A walk on the wild side, US class actions and UK pension schemes

Earlier this year, two UK based pension funds secured multi-million-dollar settlements from class action claims in the United States. Garon Anthony, Pensions Disputes Partner, answers some of the key questions around UK based pension schemes participating in US investor class actions.

The Apple class action

The Norfolk Pension Fund (NPF) achieved a significant victory in a class action lawsuit against Apple, securing a settlement of USD 490 million for the class. The lawsuit accused Apple’s CEO, Tim Cook, of deceiving shareholders by hiding the decreased demand for iPhones in China. NPF became lead plaintiff in 2020. During the five-year legal battle, Apple denied any wrongdoing, but the persistence of the NPF resulted in a historic settlement just before trial.

The Under Armour class action

The North East Scotland Pension Fund (NESPF), part of the LGPS in Scotland, secured a USD 434 million settlement for the class from Under Armour in a US securities fraud class action suit. NESPF was the lead plaintiff, representing a larger group of investors who suffered similar losses due to alleged false statements made by Under Armour about its products and business operations. 

Why did the two UK LGPSs participate in these high-profile US class actions?

We did not act for the LGPS so can only engage in educated guess work. But there may be a number of reasons:

• Both of the LGPSs appear to have had a strong sense of their fiduciary duties when deciding to participate in these claims. When they announced the settlements, NPF and NESPF stressed the fact that they were mindful of their stewardship roles and NPF pointed to their responsibility for the pensions of thousands of families and individuals.
• The size of the LGPSs mean that they were likely to have significant exposure through investments in the US markets. Therefore, they were likely to have suffered equally significant losses because of the misleading statements made to investors by the companies which they then looked to recoup. The fact that they were both lead claimants in the claims suggests that their losses were the most significant of all the plaintiffs in the classes.
• The LGPSs are well resourced and therefore in strong positions to assist the US attorneys in the claims, providing disclosure, witness evidence/depositions, inputting into strategy and participating in settlement discussions. It is also worth noting here that class actions progress over may years so the LGPS’ resources would have had to have been deployed for some time. 
• Finally, there is a strong tradition in US class actions of pensions funds being involved in, and frequently leading, class actions of all kinds, not just in respect of misleading financial statements made by companies (for example class actions claiming breach of employer fiduciary duties in relation to 401K plans, which are similar to DC schemes in the UK).

Could other large UK pension fund participate in US class actions?

The answer is “yes,” and they frequently do so. 

Over a number of years, I have acted for some larger DB schemes that have been involved in, and recovered compensation from, investor class actions, primarily in the US but elsewhere as well. So, the concept of UK pension schemes been involved in US class actions is not a new one. 

Indeed, many schemes that I have worked with sign up to services provided by US attorneys that monitor their securities portfolios on an ongoing basis so as to identify any potential losses attributable to, amongst other things, securities frauds and then alert the schemes to the opportunity to be involved in, and benefit in class actions.

It may just be that with NPF and NESPF the settlement sums were so significant that they attracted publicity in the UK. And as a result, we may see a snowball effect at play with more schemes being alert to the opportunities and electing to participate in US class actions. 

What is the position in the UK?

Class actions are generally less common in the UK. And there appears to be less of a trend (at least now) for pension schemes to bring class actions to recover investment related losses (the recent McGaughey case was a type of class action but was concerned with trustees’ fiduciary duties, not financial losses). 

That may be for a number of reasons:

• In the US it is much easier to run class actions where claims are usually initiated on an opt out basis as opposed to an opt in basis. 
• The costs roles are more claimant friendly in the US as in the loser generally does not have to pay the winners costs thereby facilitating more speculative claims. 
• Representation in US class action by attorneys is usually on a contingent basis. So, litigation funding is less of an issue in the US than in the UK.
• There is a long record of class action in the US of all kinds, much less so in the UK. 
• There are procedural challenges in the UK, not least the need for the Court’s permission to continue many class actions. 

What should pension schemes think about before participating in a US class action?

In the first place, choosing the right US attorney is key. Schemes need to ask questions including:

• Do the attorneys have a track record of success in class actions?
• Are they resourced well enough to cope with the demands of a large class action?
• Can you work with them if you are required to actively participate in and assist with the claim? 
• What is their trial experience? 

Remember that these kinds of cases can take years to play out and are in no sense a quick fix for scheme losses. For example, the NPF case began in 2019, and settlement was announced 5 years later. So, a willingness to commit, to be patient and be in it for the long haul, possibly all the way to trial, is absolutely key.

Think about whether you need your UK lawyers to help with the US litigation process and if so, what roles do you wish for them to play? They might be the regular interface with US attorneys, help with disclosure and witness statements and advise on strategy proposed by the attorneys.