Friday, January 29, 2016
There's obviously been a lot in the news about multidistrict litigation--from Lance Cooper's allegations in GM to the recent selection of the plaintiffs' leadership slate in VW. But what do we really know about the settlements that come out of those large MDLs? On one hand, the answer is not much. Many of the deals are secret because they are private. But sometimes those private deals are nevertheless publicly available. And when they are, we read them. And analyze them.
The results can be a little disturbing. Given all of the hubbub over Cooper's allegations in GM (see Lahav's post), my co-author Margaret Williams and I decided to go ahead and release the findings of our recent study, Repeat Players in Multidistrict Litigation: The Social Network, on SSRN.
While past studies have considered repeat play on the plaintiffs’ side, this study is the first comprehensive empirical investigation of repeat play on both sides. It won't surprise most readers to learn that we found robust evidence of repeat play among both plaintiff and defense attorneys. What may be more interesting is that we used social-network analysis to demonstrate that a cohesive multidistrict-litigation leadership network exists, which connects people, law firms, and the proceedings themselves.
While repeat play may not be surprising for those in the know, the fact that repeat players exist matters considerably. Lead lawyers control the litigation, dominate negotiations, and design settlements.
To consider repeat players’ influence, we examined the publicly available nonclass settlements these attorneys negotiated, looking for provisions that one might argue principally benefit the attorneys, and not one-shot plaintiffs. By conditioning the deal on achieving a certain claimant-participation rate and shifting the deal-making entities from plaintiffs and defendants to lead lawyers and defendants, repeat players tied all plaintiffs’ attorneys’ financial interests to defendants’ ability to achieve closure.
Over a 22-year span, we were unable to find any publicly available nonclass settlement that didn’t feature at least one closure provision (which benefits the defendant), and likewise found that nearly all settlements contained some provision that increased lead lawyers’ fees. Based on the limited settlements available to us, we found reason to be concerned that when repeat players influence the practices and norms that govern multidistrict proceedings—when they “play for rules,” so to speak—the practices they develop may principally benefit them at the expense of one-shot plaintiffs.
Of course, our research doesn't speak directly to the allegations in GM, but it does make those allegations far less surprising. And if you compare our list of repeat players to the names of those appointed in Volkswagen, you'll see a lot of familiar names.
Tuesday, November 18, 2014
By Howard Erichson
Tomorrow in Philadelphia, lawyers for the NFL and lawyers for former football players will try to persuade Judge Anita Brody to approve their settlement of claims that the League concealed chronic risks of concussions and failed to protect players. The judge, the players, and the public should view the settlement with suspicion.
We have grown so accustomed to "settlement class actions" that we have lost sight of what is strange and troubling about them. Class actions serve an essential function in our legal system by empowering claimants in mass disputes, and I reject the knee-jerk criticisms of class actions that I hear too often. But when the class action tool is exploited by defendants to buy peace on the cheap, and when class members are harmed by the alignment of interests between defendants and class counsel, I feel the need to speak up.
Who reached this agreement with the NFL? Not the thousands of former football players. The deal was struck by lawyers who purported to represent the players but who had not actually gotten the go-ahead to litigate for the class. To litigate a class action, lawyers must get the class certified. But in this case, the lawyers negotiated their settlement before the court certified the class.
It makes sense that the NFL would want to do it this way. By negotiating before class certification, the NFL knew that the plaintiffs’ lawyers lacked the leverage that comes with being able to say, “See you at trial.” And it makes sense that the players’ lawyers would go along. They stand to make $112 million plus up to five percent of each award going forward. If these lawyers failed to reach agreement with the NFL, they risked being cut out if the League struck a deal with someone else.
In a “settlement class action” like the NFL deal, lawyers ask the court to certify the class for settlement only, as opposed to a standard class action that can be litigated or settled. This ought to be the first question people ask when they hear about a class action settlement: Was the class certified for litigation? If not, then class members are especially vulnerable to exploitation.
It is not an obscure problem. As I explain in The Problem of Settlement Class Actions, settlement class actions have become more common than standard class actions. And while good settlements exist, we see mischief too often. Three weeks ago, the Seventh Circuit heard arguments in Pearson v. NBTY, a settlement class action about false labeling for glucosamine supplements. Among numerous other problems, the lawyers’ fees were more than double the amount actually paid to the class. The district court's opinion approving the settlement is disturbing, and Ted Frank's argument for the objectors is powerful. And in Lane v. Facebook, a settlement class action involving claims that Facebook illegally shared information about members’ Internet activity, Facebook paid over $2 million to the plaintiffs’ lawyers, $6.5 million to a foundation that Facebook would partly control, and zero to the class members. Facebook discontinued the challenged program but could reinstate it under a different name. Facebook wiped away its liability while the class members got nothing of value. Chief Justice Roberts was horrified.
Compared to these settlements, the NFL deal looks pretty good. For some players, it offers immediate compensation, and for others it offers long-term insurance. Judge Brody initially rejected the settlement but then gave it preliminary approval after the NFL removed a cap on the fund. But the dynamic of settlement class actions should make us ask questions. The settlement rewards certain diagnoses (Alzheimer’s, Parkinson’s, ALS) over others (CTE). It pays for cognitive impairment but not mood disorders. The objectors make a strong argument that these items are crucial. The settlement imposes a registration requirement and other hurdles that objectors say are intended only to reduce claims. I can see why the deal has drawn so much fire and why Public Citizen sought to intervene.
The truth is, it is always hard to judge whether a class settlement is fair. A settlement, after all, is a compromise. There is no magic formula by which a football fan or a federal judge can evaluate whether the settlement is good enough. What we can ask, however, is whether the settlement resulted from a fair process, a negotiation on a level playing field. The answer is no.
The concern in every settlement class action is that lawyers may have struck the deal not because it was the best the class members could have gotten, but because it was the best the lawyers could get for themselves. If the settlement proves inadequate, then the lawyers get rich, the League gets off easy, and the football players – damaged forever – are left without the money they need to take care of themselves and their families for the rest of their lives.
There is, of course, something the judge can do about it. Reject this settlement, and on a proper motion, certify the class for litigation as well as settlement. Rest assured, there will be a better offer on the table. Although the judge would still face the difficult task of evaluating a class settlement and would still have to be on the lookout for abuse, at least she would know that the players weren’t disempowered from the start.
Friday, September 12, 2014
On August 21, 2014, the Oregon Supreme Court embraced the ALI's definition of a non-class aggregate settlement and held that an attorney who represented victims of clergy abuse failed to get the clients' informed consent before distributing a lump-sum settlement. In In re Complaint as to the Conduct of Daniel J. Gatti, the court noted that Gatti failed to get clients' informed consent in writing to the formula or method he devised to divvy up the defendants' lump-sum settlement payments, which violated Rule 1.8(g). As a result, the court imposed a 90-day suspension as a sanction.
For more on the problems associated with lump-sum settlements, see Howie's article, The Trouble with All-or-Nothing Settlements.
Wednesday, September 10, 2014
Professor Neal Katyal (Georgetown) and Theodore Olson (Gibson Dunn) take part in a Federalist Society panel on class action reform and the BP Deepwater Horizon case; the panel is moderated by Stuart Taylor (Brookings Institution).
Monday, August 4, 2014
Professor Linda Mullenix has posted a new article titled "Designing Compensatory Funds: In Search of First Principles" on SSRN. It takes on several high-profile compensation funds and may have something of interest to say about how GM is designing its own compensation fund. Here's the abstract:
The World Trade Center Victims’ Compensation Fund of 2001 ushered in a new age of fund approaches to resolving claims for mass disasters in the United States. Since then, numerous funds have been created following several mass events injuring large numbers of claimants. The Gulf Coast Claims Facility, created in the immediate aftermath of the BP Deepwater Horizon oil platform explosion, represented a further expansion of fund design and operation. The funds that have been implemented since 2001, including the World Trade Center Fund, have been the object of both praise as well as criticism. Notably, all these funds have been designed and implemented after the events giving rise to a universe of mass claimants. This article suggests that the policy recommendations for future fund design largely fail to address antecedent threshold questions about the nature of the events giving rise to possible recourse to a fund for compensation of claims. Although such compensation funds have been intended to provide an alternative to the tort compensation system and to operate largely outside the purview of the judicial system, instead most fund designs have relied on tort notions of corrective justice that mimic the tort system. However, many funds have in practice entailed mixed theories of corrective and distributive justice, confusing the purpose, utility, and goals of such funds. This article asks fundamental questions about the goals of such funds and whether and to what extent disaster compensation funds comport with theories of justice. It suggests that certain types of mass disaster events ought not to be resolved through fund auspices at all, while only a limited universe of communitarian harms should give rise to such a response. Finally, a communitarian fund designed ex-ante might more fairly be based on theories of distributive justice based on an egalitarian social welfare norm.
Friday, May 16, 2014
I posted a new article to SSRN this morning that's been a labor of love for well over a year now. I'm excited about this new piece for a few reasons.
First, it debuts an original data set of all lead lawyers appointed in 72 product liability and sales practices MDLs that were pending as of May 14, 2013. As such, it's the only paper (that I know of) that includes empirical evidence on plaintiffs-side repeat players appointed to leadership positions. (Yes, it includes a list of some of the most entrenched repeat lawyers and law firms as an appendix.) (If this is of interest, have a look at Margaret Williams, Emery Lee, and Catherine Borden's recently published paper in the Journal of Tort Law titled Repeat Players in Federal Multidistrict Litigation, which looks at all plaintiffs' attorneys in MDLs using social network analysis.)
I also explain why appointing a leadership group comprised of predominately repeat players can cause inadequate representation problems. For example, repeat players playing the long game have rational, economic incentives to curry favor with one another, protect their reputations, and develop reciprocal relationships to form funding coalitions and receive client referrals. As such, extra-legal, interpersonal, and business concerns may govern their interactions and trump their agency obligations to uniquely situated clients who could threaten to bust a multi-million dollar deal. Non-conforming lawyers may be ostracized and informally sanctioned, which promotes cooperation, but deters dissent and vigorous representation. Over time, expressing contrary opinions could brand the dissenting lawyer a defector, which could decrease lucrative leadership opportunities. (Other reasons abound, which I explain on pages 25-27 of the paper.)
Second, it provides some much needed guidance for transferee judges. Although the Manual for Complex Litigation remains the go-to guide for transferee judges, it hasn't been updated in 10 years. So much has changed since the fourth edition was published in 2004. Accordingly, in "Judging Multidistrict Litigation," I suggest best practices for appointing and compensating lead lawyers. Judges can compensate lead lawyers on a coherent and more predictable basis by distilling current theories down to their common denominator: quantum meruit. Quantum-meruit awards would align fees with other attorney-fee decisions and compensate leaders based on the value they actually add.
Third, as anyone familiar with the area knows, settlement review in nonclass litigation is controversial at best. After judges expressly deny class certification they then harken back to Rule 23 and their "inherent equitable authority" to comment on settlements. So, employing a quantum-meruit theory for awarding lead lawyers' attorneys' fees would give judges a legitimate private-law basis for scrutinizing settlements. Because courts must evaluate the case's success to determine how much compensation is merited, it could likewise help stymie a trend toward self-dealing where repeat players insert fee provisions into master settlements and require plaintiffs and their attorneys to "consent" to fee increases to obtain settlement awards.
The article is forthcoming in N.Y.U. Law Review in April of 2015, so I still have a bit of time to tinker with it and welcome comments in the interim (eburch at uga.edu). In the meantime, here's the formal SSRN abstract.
High-stakes multidistrict litigations saddle the transferee judges who manage them with an odd juxtaposition of power and impotence. On one hand, judges appoint and compensate lead lawyers (who effectively replace parties’ chosen counsel) and promote settlement with scant appellate scrutiny or legislative oversight. But on the other, without the arsenal class certification once afforded, judges are relatively powerless to police the private settlements they encourage. Of course, this power shortage is of little concern since parties consent to settle.
Or do they? Contrary to conventional wisdom, this Article introduces new empirical data revealing that judges appoint an overwhelming number of repeat players to leadership positions, which may complicate genuine consent through inadequate representation. Repeat players’ financial, reputational, and reciprocity concerns can govern their interactions with one another and opposing counsel, often trumping fidelity to their clients. Systemic pathologies can result: dictatorial attorney hierarchies that fail to adequately represent the spectrum of claimants’ diverse interests, repeat players trading in influence to increase their fees, collusive private deals that lack a viable monitor, and malleable procedural norms that undermine predictability.
Current judicial practices feed these pathologies. First, when judges appoint lead lawyers early in the litigation based on cooperative tendencies, experience, and financial resources, they often select repeat players. But most conflicts do not arise until discovery and repeat players have few self-interested reasons to dissent or derail the lucrative settlements they negotiate. Second, because steering committees are a relatively new phenomenon and transferee judges have no formal powers beyond those in the Federal Rules, judges have pieced together various doctrines to justify compensating lead lawyers. The erratic fee awards that result lack coherent limits. So, judges then permit lead lawyers to circumvent their rulings and the doctrinal inconsistencies by contracting with the defendant to embed fee provisions in global settlements—a well recognized form of self-dealing. Yet, when those settlements ignite concern, judges lack the formal tools to review them.
These pathologies need not persist. Appointing cognitively diverse attorneys who represent heterogeneous clients, permitting third-party financing, encouraging objections and dissent from non-lead counsel, and selecting permanent leadership after conflicts develop can expand the pool of qualified applicants and promote adequate representation. Compensating these lead lawyers on a quantum-meruit basis could then smooth doctrinal inconsistencies, align these fee awards with other attorneys’ fees, and impose dependable outer limits. Finally, because quantum meruit demands that judges assess the benefit lead lawyers’ conferred on the plaintiffs and the results they achieved, it equips judges with a private-law basis for assessing nonclass settlements and harnesses their review to a very powerful carrot: attorneys’ fees.
May 16, 2014 in Aggregate Litigation Procedures, Class Actions, Ethics, Informal Aggregation, Lawyers, Mass Tort Scholarship, Procedure, Products Liability, Settlement, Vioxx, Zyprexa | Permalink | Comments (0) | TrackBack (0)
Tuesday, March 4, 2014
Louisiana Law Review is hosting a symposium on Multidistrict Litigation this Friday, March 7, 2014, that focuses on remand and may be of interest to our readers. The title of the symposium is "The Rest of the Story: Resolving Cases Remanded by MDL Here's the link for registration and additional information.
Here's the list of Panels and Panelists:
8:25-8:30: Welcome Address & Opening Remarks
- Chancellor Jack Weiss; LSU Law School
8:30-9:30: Panel 1: Collaboration of Judges and Attorneys in MDL Case Management
The panel will discuss how attorneys and judges can successfully collaborate to use disaggregation as a tool of effective case management.
Moderator: Francis McGovern; Professor of Law, Duke Law School
- Judge Eldon Fallon; U.S. District Court for the Eastern District of Louisiana
- Richard Arsenault; Neblett, Beard, & Arsenault
- James Irwin; Irwin Fritchie Urquhart & Moore, LLC
9:40-10:40: Panel 2: Effectively Planning for Disaggregated Discovery
The panel will discuss when discovery issues should be disaggregated for separate resolution, and the costs, benefits, and challenges of reserving issues for separate discovery.
Moderator: Judge Lee Rosenthal; U.S. District Court for the Southern District of Texas
- Mark Lanier; The Lanier Law Firm
- James Irwin; Irwin Fritchie Urquhart & Moore, LLC
- Dean Edward F. Sherman; Tulane University Law School
10:50-11:50: Panel 3: Integrating Aggregated and Disaggregated Discovery Issues
The panel will discuss various kinds of discovery (e.g., E-Discovery, expert discovery, and specific discovery), and the strategic and case management challenges each method presents in the context of MDLs, including both aggregated and disaggregated discovery issues.
Moderator: Mark Lanier, The Lanier Law Firm
- Judge Lee Rosenthal; U.S. District Court for the Southern District of Texas
- Francis McGovern; Professor of Law, Duke Law School
- Richard Arsenault; Neblett, Beard, & Arsenault
- David Jones; Beck Redden, LLP
11:50-12:10: Lunch Break
12:10-1:10: Panel 4: (Lunch Presentation) The Real Story: FJC Data on What the Empirical Data on MDL Remands Shows
Federal Judicial Center researchers will present findings from their research on multidistrict litigation. The analysis will focus on two sets of cases: (1) cases that are considered for transfer but not transferred, and (2) cases that are transferred and that are subsequently remanded back to the transferor court. Understanding these cases, and the cases that are resolved in the transferee court, may provide some insight into the effects of aggregation on various kinds of cases
Moderator: Judge Lee Rosenthal; U.S. District Court for the Southern District of Texas
- Emery G. Lee, III, Federal Judicial Center
- Margaret Williams, Federal Judicial Center
- Catherine Borden, Federal Judicial Center
1:20-2:20: Panel 5: When Remand is Appropriate
The panel will discuss at what stages plaintiffs, defendants, and judges perceive optimal windows to disaggregate various kinds of issues, and the factors that influence the decision and timing.
Moderator: Dean Edward F. Sherman, Tulane University Law School
- Judge Fallon; U.S. District Court for the Eastern District of Louisiana
- Professor Elizabeth Burch, University of Georgia School of Law
- David Jones, Beck Redden, LLP
2:30-3:30: Panel 6: How Remand Should be Effectuated
The panel will discuss how judges and attorneys work together to effectuate remand of MDL cases, including methods for ensuring smooth transitioning of work product, case management, and expertise to state and federal judges upon remand.
Moderator: Francis McGovern; Professor of Law, Duke Law School
- Judge Fallon; U.S. District Court for the Eastern District of Louisiana
- Professor Teddy Rave, University of Houston
- Professor Elizabeth Burch, University of Georgia School of Law
3:30-3:45: Closing Remarks
Tuesday, January 21, 2014
You can find the Room for Debate segment here, with input from a number of law professors including Michele Landis Dauber (Stanford), Betsy Grey (Arizona State), and Stephen Shugerman (UC Berkeley)
Sunday, December 15, 2013
Tuesday, November 19, 2013
Johnson & Johnson has agreed to terms for settling hip implant claims, according to multiple news reports. The New York Times article reports that under the agreement, J&J "will pay some $2.475 billion in compensation to an estimated 8,000 patients who have been forced to have the all-metal artificial hip removed and replaced with another device." The article states that a typical claimant settlement, before legal fees, would be about $250,000 plus all medical costs. The article also states that the deal requires the participation of 94 percent of eligible claimants.
The lawsuits addressed by this settlement involve the Articular Surface Replacement, or A.S.R., a product of the DePuy Orthopaedics division of J&J. A couple of news sources reported a settlement of this litigation six days ago but without confirmation from defendants or plaintiffs. Today's reports come on the heels of a hearing in the multidistrict litigation (MDL 2197) before Judge David Katz in the Northern District of Ohio.
Update: For DePuy's and J&J's press release about the settlement program, see here and here. For the settlement website, see here. For an overview of the settlement terms, including settlement eligibility, settlement amounts, and deadlines, see here.
Wednesday, November 13, 2013
The New York Times and Bloomberg are reporting that Johnson & Johnson has agreed to settlement terms to resolve thousands of DePuy metal hip implant claims. According to the Bloomberg article, J&J Said to Reach $4 Billion Deal to Settle Hip Lawsuits, and the New York Times article, Johnson & Johnson Said to Agree to $4 Billion Settlement Over Hip Implants, the deal would provide about $300,000 to $350,000 in compensation for each claimant who underwent surgery to replace the DePuy hip implant, which could be as many as 8000 cases. The amount for each claimant would depend on age, medical condition, and other factors. According to the articles, the settlement has not been formally announced.
The Depuy hip implant cases are pending in Multidistrict Litigation (MDL 2197) before Judge David Katz in the Northern District of Ohio, as well as in state courts in Ohio, California, and New Jersey. Two cases have gone to trial, with one plaintiff victory and one for the defense. Seven more trials are scheduled. This would be the largest settlement ever for medical device litigation, and one of the largest mass tort settlements.
Update: See here for Nov. 19 info.
Wednesday, October 2, 2013
The New York Times reports that an appellate panel has remanded the BP settlement appeal for "clarification" of the settlement in response to BP's allegations that the settlement adminstrator was paying claims to non-injured claimants and engaging in other wasteful conduct.
Update: Here's the Fifth Circuit decision in the case.
Tuesday, September 3, 2013
Professor Jennifer Robbennolt (Illinois) has posted to SSRN her article, The Effects of Negotiated and Delegated Apologies in Settlement Negotiation, 37 Law & Hum. Behav. 128 (2013). Here's the abstract:
Previous work has explored the influence that apologies have on the settlement of civil legal disputes. This study explored 2 aspects of apologies that commonly arise in the legal setting — the fact that many apologies may be negotiated with or requested from a wrongdoer in the context of settlement discussions and the possibility that an apology may be offered by a wrongdoer’s attorney rather than personally by the offender. In general, apologies given following a negligent action were found to improve perceptions of the offender and the situation. Full apologies that were given in response to a request by the injured party or at the suggestion of a mediator were viewed in ways that were similar to the same apology given spontaneously. On the other hand, full apologies that were offered by an attorney on behalf of the wrongdoer, although improving perceptions somewhat, were less effective than apologies offered directly by the wrongdoer. The motives attributed to the apologizer and general attitudes toward the civil litigation system also influenced perceptions of apologies.
Friday, August 30, 2013
According to a news report, BP today asked the Fifth Circuit to reverse the district court's approval of the Gulf oil spill settlement. I have not seen the court filing, but according to this AP report as published by the NY Times, "BP is trying to persuade a federal appeals court that it should throw out a judge's approval of the company's multibillion-dollar settlement with Gulf Coast residents and businesses. Last year, BP PLC joined plaintiffs' attorneys in urging U.S. District Judge Carl Barbier to give the deal his final approval. On Friday, however, the company's lawyers argued in a court filing that Barbier's more recent interpretation of settlement terms have allowed businesses to receive hundreds of millions of dollars for inflated or fictitious claims." As told in the Houston Chronicle, BP would still support the settlement if the Fifth Circuit were to decide in BP's favor on its earlier appeal challenging Judge Barbier's rulings on the generosity of payouts.
BP's decision to ask for reversal of its settlement class action (a deal that BP had negotiated and agreed to, and for which BP had previously argued in favor of judicial approval), is a fascinating turn of events in light of the history of the Gulf Oil Spill litigation and settlement. Shortly after the Deepwater Horizon explosion, BP established a compensation fund to pay claims. Kenneth Feinberg was named administrator of the fund, which came to be knows as the Gulf Coast Claims Facility (GCCF), and the GCCF proceeded to settle thousands of claims. But BP later joined with a group of plaintiffs' lawyers to negotiate a settlement class action that would replace the GCCF as settlement mechanism. For BP, a settlement class action offered a greater prospect of finality because it could bind all class members who fail to opt out, whereas the GCCF settlement program could bind only those claimants who chose to accept their compensation offers. In other words, even though the claims systems strongly resembled each other, a key difference is that a settlement class action uses the adjudicative power of the court to bind class members, in contrast to the claims facility, which depended upon the consent of individual claimants to settle their claims.
I've argued elsewhere that settlement class actions should be impermissible because they use the power of the courts to disadvantage claimants. But the BP news drives home the point that the opposite problem can occur -- a defendant may feel disadvantaged by a settlement class action because it deprives the defendant of control over the settlement process.
Tuesday, August 13, 2013
Adap Liptak of the NYTimes has a piece When Lawyers Cut Their Clients Out of the Deal about a cy pres settlement with Facebook. In this settlement (approved by the 9th Circuit) the lawyers got $2.3 million and the clients got a cy pres contribution, apparently $6.5 million to a foundation over which Facebook has some control according to the article. The cy pres recipient is something called the Digital Trust Foundation. A quick google search came up with a bunch of references to the Facebook settlement but no website for this foundation.
The Ninth Circuit affirmed the settlement and denied rehearing en banc, with a dissent on rehearing en banc, making this a possible Supeme Court cert grant. (A cert petition was filed on June 26, 2013).
There is a lot of scholarship on the topic of how much lawyers should be paid relative to class members as well as articles critizing cy pres settlements. Some links to this work are below. The problem is this. We regulate entities like Facebook largely by litigation. In the absence of the class action, there would be little or no enforcement of the consumer protection laws. But the class action litigation needs to be funded, and it is funded out of lawyers percentage of the total fund, usually the total fund from a settlement because class actions are almost never litigated. Its very hard to certify a class action, so class actions are often certified for settlement only. The incentive of the lawyers, fearing no class certification or realistic possibility of actually litigating, is to settle. The incentives for defendants, wanting to get the litigation off their books, is to settle cheap. The answer to this problem in my view is to allow classes to be litigated, not to tighten the certification standards further.
If the settlement will deter future misconduct, even if the money doesn't go directly to the class members, there is still a lot of societal value there. But is $8.8 million enough to deter Facebook? Does it have any relationship to the potential value of this lawsuit? That is, what is the value of the claims multiplied by the probability of success?
In my own work, I've suggested that cy pres settlements are not necessarily bad, but that certainly doesn't mean they are always good. Class members should just be polled in determining where cy pres settlements should go. The argument that class members will not appreciate the putative $1 (I think I saw it was $1.12) they would get in a settlement like this one is reasonable. But that doesn't make a settlement like this one okay. Especially in a settlement involving facebook users, who presumably are all connected via facebook, there is no reason why absent class members cannot be polled. Do they "like" this foundation? what would they prefer? Might I suggest Public Citizen as a recipient?
This case might be a fine vehicle for the Supreme Court to consider cy pres settlements. Given how few cases the Court decides, how few class actions actually are filed and litigated (less than 1% of the federal docket) its not clear to me that this is the best use of its time. That said, if the Court does grant cert, it would be wise to consider both the overall benefits and costs of cy pres to consumers and society more generally, not merely the fact that the lawyers got a lot of money here. This is a story of more money than sense.
Monday, April 1, 2013
I have posted a new paper, The Problem of Settlement Class Actions, on SSRN. It makes the argument that we should abandon settlement-only class actions as a means of resolving mass disputes. The article focuses first on problems of leverage, including would-be class counsel's inability to take the class claims to trial and the monopsony or "reverse auction" problem. Because of the inherent asymmetry of settlement class action negotiations, would-be class counsel does not adequately represent the interests of the absent class members. The article incorporates these leverage concerns into an account of the illegitimacy of settlement-only class certification as a matter of judicial authority. The problems include not only due process concerns of inadequate representation, but also Rules Enabling Act concerns.
Settlement class actions have been an important form of dispute resolution in mass torts (as well as securities, antitrust, and other areas). Despite the Supreme Court's rejection of two asbestos settlement class actions in Amchem and Ortiz, and despite the problems encountered in the fen-phen nationwide settlement class action shortly thereafter, mass tort settlement class actions have never disappeared, and we need only look at the BP settlement class actions in the Gulf Oil Spill litigation for a well-known recent example.
Needless to say, the argument I am advancing faces an uphill battle. It cuts against entrenched interests of defendants, of plaintiffs' counsel, and of judges, all of whom prefer easier paths to comprehensive negotiated resolutions. The argument also cuts against the grain of most recent thinking on this topic. The ALI Principles of the Law of Aggregate Litigation, as well as a recent suggestion under consideration by the Advisory Committee on Civil Rules, would alter Rule 23 to facilitate settlement class actions even in cases that would be uncertifiable for purposes of litigation. Recent cases such as the Second Circuit's 2012 decision in In re AIG Securities Litigation and the Third Circuit's 2011 en banc decision in Sullivan v. DB Investments have taken new liberties with the Supreme Court's Amchem decision. The article explains what is problematic about the direction these cases have taken.
Here is the abstract:
This article argues that class actions should never be certified solely for purposes of settlement. Contrary to the widespread “settlement class action” practice that has emerged in recent decades, contrary to current case law permitting settlement class certification, and contrary to recent proposals that would extend and facilitate settlement class actions, this article contends that settlement class actions are ill-advised as a matter of litigation policy and illegitimate as a matter of judicial authority. This is not to say that disputes should not be resolved on a classwide basis, or that class actions should not be resolved by negotiated resolutions. Rather, this article contends that if a dispute is to be resolved on a classwide basis, then the resolution should occur after a court has found the matter suitable for classwide adjudication regardless of settlement.
Friday, October 19, 2012
HB Litigation Conferences has put together a Judicial & Lawyers’ Forum on Cost-Driven Litigation Strategies — The New Paradigm: When is a Case Too Big to Litigate?, on November 9, 2012, at the University of Chicago. Here's the brochure.
Friday, October 12, 2012
Two Wall Street Journal articles in recent days have tracked recent settlements talks between BP and the federal government regarding civil and criminal liability in connection with the Deepwater Horizon oil spill in the Gulf. On Wednesday, the Journal reported, BP Close to Spill Settlement: Multibillion-Dollar Deal With U.S. Would Combine Civil, Criminal Liabilities. But on Thursday, the Journal noted in Slick Complicates BP Liability Talks that a new thin oil slick determined to be related to the prior Deepwater Horizon spill has appeared.
Thursday, August 16, 2012
This article argues that there is an unrecognized “anticommons” problem in aggregate litigation. An anticommons occurs when too many owners’ consent is needed to use a resource at its most efficient scale. When many plaintiffs have similar claims against a common defendant, those claims are often worth more if they can be packaged up and sold to the defendant (i.e., settled) as a single unit — that is, the defendant may be willing to pay a premium for total peace. But because the rights to control those claims are dispersed among the individual plaintiffs, transaction costs and strategic holdouts can make aggregation difficult, particularly in cases where class actions are impractical. Recently the American Law Institute has proposed to modify long-standing legal ethics rules governing non-class aggregate settlements to allow plaintiffs to agree in advance to be bound by a supermajority vote on a group settlement offer. By shifting from individual control over settlement decisions to collective decision making, the ALI proposal may offer a way out of the anticommons and allow the group to capture the peace premium. Critics, however, say that allowing plaintiffs to surrender their autonomy will leave them vulnerable to exploitation by the majority and by their lawyers. Viewed through the lens of the anticommons, these concerns are manageable. Similar anticommons problems arise in many areas of law, ranging from eminent domain to oil and gas to sovereign debt. But instead of slavishly preserving the autonomy of individual rights-holders, these areas of law have developed strategies for aggregating rights when doing so will result in joint gains. Drawing from these other contexts, this article argues that the legitimacy of compelling individuals to participate in a value-generating aggregation depends on the presence of governance procedures capable of protecting the interests of the individuals within the collective and ensuring that the gains from cooperation are fairly allocated. Governance is thus the key to legitimizing attempts to defeat the anticommons in mass litigation through aggregation, whether by regulatory means, such as the class action, or contractual precommitment, as in the ALI proposal.
Wednesday, July 18, 2012
Walter Olson has an op-ed on recent New Hampshire tort reform involving early offers of settlement and loser pays. Although New Hampshire's new approach concerns medical malpractice, one could imagine such reforms subsequently spreading to other areas of tort, including perhaps products liability.