Compensation Even Without Joining the “Coupang Lawsuit”?... Class Action System Should Move Toward a “Hybrid” Model [Will Class Actions Be Introduced?] ③

American-Style Class Actions Covering All Victims Raise Concerns of ‘Excessive Litigation’ Among Businesses
Need to Combine European and Japanese Models That Compensate Only Consumers Who Express Intent to Participate
Significant Expansion Beyond Se

The current class action system in Korea is limited to securities-related cases such as stock price manipulation and false disclosures, and its procedures and requirements are so strict that it lacks effectiveness. As a result, there is a consensus that the scope of class actions should be expanded and that procedures and requirements should be relaxed. However, many point out that it would be difficult to adopt the American-style class action system as it is, given concerns about excessive litigation, since the United States operates the most powerful class action system among major countries.

Experts state that Korea should design a class action system suitable for its own circumstances, such as introducing the American model only for cases where the damages suffered by a large number of victims are relatively uniform, or allowing consumer organizations to file lawsuits on behalf of victims, as is done in Europe. In the latter case, once a court ruling establishes the company's liability, consumers can then participate in the lawsuit.

The United States, the Most Active in Class Actions, Is a ‘Lawsuit Heaven’

In the United States, where class actions are most actively pursued, there are as many side effects as there are consumer protection benefits. According to the New York Times, some law firms encourage class actions by consumers and use them as a ‘business tool.’ A 2021 report from the New York Civil Justice Institute found that from 2015 to 2023, more than 700 consumer class actions related to false or deceptive advertising were filed in New York federal courts against major companies such as Pfizer and Iberia Foods.

In particular, an American law firm called the Lee Litigation Group, established in 2012, was responsible for about one-fifth of the consumer class actions filed in New York between 2015 and 2018. With law firms like the Lee Litigation Group entering the class action market, the number of lawsuits has surged, leading to concerns about overloading the court system and lawyers pocketing large settlement amounts. Among American companies, various tactics to avoid class actions have also increased. The New York Times reported that major companies are increasingly inserting clauses such as “disputes will be resolved through individual arbitration” into terms and conditions that are difficult for consumers to notice, in an attempt to block class actions at the source.

The American-style class action system, which is based on the opt-out mechanism (where the final judgment does not apply only to those who explicitly state they do not wish to participate in the lawsuit), is considered a powerful tool for efficiently protecting victims’ rights. However, concerns about the burden on corporate management and the potential for abuse or misuse of the system due to excessive litigation are also raised. Therefore, the Korean legal community suggests that instead of adopting the American-style opt-out class action system as it is, Korea should design its own model by combining the advantages of various class action models currently being tested in Europe and other countries.

Rather Than Following the U.S. Model Exactly... Korea Needs Its Own Class Action System

On December 26, Lee Eunwoo, an attorney at Jihyang Law Firm who is leading the joint lawsuit over the Coupang personal information leak, said, “Given the strong resistance from the business community to the American-style class action, we need to consider practical alternatives by designing a hybrid model suited to Korea’s reality to enhance the effectiveness of the system.” He suggested introducing the opt-out approach for cases with a large number of victims and relatively uniform damages, and the opt-in approach (where only those who explicitly state their intention to participate in the class action are subject to the judgment and can receive compensation) for cases with highly individualized damages.

He explained that if the opt-out system is introduced for all cases, corporate concerns about excessive litigation may grow, so it is necessary to differentiate participation methods according to the type of case. He emphasized, “Rather than simply adopting the American model, we should design a system by combining the strengths of systems currently being tested in major countries such as Europe.” In Europe and Japan, consumer organizations file lawsuits on behalf of victims, and once a court ruling establishes corporate liability, consumers can then participate in the lawsuit. The decision-making method for victims’ participation (opt-out or opt-in) varies by country.

Attorney Lee also said that, in the process of introducing a class action system, the entities allowed to file lawsuits on behalf of victims should be limited, but as many organizations as possible should be able to participate. He noted, “In Japan, only four consumer organizations nationwide are permitted to file class actions,” and added, “If the qualifications to conduct lawsuits are restricted to only a few organizations, they may be influenced by their relationships with companies, making the system difficult to operate effectively even if introduced.” He continued, “If organizations specializing in areas such as environment, energy, climate, or consumer protection are allowed to serve as representatives, the scope for legal representation should be relatively broad, and they should also be able to claim damages on behalf of consumers.”

The Scope of Class Actions Should Be Expanded Beyond Securities

There was a dominant view that the scope of class actions should be greatly expanded. The argument is that class actions should not be limited to securities or personal information infringement cases, but should also be allowed in areas where collective harm is repeated, such as antitrust violations under the Fair Trade Act or violations of the Consumer Protection Act. The concern is that even when large-scale damages are caused by illegal acts of global companies, Korean consumers have been excluded from compensation because class actions are limited to the securities sector.

Some also pointed out that the relationship with existing sanctions and relief measures should be carefully coordinated when introducing class actions. The argument is that if class actions are introduced, the roles of existing systems such as punitive damages, fines, and group lawsuits should be redefined. Park Soyoung, legislative researcher at the National Assembly Legislative Research Office, said, “If various systems such as punitive damages and fines coexist, and class actions are added, there is a risk that sanctions for the same illegal act may overlap,” and added, “Each system is necessary in its own right, but if they operate redundantly, companies may face excessive economic and legal burdens.”

Researcher Park noted that if class actions are sufficient to compensate for damages, the need for fines as a public sanction may be reduced. Since class actions are premised on a significant expansion of compensation, issues of fairness may arise if they are combined with punitive damages or large fines. She also emphasized that if the opt-out system is introduced, notification procedures must be greatly strengthened so that victims are fully aware of their right to exercise their rights. As in the United States, various means such as mail, electronic notifications, media, and online advertisements should be used to clearly inform people of the effect of judgments and the meaning of opting out, so that victims have the opportunity to be excluded from the binding effect of final judgments (res judicata).

Securing Evidence Is Key... The Discovery System Should Be Considered

There are also calls to introduce a discovery system along with class actions to enhance the effectiveness of consumer remedies. The discovery system is a procedure that obligates the parties to a lawsuit to exchange evidence and information before the main trial. It allows for the pre-trial acquisition of documents, testimony, and physical evidence, which is seen as a way to reduce information asymmetry between parties during litigation. In Korean civil litigation, the discovery system has not been introduced, and the court leads the evidence-gathering process, so the problem of information asymmetry has persisted. Although there are systems such as requests for document submission and orders to submit documents, it has been pointed out that courts tend to be passive in recognizing plaintiffs’ authority to collect evidence. A legal expert noted, “Since most of the evidence is in the hands of companies, there is a need to further guarantee means of securing evidence, so the discovery system should be introduced at least for class actions, if not for all civil litigation.”