[Economic Insight] Opposing the Comprehensive American-Style Class Action System

In the wake of the Coupang personal information leak incident, public opinion is growing in favor of introducing a class action system. The Asia Business Daily published a three-part special series titled [Will Class Actions Be Introduced?] from December 23 to 26. The articles covered the current status of joint litigation, group litigation, and securities-related class actions under existing law, the differences between the American and European models of class actions, the strengths and weaknesses of the more robust American model versus the more limited European model, and presented expert opinions that a “hybrid” model would be most suitable for Korea’s circumstances.

Currently, eight bills have been submitted to the National Assembly, sponsored by Assembly members Baek Hye-ryun, Park Jumin, Cha Kyugeun, Jeon Yonggi, Lee Hakyoung, Han Changmin, Kim Namgeun, and Oh Gihyung (in order of submission). The key issues are the scope of application and procedural methods.

The scope is divided as follows: ▲ all areas (Baek Hye-ryun’s bill, Oh Gihyung’s bill) ▲ consumer damages (Park Jumin’s bill, Lee Hakyoung’s bill) ▲ personal information (Jeon Yonggi’s bill, Kim Namgeun’s bill) ▲ specialized in financial transactions (Han Changmin’s bill).

Procedurally, while there are differences such as whether court approval is required, the main distinction is between the American and European models. The American model designates a representative plaintiff (class action), and unless an individual opts out, all victims receive the benefits (compensation) of a successful lawsuit (opt-out). This approach is reflected in the bills by Baek Hye-ryun, Park Jumin, Jeon Yonggi, and Oh Gihyung. The European model, as seen in the bills by Lee Hakyoung and Kim Namgeun, involves consumer or public interest groups first establishing the common obligations and responsibilities of the offending company, after which individual claims are registered and confirmed (opt-in).

At this point, it is worth reviewing the main points of the class action bill drafted by the Ministry of Justice in 2020 during the Moon Jae-in administration, which ultimately failed to be adopted. It was modeled after the American system, the most robust form of class action. The scope of application was all-encompassing, allowing for general and comprehensive class actions, and the opt-out system meant that the final judgment would apply to all members who did not file an exclusion notice.

The reason for its failure was that concerns from the business community and others about frivolous lawsuits gained traction. According to the New York Times, some law firms in the United States have encouraged consumer class actions and used them as a “business tool.” In particular, the entry of the “Lee Litigation Group,” a law firm established in 2012, into the class action market led to a surge in the number of cases, resulting in an overloaded court system and concerns that lawyers were simply pocketing large settlement sums.

In its special series, The Asia Business Daily presented expert opinions that Korea should develop a class action system tailored to its circumstances, such as adopting the American model only for cases where damages are relatively uniform among many victims, and using the European model for most other cases. Experts also suggested that, during the process of introducing a class action system, the entities eligible to file lawsuits on behalf of victims should be limited, but as many organizations as possible should be allowed to participate.

Personally, I believe that the scope should be limited to personal information and consumer damages. The financial sector should also remain limited to current areas such as stock price manipulation and false disclosures. Cases of misselling involve a variety of individual circumstances, making them unsuitable for class actions targeting identical damages. However, competition law areas such as collusion must be included. Currently, these are addressed through fines, but since the fines ultimately go to the national treasury without benefiting actual victims, this is unreasonable.

It appears that there is now a consensus on the need to introduce a class action system. Learning from the failure in 2020, I hope that Korea will establish a well-balanced system that can take root properly in the country without going to extremes.