Thursday, September 6, 2007
Legal ethicist Nancy Moore of Boston University has posted a paper on SSRN entitled The ALI Draft Proposal to Bypass the Aggregate Settlement Rule: Do Mass Tort Individual Clients Need (or Want) Group Decision-Making, forthcoming in DePaul Law Review. Here's the abstract:
The American Law Institute has recently undertaken an entirely new project - Principles of the Law of Aggregate Litigation. The bulk of the project is devoted to class actions; however, a number of sections address various forms of non-class aggregations, and there is an extensive discussion of non-class aggregate settlements, including the controversial “aggregate settlement rule”. Rule 1.8(g) of the ABA Model Rules of Professional Conduct limits the lawyer's ability to participate “in making an aggregate settlement of or against the clients” without the informed consent of each client, in which the clients have been advised of “the existence and nature of all the claims or pleas involved and of the participation of each person in the settlement.”
The ALI Reporters propose to bypass the aggregate settlement rule by creating two exceptions. The first exception applies when the total value of the aggregated claims is more than $5 million and the total number of claimants is 40 or more. In these cases, the proposal allows individual claimants, after consultation with counsel, to agree in advance to be bound to a proposed settlement when 75% of the claimants approve the settlement or, “if the settlement significantly distinguishes among different categories of claimants, a separate 75 [%] vote of each category of claimants” approves the settlement. Limited judicial review is available, but only if the challenge is brought within 90 days, and even then, the settlement will be unenforceable only if the challenger's waiver was not adequately informed or the 75%approval or 40 person/$5 million. The second exception applies when advance client waivers have not been obtained. Here the lawyer may seek approval for the fairness and adequacy of an aggregate settlement, but the proposal provides no guidelines for determining under what circumstances courts should agree to do so.
The reporters give two separate reasons for relaxing the aggregate settlement rule. First, they argue that the rule impedes multi-party settlement and is unnecessary to protect clients, given the 75% approval requirement. Second, they argue that waivers of important rights are routinely granted, and there is no reason not to honor such waivers to enable group decision-making. This article challenges the reporters' assumptions and argues in favor of maintaining the status quo. The author argues that the burden is on the reporters to justify change and that they have not met that burden with respect to either of the suggested rationales.
Moore, who served as chief reporter for the Ethics 2000 revision of the Model Rules of Professional Conduct, has been a leading advocate of retaining the aggregate settlement rule (the disclosure and informed consent requirement of RPC 1.8(g)) and applying it to mass tort cases, in contrast to Charles Silver and Lynn Baker, who have written in favor of allowing clients to consent in advance to be bound by an aggregate settlement. I've blogged on the aggregate settlement rule and on versions of the ALI draft proposals here and here. On the issue of whether to permit advanced consent to aggregate settlements, I fall squarely on Moore's side.