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CSL and Leighton feel the force of class actions

CSL (ASX: CSL) has announced that it has reached an agreement to settle a long-running US antitrust class action. The litigation began in 2009 after a group of US and Puerto Rican hospitals alleged that the company was involved in the price fixing of certain plasma products.

The agreement reached will require CSL to pay US$64 million and will resolve and dismiss all claims and potential claims of class members against CSL in the lawsuit. As a result the company is anticipating a one-off charge that will shave $39 million from net profit after tax.

Meanwhile, Leighton Holdings (ASX: LEI), whose share price plunged last week, as reported here, is back in the news again this week after revealing to the market that it has been issued with a Writ that alleges Leighton has breached its continuous disclosure obligations.

Specifically the Writ alleges Leighton failed to disclose allegations of bribery and corruption involving senior officers responsible for a project in Iraq and also failed to disclose an investigation for misbehaviour involving senior officers including the subject of a claim by Leighton against a former employee for $5.6 million. In response, Leighton “denied there is a proper basis for the alleged claim and will vigorously defend the class action”.

Class actions are certainly a regular part of the investment landscape nowadays with boards and managers more closely scrutinised than ever. This situation has been enhanced by funding arrangements which make class actions easier to bring. Firms such as litigation funder IMF (ASX: IMF), which provides funding for commercial cases where the damages claimed exceed $5 million, and listed law firm Slater and Gordon (ASX: SGH) which is well known for running complex and large scale class actions using a “no win-no fee” structure, have both been party to a number of corporate class actions in the past decade.

Foolish takeaway

With the likelihood that the future will see an increase rather than a decrease in the prevalence of class action litigation against corporations, firms that are positioned to benefit from this trend could be worth investors’ attention.

Likewise, companies who find their share prices negatively affected by a potential legal case are also worth keeping an eye on as the market regularly overreacts to such news.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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