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The Wall Street Journal: Shell Settles Fraud Case As U.S. Lawyers Win Fees

April 11, 2007 2:34 p.m.

BRUSSELS — In a legal milestone, American trial lawyers have reaped their first big payday in Europe: $47 million in fees from settling a securities-fraud case with Royal Dutch Shell PLC.

Europe’s largest oil company by market capitalization said Wednesday it would pay $352.6 million to settle claims brought in the U.S. by European shareholders, who accused Shell of defrauding them by overstating its reserves. The Netherlands-based oil giant also agreed to pay attorneys’ fees to three American law firms that represented the European investors.

The agreement marks the first time that an all-European cast of players has leveraged U.S. courts to settle stock-fraud allegations, marking a further step in a gradual migration of U.S.-style civil-litigation methods to Europe.

Also unusual was the use of a new Dutch law, which is partly modeled on the American class-action system. The Dutch law allows a company defending itself against similar charges by multiple plaintiffs to reach a court-approved settlement in Amsterdam.

Had the cases stayed in the U.S., they risked being thrown out by a judge on jurisdictional grounds. The European plaintiffs had bought their shares in Shell on bourses in London and Amsterdam. Shell lawyers argued that U.S. courts had no business deciding the dispute.

“It’s the first pan-European settlement of a securities-fraud case that I’m aware of,” said Jay Eisenhofer of Delaware-based Grant & Eisenhofer P.A., the lead law firm representing the European investors. Shell added in a prepared statement: “The agreed settlement is a proactive approach in the spirit of equal treatment of all non-US shareholders.”

U.S. investors will continue to pursue a separate securities class-action lawsuit against Shell in a U.S. federal court in New Jersey. While in this case, the oil company is again accused of defrauding investors by overstating its hydrocarbon reserves between 1999 and 2004, the plaintiffs bought their shares in the U.S.

For several years, American trial lawyers have worked to recruit European institutional investors as plaintiffs in securities class-action lawsuits in the U.S. While they have had success in signing Europeans as clients, winning money for them has been more difficult.

In general, U.S. judges have required that plaintiffs in stock-fraud cases have some connection to the U.S., such as having bought their shares in a defendant company on a U.S. stock exchange.

The settlement announced Wednesday in The Hague, where Shell has its headquarters, would put to rest all non-U.S. allegations against the company. That essentially provides Shell with a global settlement outside the U.S., as about 80% of the disputed shares in the case were purchased on European bourses. The remaining shares were bought on the New York Stock Exchange.

“The settlement really just illustrates the danger of the march in Europe overall toward U.S.-style class-action litigation models,” said Linda Kelly of the U.S. Chamber of Commerce’s Institute for Legal Reform. “It’s no wonder the U.S. plaintiffs’ bar sees Europe as a huge untapped market.”

The American lawyers will take home a bit less than the $52 to $77 million in fees they might have won in successful U.S. litigation, Mr. Eisenhofer said. “It sort of splits the difference” between U.S. and European compensation systems, he said.

The lack of a big payoff in Europe for trial lawyers has been one hurdle to bringing stock-fraud cases outside the U.S. In most European countries, lawyers can hope for no more than double their hourly rate, subject to court approval. Contingency fees — in which plaintiffs’ lawyers front the costs for a case, gambling they will hit a jackpot by taking a percentage of the proceeds at settlement time — aren’t allowed.

The other hurdle to the spread of U.S.-style litigation in Europe has been a general lack of class-action mechanisms that allow companies to settle large numbers of similar claims against them at one time. The Dutch law used by Shell was enacted in August 2005 to address such concerns.

The Dutch law requires plaintiffs to incorporate a nonprofit organization, called a stichting, to pursue compensation for their claims. The law is set up only to facilitate corporate settlements that have been reached privately between the parties. It doesn’t allow a judge to rule on the merits of a complaint.

In the Shell case, Grant & Eisenhofer will divvy up the lawyers’ fees with two other U.S. firms that represented the European investors: Schiffrin Barroway Topaz & Kessler LLP of Philadelphia and Miami-based Diaz, Reus, Rolff & Targ LLP. Their clients in the case were 51 European pension funds, institutional investors and investor organizations from the Netherlands, the U.K., Germany, Sweden, France and other countries.

In Holland, 24 pension funds will take part in the settlement, including Stichting Pensioenfonds ABP, which manages more than $230 billion in assets for government employees and teachers, Grant & Eisenhofer said.

Write to Mary Jacoby at [email protected] and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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