Meanwhile, the parallel claims by German shareholders, the first of which were filed in 2001, were ultimately dismissed by the German courts in 2012. Until now the German shareholders have received nothing, even after the German Bundestag had adopted a new and unprecedented aggregate litigation mechanism in late 2004 (dubbed “the Deutsche Telekom law”) to afford thousands of complaining German shareholders a reasonable mechanism for pursuing a just and speedier resolution of their claims against the DT defendants.

The article also engages claims about the importance of litigation discovery for corporate and securities laws advanced by Michael Halberstam and Érica Gorga in Litigation Discovery and Corporate Governance: The Missing Story About “The Genius of American Corporate Law” 63 Emory Law Review 1383 (2014).

Keywords: securities litigation, civil law, civil procedure, comparative law, class actions, discovery, corporate governance, private enforcement, shareholders, PSLRA, corporate law, securities disclosure