Dominic Coyle answers your financial questions

International class action suits

I purchased OCA Inc shares on the New York Stock Exchange on April 13th of this year. Less than two months later, they took a nosedive and are still falling. It now transpires that OCA had violated US federal securities laws by issuing a series of material misrepresentations to the market between May 18th, 2004, and June 7th, 2005, thereby artificially inflating the price of OCA securities.

As a consequence a shareholder class action was filed in the United States Court against OCA Inc.

Since I bought the shares during the above referenced class period, I understand that I may have the right to recover damages under a class action. Could you please inform me:

1) What is a class action?

2) Have I to take action to recover damages or are they automatically paid at some stage?

3) Must I continue to hold the shares to avail of any compensation that might arise?

Mr P.W., Cork

A class action is a lawsuit taken by a group of people who have similar legal claims on a company. They are described by the University of Rhode Island's Office of Affirmative Action, Equal Opportunity and Diversity as "a civil action brought by one or more individuals on behalf of themselves and 'all others similarly situated' (or equivalent language).

"The purpose of a class action is to secure a judicial remedy which not only eliminates a wrong committed against an individual, and compensates him or her for the effects of that wrong, but which also provides such remedies for all others in a definable class who have suffered as a result of the same practice or practices."

On that basis, you would seem at least to have a claim. Most importantly, you bought the shares in the US in the relevant time - the class period. Had you bought them in Ireland in a company that traded on both exchanges, such as Elan, say, I am told that you would not have a claim in the US.

The one thing I cannot understand is how you were in OCA in the first place. The company's stock may have fallen from about $4 to just under $1 following the June revelation of false financial statements by company executives, but it is a long way short of the $30-plus level they were trading at just over three years before you moved to acquire the stock.

Interestingly, OCA was also subject to a previous class action in 2001 over pretty much the same allegations, namely that it issued a series of false and misleading press releases concerning OCA's financial condition, which artificially inflated the stock price.

That action was dismissed by a Louisiana district judge in October 2003. This was a company with a very ropey history and one that would not generally surface on the Irish investor's radar.

It was always a high-risk bet and I'm surprised you chose, or were advised, to invest in it given the lack of transparency.

Anyway, should you wish to proceed, as I understand it, you can communicate your interest in being part of a class action to any firm of lawyers that has filed notice of such an action. A number of US practices have already done so.

Normally, I gather, the court, if it allows the action to proceed, will determine the eligibility of various claimants - eg those outside state or international borders.

It will also generally determine which legal team will litigate the action.

Litigants who have signed up with other legal practices are generally subsumed into the action, if eligible.

You should bear in mind that class actions are now filed as a matter of course in the event of an adverse corporate event in the US marketplace. There is no guarantee that it will amount to anything.

However, it is always possible the company will offer some form of settlement in a tactical move or that the suit will proceed to verdict.

In general, these cases are taken on a no-foal, no-fee basis by the lawyers involved. There is very good reason for this. The proportion of any settlement or verdict that goes to the legal advisers is strikingly high.

In essence, you are unlikely to recover sufficient funds to cover your losses in this transaction and, if the initial investment was not too significant, I would to move on and put it behind you.

Finally, I understand there is no obligation on you to continue to hold the shares in the company as the action proceeds. These class actions can take a long time.

It would only exacerbate any injustice if your holding was frozen over that time as you would be unable to capitalise on any recovery in the stock.

Inheritance tax

I was reading your recent article on inheritance tax and have a query in relation to what the legislation refers to as "another home". I have been living in the same house with my partner for over 10 years now and we have no children. I understood from the legislation that if anything was to happen to either of us that the other person would not be liable to inheritance tax in respect of the house.

However, we purchased a small apartment in Spain a number of years ago and I was recently told that this would be deemed "another home" and that the exemption on the house in Ireland would no longer apply. I since got a second opinion and was told that this was not true that the legislation meant another home "in the State".

As our home in Ireland is probably worth in excess of €600,000, losing the exemption could be very costly for the person left to face the bill. As the home in Spain is only worth about €100,000, it may be better to sell it if this is the case. Could you clarify this point as I'm sure that there are a number of people in the same situation.

Mr J.V., Dublin

You are right in that there are various interpretations of the law as it relates to partners and property. In this case, however, the view seems to be that the Spanish property would not be seen as a residence of either party.

It seems clearly to be a holiday property, presumably bought by you in both names - you don't say whether this is the case and, indeed, if the Dublin property is held in both names.

The legislation is designed to protect people from having to pay inheritance tax on what is essentially their principal private residence.

Naturally, if they have another home in the State to which they can repair, they are not as vulnerable and so would be liable to CAT. Your case does not seem to come under this provision.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, D'Olier Street, Dublin 2 or e-mail to dcoyle@irish-times.ie.

This column is a reader service and is not intended to replace professional advice.