Wednesday, October 31, 2007
Former Milberg Weiss partner William Lerach pleaded guilty this week to charges of paying kickbacks to plaintiffs to serve as class representatives. His plea agreement calls for forfeiture of $7.75 million, a fine of $250,000, one to two years in prison and three years of supervised release.
Today, the Los Angeles Times published an editorial -- An Isolated Case -- arguing that the scandal does not indicate a need to curtail class actions in general:
Famous -- or make that infamous -- class-action attorney William S. Lerach pleaded guilty Monday to one count of conspiracy, admitting his role in a $11.3-million kickback scandal that has upended his former law firm, the pathbreaking shareholder advocacy firm of Milberg Weiss.
As part of his plea, Lerach will pay $8 million to the federal government, and could spend up to two years in prison. Responding to news of the deal, tort reform advocates seized the easy opportunity to make sport of Lerach's downfall. But for those tempted to argue that his crimes make the case for curtailing class-action suits sharply, we'd like to offer the objection that such an argument overstates the evidence. Paying plaintiffs to sue is illegal and should be. Zealously representing injured clients is not and shouldn't be.
To the contrary, it's a necessary calling that benefits victims and society. The usual complaint against lawyers such as Lerach is that they trump up frivolous claims against innocent corporations, dragging down the economy and laughing all the way to the bank. Business interests point out, with some merit, that while individual plaintiffs can receive little in compensation, class-action lawyers reap millions of dollars in fees. Lerach's fees in suits against Enron alone may surpass $1 billion.
But here's the rub: Complaints against a company such as Enron, to cite an obvious example, aren't frivolous at all. Through deceitful accounting practices, Enron defrauded shareholders out of $40 billion and wreaked havoc in energy markets. Class-action lawsuits allow wronged investors and other parties injured by corporate malfeasance to pool resources and seek redress far more effectively and efficiently than any individual could. It's not always pretty, but it's the best solution at hand. Government, for instance, lacks the resources -- and often the incentive -- to handle all business oversight through regulation.
Yes, there have been abuses, but many of the worst were legislated out of existence by the Private Securities Litigation Reform Act of 1995 (which wasn't yet law when Milberg Weiss and Lerach paid off their plaintiffs.) The best outcome of Lerach's fall wouldn't be the demise or even the curtailing of the class-action lawsuit. It would be weeding out lawyers who abuse the system. Such action would assure that legitimate class-action suits get their fair hearing in court.
It's good to read a non-shrill account of the Milberg Weiss fiasco. The editorial is surely correct that one firm's nondisclosed payments to class reps, while wrongful, does not indicate a need for massive reform. But I wouldn't have minded if the editorial had taken it a step further and said that in a world with serious litigation abuses (by lawyers for both plaintiffs and defendants), a set of payments to class reps is hardly the biggest thing to worry about.
Tuesday, October 30, 2007
With political will stoked by the recent lead-paint scares in children's toys, Congress is considering significantly expanding the role of the Consumer Product Safety Commission. The Wall Street Journal reports in Congress Weighs Sweeping Overhaul Of Consumer Product Commission, by M.P. McQueen and Christopher Conkey:
Spurred by a spate of scares over the safety of imported goods, Congress is weighing the most significant consumer-safety legislation in a generation -- even as states and nonprofit groups step up their own watchdog efforts.
A bill that would substantially boost fines, add staffers and increase transparency at the embattled Consumer Product Safety Commission is moving through the Senate. The moves represent efforts to address what consumer groups and critics widely see as the weakness and inefficiency of the commission, the tiny federal agency charged with regulating at least 15,000 types of consumer products, from toys to all-terrain vehicles to mattresses.
The Senate bill faces industry opposition and other hurdles on Capitol Hill, including conflict with President Bush over the direction of the CPSC. The House has already passed separate legislation. But consumer advocates predict the Democrat-controlled Senate could pass a version by year end. Industry groups say Republicans aren't likely to try to kill the bill, but hope to amend it to change provisions manufacturers find onerous.
Manufacturers and retailers say they will fight some of the bill's provisions, including the increase of fines to a maximum of $100 million from $1.85 million. But their clout has been diminished by a rash of highly publicized recent recalls involving everything from Halloween pails with lead paint to hazardous cribs to toys with small parts that present choking hazards.
The Wall Street Journal has an extended article, Medtronic Recall Exposes Gaps In Medical Safety, by Thomas M. Burton and Anna Wilde Mathews, which provides an interesting description of the build-up of scientific warning signs for Medtronic's Sprint Fidelis cardiac lead, as well as the FDA's regulatory role. Here's an excerpt from the lengthy article:
In late January, something unsettling happened at the Minneapolis Heart Institute. On two successive days, patients came to the clinic after their heart defibrillators had jolted them with huge, unnecessary and painful electric shocks. One 65-year-old woman said she'd been zapped 14 times in an hour.
Doctors checked the hospital's records and discovered four similar cases had occurred in recent months. Each stemmed from a broken wire -- called a lead -- that tells a defibrillator when to send an electric shock to a malfunctioning heart. All six cases involved the Sprint Fidelis 6949, manufactured by Medtronic Inc., a leading medical-device maker.
Within days, the Heart Institute concluded that the Sprint Fidelis wasn't safe enough, told the company of its concerns, and stopped using the product.
Across the country, physicians at leading hospitals from Chicago's Children's Memorial Hospital to Boston's Brigham and Women's Hospital came across similar problems and some took similar steps.
But it wasn't until this month that Medtronic of Minneapolis reached the same conclusion. On Oct. 7, Medtronic President and Chief Executive Bill Hawkins convened a meeting of top executives who decided that the company should suspend sales of the Fidelis leads. In one of the biggest recalls of a medical device, it pulled all Sprint Fidelis models from the market, citing five deaths in the devices' three years on the market.
The events surrounding the Medtronic recall expose a hole in the U.S.'s medical safety system: Medical devices are regulated under different standards from those applied to prescription drugs. The Food and Drug Administration requires that almost all new medications be tested in human trials before they go on the market. But some devices, like the Sprint Fidelis leads, are subject to lighter guidelines because they are considered modifications of earlier products. The FDA, in most cases, also doesn't mandate major studies of medical devices after they've hit the market.
As a result, both the federal agency and the company were handicapped in evaluating whether a widespread public health threat was emerging.
A Minnesota judge granted summary judgment for Wyeth today in a hormone replacement therapy (HRT) lawsuit. Here's an excerpt from the Reuters story:
A judge in Minnesota has dismissed a product liability lawsuit against Wyeth, granting the drugmaker's motion for summary judgment in a case in which a woman blamed the company's hormone replacement therapy for her breast cancer, Wyeth said on Tuesday.
In dismissing the case that had been scheduled to go to trial in January, Judge George McGunnigle of the Hennepin County District Court in Minneapolis found that the plaintiff, Patricia Zandi, had not offered any scientifically valid evidence to support her claim that she had developed breast cancer as a result using Wyeth's Premarin and Prempro.
The decision is bound to dampen some of the momentum for HRT plaintiffs generated by the recent Reno verdict.
Happy birthday to the Drug and Device Law Blog. Always interesting to see what Jim Beck and Mark Herrmann have to say about pharmaceutical litigation (and for anyone who's looking for even more blogs that address mass torts, here's the Blogs of Interest post I did late last year).
The Second Circuit has overturned the dismissal of class action lawsuits by three groups of plaintiffs against various multinational companies claiming that the companies "actively and willingly collaborated with the government of South Africa in maintaining a repressive, racially based system known as 'apartheid'." The plaintiffs bought claims for violations of international law, the Alien Tort Claims Act (ATCA), Torture Victims Protection Act (ATVPA) and RICO. The Multi District Litigation Panel transferred all the actions to the Southern District of New York, which dismissed all the claims. The 2nd Circuit affirmed the dismissal of the TVPA claims. The ATCA claims, however, were upheld by the Second Circuit. Importantly, the Second Circuit upheld a theory of aiding and abetting liability under the ATCA. The opinion was per curiam, with Judges Katzmann and Hall filing concurring opinions and Judge Korman (sitting by designation) filing an opinion concurring only in the dismissal of the TVPA claims and dissenting from the remainder of the opinion.
The case is Khulumani v. Barclay Nat. Bank Ltd., --- F.3d ----, 2007 WL 2985101 (2d Cir., Oct. 12, 2007). The opinion is available on the 2nd Circuit website here.
Monday, October 29, 2007
The United States Supreme Court has granted certiorari to review the punitive damages award in the Exxon Valdez litigation. Interestingly, Justice Alito has recused himself, because of his ownership of Exxon stock. Here's an excerpt from the cnn.com article, Supreme Court to review Exxon Valdez damages:
The Supreme Court on Monday agreed to decide whether Exxon Mobil Corp. should pay $2.5 billion in punitive damages in connection with the huge Exxon Valdez oil spill that fouled more than 1,200 miles of Alaskan coastline in 1989.
The high court stepped into the long-running battle over the damages that Exxon Mobil owes in the spillage of 11 million gallons of oil into Alaska's Prince William Sound, the worst oil spill in U.S. in 1994.
The justices said they would consider whether the company should have to pay any punitive damages at all. If the court decides some money is due, Exxon is arguing that $2.5 billion is excessive under laws governing shipping and prior high court decisions limiting punitive damages.
The damages were, by far, the largest ever approved by federal appeals judges, the company said in its brief to the court.
The case probably will be heard in the spring. The court's last ruling on punitive damages, in February, set aside a nearly $80 million judgment against Altria Group's Philip Morris USA. The money was awarded to the widow of a smoker in Oregon.
Friday, October 26, 2007
We don't often think of arson as a mass tort. But for those of us in Southern California, it's easy to see why it qualifies. This last week has been a harrowing time -- according to the L.A. Times: 488,099 acres have burned, 1,775 homes and 2,103 structures total have been destroyed, 79 people have been injured, and 7 people have died. That some of these fires have been started by the intentional acts of arsonists is maddening. Recently, for example, the authorities have raised the award to $250,000 for information on the arsonist who started the Santiago fire that has destroyed at least 14 homes and burned 25,000 acres. These are trespass-based mass torts, like the claims that would have been brought against the 9/11 hijackers and Al Qaeda if they were available for suit.
Similarly, other fires may have been caused by negligence. The Magic Fire, for example, was reportedly started by sparks from welders in a construction site close to the Magic Mountain Amusement Park. The Magic Fire went on to burn 2,824 acres, but luckily was fought back from the backyards of houses -- no structures were lost.
Should claims be brought, plaintiffs might face arguments about proximate causation. As a matter of policy, is it proper to trace causation back to the person who started a fire, when it spreads for thousands of acres, and is subject to the vagaries of winds, temperature, and humidity? The law has certainly struggled with these issues in the past when it comes to fires. But intentional tortfeasors don't get breaks when it comes to proximate cause -- sound policy puts a broad swath of subsequent bad results on the shoulders of the intentional tortfeasors. So I would argue any arsonist should be subject to lawsuit by all those whose homes were destroyed. And even with regard to the negligently created fire -- can the welder adjacent to wildland for example argue that he didn't foresee that sparks might set ablaze the dry fire-prone chaparral vegetation that was already burning all over California?
To be honest, civil litigation and resulting personal bankruptcy is the least of the concerns for the arsonist. There are of course criminal charges. And maybe that's not even the worst, as the L.A. Times reports:
The arsonist is lucky he wasn't caught in the act, some residents added.
"Around here if they caught a guy doing that, they'd shoot him right on sight," said Leonard Schwendeman, 89.
Boeck added, "If they ever catch this guy, they better hope that it's the sheriff or the FBI that catch 'em, because if canyon residents catch 'em first, there won't be a piece of them big enough for a dog to bite."
Article in the L.A. Times -- Drugs, not 9/11 dust, cited in cop's death, from Newsday. Here's an excerpt:
The death of New York police Det. James Zadroga, which was previously linked to his work in the rubble of the World Trade Center, was caused by injections of ground-up pills, the city medical examiner's office said Thursday.
"What caused the disease was the injection of the drugs into his bloodstream, as opposed to something he breathed," said Ellen Borakove, spokeswoman for Chief Medical Examiner Charles Hirsch.
The ruling outraged the family of Zadroga, 34, who became a symbol of post-Sept. 11 illness after his death last year.
The conclusion contradicted a previous pathologist's report that said Zadroga's death was the result of his work after the 2001 terrorist attacks.
One wonders about bias, given that New York is being sued by many workers for 9/11 ailments, and the city medical examiner is employed by New York. Additionally, it's possible that any drug abuse was related to 9/11 ailments, as Detective Zadroga was taking as many as 14 medications for his health problems, as the articles notes.
A Canadian study was halted after growing evidence suggested that Bayer's blood-clotting drug, Trasylol, which is used to reduce bleeding during heart-bypass surgery, increases the risk of death compared to other medications. See the Wall Street Journal article, Bayer Drug May Raise Risk of Death, FDA Says, by the Associated Press.
The most recent BNA Class Action Litigation reporter includes an article by John Coffee (Columbia) and Stefan Paulovic (student) evaluating developments over the last five years. BNA writes "The authors conclude that the tide is turning against class certification and the "long-term future of the class action is in doubt.""
Thursday, October 25, 2007
Article in the Wall Street Journal -- Merck Vaccine Seems Unlinked to Infant Malady, by Jennifer Corbett Dooren. Here's an excerpt:
A Merck & Co. vaccine designed to protect infants against rotavirus doesn't appear to be associated with an increased risk of a potentially life-threatening intestinal problem known as intussusception, according to information compiled by federal health officials.
The Food and Drug Administration and the Centers for Disease Control and Prevention have been tracking the vaccine, sold under the brand name RotaTeq, to look for any links to intussusception because a rotavirus vaccine made by Wyeth was pulled from the market in 1999. The Wyeth vaccine was linked to an increased rate of intussusception, which is a twisting or obstruction of the intestine.
The FDA issued a public-health notice earlier this year saying it had received 28 reports of intussusception in vaccinated infants, and it asked health-care providers to be certain to report any suspected cases of the problem. At the time, the FDA said the intussusception rate wasn't higher than the rate that would be expected among nonvaccinated infants.
Article in the Wall Street Journal -- FDA Says Aventis Failed To Act on Ketek Drug Fears, by Anna Wilde Matthews. Here's an excerpt:
The Food and Drug Administration said drug maker Aventis failed to act on reports of serious problems with a safety study on its antibiotic Ketek and didn't properly oversee the trial's conduct.
The FDA detailed its concerns in a letter posted yesterday on its Web site and sent to Sanofi-Aventis SA, the successor company after a merger. Ketek, which has been linked to a risk of liver damage, was approved by the FDA in 2004, though the agency has said it didn't rely on the questionable safety study in approving the drug.
The doctor who ran the site that enrolled the most patients in the study ultimately pleaded guilty to fraud. The study was supposed to answer questions about whether the drug was tied to side effects including liver damage.
Wednesday, October 24, 2007
Amgen's earnings slumped following its safety problems with its anemia drugs Aranesp and Epogen. Here's an excerpt from the Wall Street Journal's article, Amgen Earnings Slump, by Andrew Edwards:
Amgen Inc.'s third-quarter net income tumbled as the biotechnology company posted restructuring charges, and Aranesp sales continued to decline.
The results include a $590 million write-off on in-process research and development related to the acquisitions of Alantos and Ilypsa, $293 million in restructuring charges, and a $90 million write-off of inventory because of changed regulations and reimbursements in the quarter, the Thousand Oaks, Calif., company said. International sales rose 12%, while U.S. sales fell 1.9%. Excluding the impact of currency fluctuations, the company said total product sales fell 1%.
Sales of anemia drugs Aranesp and Epogen, which account for almost half of Amgen's sales, dropped 23% and 5%, respectively. The two drugs increase red-blood-cell production, reducing the need for blood transfusions for patients on dialysis and chemotherapy. Their sales have hemorrhaged since a Food and Drug Administration warning in March that the drugs, when used in high doses, can increase the risk of blood clots and death in cancer and kidney-disease patients.
The study prompted Medicare to set limits on reimbursements for the drugs, which cost the agency billions of dollars every year.
Article in the Wall Street Journal -- Glaxo to Cut Jobs As Generics Hit Sales, Profit, by Jeanne Whalen. Here's an excerpt:
GlaxoSmithKline PLC became the latest drug company to announce layoffs and cost cuts after competition from generic medicines and sharply lower sales of the diabetes drug Avandia hurt third-quarter earnings.
The world's second-largest pharmaceutical company by sales said it would take a £1.5 billion ($3.08 billion) charge as part of cost cuts that it estimates will save the company £700 million a year by 2010. Glaxo Chief Executive Jean-Pierre Garnier said layoffs would be involved, but he declined to say how many.
Glaxo, based in Brentford, England, was particularly hard hit by plummeting sales of Avandia, a once-popular diabetes drug now linked by some research to heart-attack risks.
Article in the Wall Street Journal -- Tougher Avandia Warning Is Urged: New Label for Drug Would Detail Risk Of Heart Attack, by Anna Wilde Mathews. Here's an excerpt:
The Food and Drug Administration wants GlaxoSmithKline PLC to add the strongest form of safety warning about heart-attack risk to the label of its diabetes drug Avandia, according to people with knowledge of the matter, a move that would compound the commercial woes of the once-popular medication.
Agency officials are pushing for a "black box" warning, these people say. The new label is still being discussed with the company and its final form isn't yet clear. In high-profile safety matters, the agency tends to have strong leverage.
The new warning would be a blow to GlaxoSmithKline, which had said there isn't clear evidence Avandia is more dangerous than competitors. Avandia already carries a black-box warning about a different side effect -- heart failure -- but a heart-attack warning would be more serious. Avandia's main rival drug, Takeda Pharmaceutical Co.'s Actos, carries a heart-failure caution, but doesn't have one for heart-attack risk.
Tuesday, October 23, 2007
As the Associated Press reports -- DuPont guilty of wanton, willful, reckless conduct: Company ordered to pay nearly $200M over zinc waste site in Harrison County -- Dupont has been found liable in a West Virginia class action suit apparently based on claims of negligence and public and private nuisance in connection with the dangers of a zinc waste site. The multiphase trial plan resulted in the jury awarding $196.2 million in punitive damages, in one of the early post-Williams punitive-damages, class-action awards. Total damages in the lawsuit, which include the cost of medical monitoring, surpass $400 million. The lawsuit was brought by Florida plaintiffs' attorney Mike Papantonio.
Coke Trying to Use Expected Guilty Plea by Lerach to Deny Class Status Based on Inadequate Representation
In Coke Tries New Defense: Firm Hopes to Use Plea in Lerach Case To Its Advantage, by Peter Latman, the Wall Street Journal reports Coca-Cola Co.'s attempt to use the impending criminal guilty plea by plaintiffs' lawyer William Lerach to deny class action status to a securities suit brought by Lerach while at the firm now called Coughlin Stoia. The Journal reports that Lerach took the case with him when he left the firm.
In appointing class counsel, a federal court must under Rule 23(g) that the counsel may "fairly and adequately represent the interests in the class." Moreover, Rule 23(g)(C)(ii) notes that the court may broadly consider "any other matter pertinent to counsel's ability to fairly and adequately represent the interests of the class."
Lerach, members of Lerach's former firm Milberg Weiss, and Milberg Weiss itself are all under indictment for their alleged roles in a scheme to pay class representatives -- the few plaintiffs who represent in court the interests of the thousands of absent class members whose claims are being adjudicated. While any payment of class representatives would appear to have been done to keep them on standby for quick filing of lawsuits, those payments also have the capacity of undermining the independence of the class representatives and perpetrating a fraud on the court.
What's so interesting about Coke's move are its implications for other lawsuits. Should all putatitve class actions brought by Lerach or Milberg Weiss be denied class certification on grounds of inadequate class counsel? Here, I would argue that the presumption of innocence should apply to prevent the government from effectively destroying the business of a plaintiffs' firm by causing the denial of all class actions brought by the firm. Of course, many would argue that the specter of the indictment alone destroys the accused firm -- but it is one thing for individuals to choose not to associate with an entity accused of a crime, but quite another thing for a court effectively to impose penalties based merely on an accusation.
What if the allegations against Lerach, Milberg Weiss, and certain Milberg partners are proven? Indeed, Steven Schulman of Milberg has already pleaded guilty, as has Milberg partner David Bershad. Then, denial of future class actions by the lawyer or firm on the basis of inadequacy seems more reasonable, at least until the bar decides whether the lawyers in question will be able to continue to practice.
And what about any prior class actions resolved where class representatives were illegally paid? That's a question with implications for perhaps hundreds of millions of dollars of recoveries. The representation in those classes would likely be deemed inadeqate -- both by class counsel and by the class representatives. And the inadequate representation could be seen as a violation of constitutional due process, which turns in class actions upon the adequacy of class representation. One could imagine myriad actions for malpractice against the lawyers involved (if courts hold that absent class members have an attorney-client relationship with class counsel), as well as attempts by defendants to recoup settlement payments made under alleged fraud by class representatives and class counsel. Interestingly, many defendants would probably rather not reopen settled class actions, for fear that courts would toll the statute of limitations against them and allow new class counsel to bring new actions against them based on the same alleged wrongs. All in all, it would be a litigation meltdown worthy of a law school exam.
Monday, October 22, 2007
An Associated Press story in today's Reno Gazette Journal follows up on the Nevada Prempro plaintiffs' verdict. The main point of the article -- No alarm on Wall Street over Wyeth case -- is that the financial markets are not particularly concerned about the litigation over the Prempro and Premarin hormone replacement therapy (HRT) drugs, and are treating the $134 million verdict ($35 million compensatory damages and $99 million punitive damages) more as an aberration than an omen. As one financial analyst put it, as quoted in the article, "Unlike Wyeth's diet drug litigation, the Premarin/Prempro is widely viewed as more of a headline risk than a long-term financial risk." Of course, after fen-phen, almost any Wyeth litigation risk would appear small by comparison.
Sunday, October 21, 2007
I finally got around to creating an ssrn author page, and have posted my article, Resolving the Class Action Crisis: Mass Tort Litigation as Network, 2005 Utah L. Rev. 863 (2005). Here's the abstract:
In the last few decades, mass tort litigation has wrestled with widespread, multijurisdictional problems that have greatly stressed the caseloads of courts. Certifying for trial multiple-incident, product-liability class actions for personal injuries has promised the resolution of expansive problems. But as appellate courts have increasingly held, these actions are not appropriate for class treatment because they involve numerous individualized issues that require unmanageable individualized adjudication. Without a perceived workable alternative, many trial courts have continued to try radical class action trial plans that violate state substantive law and federal constitutional law, but which bring tremendous pressure to settle upon defendants who fear they may not be able to obtain appellate review. Attempting to defuse this crisis, Congress recently passed the Class Action Fairness Act of 2005, greatly expanding federal jurisdiction for class actions. Once class actions are removed to federal court, however, the Act still provides no alternative for federal courts to the Hobson's choice framed by plaintiffs' counsel: certify a class, or be inundated with thousands of unmanageable, wasteful, and repetitive individual cases.
But that is a false dichotomy. This article argues that the alternative to mass tort class actions is not such isolated repetitive litigation, but instead an expansive set of litigation networks of counsel, judges, and clients, using recent advances in information technology, that provide much of the efficiency promised by class actions without violating state substantive or federal constitutional law. As an example, the article discusses the functioning of litigation networks in the ongoing litigation concerning phenylpropanolamine (PPA), an ingredient in cough and cold remedies and appetite suppressants that has been alleged to cause stroke. By sharing information, pooling resources, developing specialized expertise, and coordinating strategy, these networks not only reduce the costs and improve the representation of individual litigation, but also develop accurate claim values for settlement of numerous cases and allow for improved case management over time through pragmatic experimentation. The article concludes that mass tort litigation networks provide a fruitful alternative to impermissible product-liability class actions for personal injuries, and that judges should deny requests to certify such class actions and instead encourage and assist in the creation and functioning of litigation networks.