Mass Tort Litigation Blog

Zimmerman on Presidential and Corporate Settlements

Hi everyone!  It's been a long time since I rapped at ya.  I am passing along two recent, and very interesting, papers by Adam Zimmerman of Loyola. The first concerns presidential settlements and is entitled, oddly enough, "Presidential Settlements."  Here's the abstract:

Large groups repeatedly turn to the White House to collectively resolve complex disputes, much like a class action. Such presidential settlements go back at least as far as the early republic, as well as the Progressive Era, when Teddy Roosevelt famously brokered settlements among private groups following a rash of accidental injuries and deaths in mining, rail, and even, football. More modern variants include mass compensation schemes like the Holocaust Victim Settlement, Pan Am Flight 103 Settlement, and the BP Oil Spill Settlement brokered by Presidents Clinton, Bush and Obama. In each case, the President helped resolve a sprawling class action-like dispute among warring parties, while also advancing a broader executive agenda. Just as the President has extended power over the administrative state, presidential settlements demonstrate the growth of executive authority in mass dispute resolution to provide restitution for widespread harm.

But this use of executive power creates problems for victims purportedly served by presidential settlements. When the President settles massive private disputes, he resolves them like other forms of complex litigation, but without the judicial review, transparency, and participation thought necessary to resolve potential conflicts of interests among the victims. The Presidents’ other duties as the Chief Executive also aggravate conflicts with groups who may rely entirely on such settlements for relief. 

This Article recommends that the President adopt complex litigation principles to reduce conflicts of interests, to increase transparency, and to improve public participation in White House driven settlements. Envisioning the President as the “Settler-In-Chief,” this Article also raises new questions about how the coordinate branches of government, as well as actors inside the White House, may regulate executive settlement practice consistent with the Separation of Powers.

The second, "The Corporate Settlement Mill," is co-authored with Dana Remus.  Here's the abstract:

From cases involving “robo-signed” mortgages to catastrophic oil spills, the United States legal system increasingly encourages corporate wrongdoers to design and implement their own high-volume settlement programs to compensate thousands of unrepresented victims. These private settlement systems rely on corporate economies of scale to resolve massive disputes as comprehensively as a class action, but entirely outside of the court system. We call these systems “corporate settlement mills.”

Like class action settlements and “no fault” insurance options, corporate settlement mills may ameliorate many of the most commonly criticized features of individualized litigation. They offer redress to people who often cannot afford counsel, handle large volumes of claims quickly and predictably, and reduce court congestion. For those reasons such programs are increasingly required by federal laws, regulatory bodies and as a matter of complex litigation practice. 

But corporate settlement mills also have a dark side. When sophisticated corporate actors quietly settle large numbers of cases in assembly-line fashion, they threaten transparency, fair dealing, and the rule of law. We argue that this new category of dispute resolution is more dangerous than others because a single, self-interested party — the prospective defendant itself — designs and oversees the entire determination process. Corporate settlement mills thus raise fundamental questions about how far policymakers may go to privatize our public, and historically neutral, system of adjudication.

Drawing lessons from other movements to privatize government, we argue that corporate settlement mills can provide an appropriate alternative to public adjudication as long as they remain answerable to the regulators, courts, and claimants that rely on them. We therefore offer specific suggestions to make them more accountable — including targeted prospective regulation, judicial review, stakeholder participation, and ethical reform. In so doing, we broaden the debate over what constitutes mass litigation, in the hope that lawmakers realize the benefits of large private settlements, without frustrating administrative regulation or the judiciary’s authority to “say what the law is.”

Download both while they are hot!

SJC

2014 Vancouver Summer Law Program and Global Tort Litigation Course

I'm serving as Co-Director of Southwestern Law School's 2014 Vancouver Summer Law Program, which is offered in collaboration with the University of British Columbia Faculty of Law and the International Centre for Criminal Law Reform and Criminal Justice Policy.  All classes will take place at the University of British Columbia's new Allard Hall, which was completed in 2011 at a cost of $56 million.  On-campus housing at St. Andrew's Hall next to the law school may also be arranged through the summer law program.  The program will run from May 25 to June 25, 2014.  Here is the brochure.  

One of the courses offered will be a course on Global Tort Litigation, which I'll be co-teaching with Professor Jasminka Kalajdzic of the University of Windsor.   Other courses include comparative criminal procedure, international environmental law, and comparative sexual orientation law; students may elect to take two courses for four units, or three courses for six units.  

We welcome applications from students in good standing at an ABA-approved or state-accredited American law school or accredited Canadian law school.  Special reduced tuition rates are available for Canadian law students.  Come join us in beautiful Vancouver, Canada!

BGS

BP Loses 5th Circuit Appeal - Class Action Settlement Stands

In a decision issued on March 3, the Fifth Circuit held that BP must stick to the settlement it signed on to, even if it doesn't like any longer the broad approach to compensation it once agreed to.   As Professor and former Soliciter General Charles Fried said, in sum and substance, a contract is a promise.  Here is an excerpt from the Fifth Circuit opinion:

There is nothing fundamentally unreasonable about what BP accepted but now wishes it had not.  One event during negotiations in the fall of 2012 suggests reasons for just requiring a certification [instead of proof of causation]. The claims administrator, in working through how the proposed claims processing would apply in specific situations, submitted a hypothetical to BP and others. It posited three accountants being partners in a small firm located in a relevant geographic region. One of the three partners takes medical leave in the period immediately following the disaster, thus reducing profits in that period because that partner is not performing services for the firm. At least some of the firm's loss, then, would have resulted from the absence of the partner during his medical leave. BP responded that such a claim should be paid.

We raise this not for the purpose of analyzing an issue we conclude is not relevant to our decision, namely, whether BP is estopped from its current arguments. Instead, we mention it in order to identify the practical problem mass processing of claims such as these presents, a problem that supports the logic of the terms of the Settlement Agreement. These are business loss claims. Why businesses fail or, why one year is less or more profitable than another, are questions often rigorously analyzed by highly-paid consultants, who may still reach mistaken conclusions. There may be multiple causes for a loss. ... The difficulties of a claimant's providing evidentiary support and the claims administrator's investigating the existence and degree of nexus between the loss and the disaster in the Gulf could be overwhelming. The inherent limitations in mass claims processing may have suggested substituting certification for evidence, just as proof of loss substituted for proof of causation. ...

In re Deepwater Horizon, --- F.3d ----, 2014 WL 841313, *5 (5th Cir. 2014). 

Readers may also be interested in a Bloomberg News article by Laura Calkins and Jeff Feeley entitled BP Must Live with $9.2 Billion Oil Spill Deal, Court Says.  In other BP news, looks like it can drill in the Gulf of Mexico again, according to the NYTimes. 

ADL

Why the GM Litigation May Not Be Your Usual Products Case

Hilary Stout of the New York Times reports in a piece today called "Lawyers Prepare for GM Suits with Novel Strategies."    The issue may be not just products liability, but fraud in the working out of the GM Bankruptcy.

ADL

SDNY Finds Ecuador Judgment Unenforceable in Chevron Environmental Litigation

Judge Lewis Kaplan entered judgment today in favor of Chevron in the long-running dispute concerning environmental liability for oil pollution in the Oriente region of Ecuador. The court, after a bench trial, found that plaintiffs' attorney Steven Donziger and his team engaged in fraud and corruption in obtaining a $9.5 billion judgment in Ecuador. Judge Kaplan ruled that the Ecuador judgment is unenforceable in the United States and that Donziger may not benefit from the judgment. Undoubtedly, this dispute isn't over, as Donziger surely will appeal to the Second Circuit. And the outcome cannot have been much of a suprise to the parties, given the clarity of Judge Kaplan's views based on his past rulings in this dispute. But by any measure, today's judgment is a huge moment in the Chevron-Ecuador litigation. 

Judge Kaplan's opinion -- all 485 pages and 1842 footnotes of it -- is attached here (Download ChevronSDNYopinion030414). And the judgment, which spells out exactly what the court ordered, is here (Download ChevronSDNYjudgment030414). Judge Kaplan found that Donziger and his team submitted fraudulent evidence, used a partisan as a supposedly impartial expert, and offered to bribe the judge. The opinion does not mince words:

Upon consideration of all of the evidence, including the credibility of the witnesses – though several of the most important declined to testify – the Court finds that Donziger began his involvement in this controversy with a desire to improve conditions in the area in which his Ecuadorian clients live. To be sure, he sought also to do well for himself while doing good for others, but there was nothing wrong with that. In the end, however, he and the Ecuadorian lawyers he led corrupted the Lago Agrio case. They submitted fraudulent evidence. They coerced one judge, first to use a court-appointed, supposedly impartial, “global expert” to make an overall damages assessment and, then, to appoint to that important role a man whom Donziger hand-picked and paid to “totally play ball” with the [Lago Agrio plaintiffs]. They then paid a Colorado consulting firm secretly to write all or most of the global expert’s report, falsely presented the report as the work of the court-appointed and supposedly impartial expert, and told half-truths or worse to U.S. courts in attempts to prevent exposure of that and other wrongdoing. Ultimately, the [Lago Agrio plaintiff] team wrote the Lago Agrio court’s Judgment themselves and promised $500,000 to the Ecuadorian judge to rule in their favor and sign their judgment. If ever there were a case warranting equitable relief with respect to a judgment procured by fraud, this is it.

 

The ruling does not purport to bar enforcement of the judgment outside the United States. Rather, it bars enforcement of the judgment in any U.S. court, and in Judge Kaplan's words, it "prevent[s] Donziger and the two LAP Representatives ... from profiting in any way from the egregious fraud that occurred here." The plaintiffs have sought to enforce the Ecuadorean judgment in Canada, Brazil, and Argentina; it will be interesting to see what effect the SDNY decision might have on enforcement of the judgment in those countries.

In the SDNY litigation, Chevron asked the court to focus on the conduct of the plaintiffs' lawyers, while Donziger wanted to focus on the company's environmental liability for harm in the Oriente region of Ecuador. Judge Kaplan, in ringing language about the integrity of the judicial process, made it clear where he stands:

The issue here is not what happened in the Orienté more than twenty years ago and who, if anyone, now is responsible for any wrongs then done. It instead is whether a court decision was procured by corrupt means, regardless of whether the cause was just. An innocent defendant is no more entitled to submit false evidence, to coopt and pay off a court-appointed expert, or to coerce or bribe a judge or jury than a guilty one. So even if Donziger and his clients had a just cause – and the Court expresses no opinion on that – they were not entitled to corrupt the process to achieve their goal.

 

The painful irony of the Chevron-Ecuador litigation is this: The plaintiffs originally brought their claims in the United States -- in the Southern District of New York. They were dismissed on grounds of forum non conveniens. In other words, the U.S. legal system told the plaintiffs that they should litigate this dispute in Ecuador. Which is exactly what they did. And they won big. And today the Southern District of New York has told the plaintiffs that their Ecuador judgment is corrupt and unenforceable. As I have written elsewhere, the forum non conveniens dismissal made sense in this case. And parties must be able to challenge the enforceability of judgments on grounds of fraud and corruption. But if this is how the Chevron-Ecuador litigation ends (which remains to be seen), isn't there something deeply unsatisfying and mind-blowingly inefficient about such an ending to a two-decade litigation over serious environmental claims?

HME

LSU Symposium on Multidistrict Litigation

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

 

ECB

Goldberg & Zipursky on the fraud-on-the-market doctrine

Torts scholars John Goldberg (Harvard) and Benjamin Zipursky (Fordham) have written a thoughtful analysis of the fraud-on-the-market issue that the Supreme Court will consider this week when it hears oral argument in Halliburton v. Erica P. John Fund. They gave me permission to post their analysis here, which I thought readers would find worthwhile. By breaking down the issues in fraud-on-the-market securities class actions, Goldberg and Zipursky help clarify the link between a defendant's allegedly wrongful conduct and widespread harm that plaintiffs allege was caused by that conduct -- a link that is at the core of mass tort disputes as well as securities litigation.

HME

 

Parsing Reliance in Securities Fraud

John C.P. Goldberg, Harvard Law School
Benjamin C. Zipursky, Fordham Law School

         In Halliburton v. Erica P. John Fund, Inc., to be argued before the Supreme Court on March 5, the Justices could drastically curtail federal-court class-action lawsuits for securities fraud.  At issue in Halliburton is the Supreme Court’s 1988 decision in Basic v. Levinson.  Basic held that it is not necessary for investors such as the Erica P. John Fund to prove that they actually read and relied upon the particular fraudulent statements alleged to have caused the their losses.  Public misstatements by a company like Halliburton have the capacity to defraud the market as a whole and distort the prices for all investors.  Basic’s “fraud-on-the-market” theory, as it is called, affords investors who can prove that the defendant made misrepresentations about important matters a presumption that the misrepresentations negatively affected the stock’s value.    It is widely agreed that, without Basic’s presumption, securities fraud suits could rarely proceed as class actions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          For a variety of reasons – the fact that Congress has weighed in extensively on securities fraud and left Basic untouched, the substantial pro-defendant changes that the Court and Congress have already made to securities fraud law, the expressed wishes of the S.E.C. to retain Basic because of the indirect regulatory force private actions supply, and the value of stare decisis – we think the Court would do best to leave Basic intact.    It appears, however, that while some of the Justices may be similarly inclined, others are leaning toward overruling Basic, and others may be looking for a middle ground.   With the fate of Basic in play, it is worth getting clear on some aspects of fraud-on-the-market doctrine that have typically been confused, and were in fact confused in Justice Blackmun’s Basic opinion itself.

The first and most important point to make about Basic’s so-called “presumption of reliance” is that it is not one presumption (as we have explained in a recent article offering a detailed analysis comparing securities fraud to common law fraud, see John C.P. Goldberg & Benjamin C. Zipursky, The Fraud-on-the-Market Tort, 66 Vanderbilt L. Rev. 1756 (2013)); Basic’s “presumption” is actually two presumptions (both favoring plaintiffs) and one affirmative defense (favoring defendants).   Thus, if the Court decides to rethink “the presumption of reliance,” it will actually be rethinking two or three ideas, not one.  

Basic’s first presumption allows a plaintiff to establish a legally cognizable injury by establishing that she bought or sold securities at a market price that was distorted by the defendant’s misrepresentations.  This is an important departure from common law fraud, the tort from which the law of securities fraud has evolved.  In a suit for common law fraud, it is critical for the plaintiff to establish that she, personally, made a decision in reliance on the information contained in the defendant’s misrepresentations.  This is because the core injury at the heart of common law fraud is an interference with a person’s right to make decisions free from deception.  Basic’sso called “presumption” of reliance – like many presumptions in the law – departed substantively from this aspect of the common law.  A securities fraud plaintiff need not demonstrate that she was misled into believing that certain false propositions were true.  Instead, according to Basic, she need only prove economic loss caused by the misrepresentation—that she bought or sold the defendant’s stock at a price distorted by the defendant’s misrepresentations, irrespective of whether she ever learned of the content of the defendant’s false statements.

            Basic’s second presumption is evidentiary rather than substantive.   It allows securities fraud plaintiffs to use a certain kind of circumstantial evidence to prove that the defendant’s misrepresentations in fact distorted market prices.   If a misrepresentation is “material” and disseminated to the public, and if the securities are sold on an “efficient” market, it will be presumed that the misrepresentation caused a price distortion.  Like many evidentiary presumptions, the materiality-based presumption of price distortion may be rebutted by evidence that the misrepresentation had no effect. 

            Justice Blackmun’s opinion in Basic also bundled a third idea into the so-called “presumption of reliance,” but this idea is actually an affirmative defense for the defendant, one akin to the consent defense to the tort of battery and the assumption of risk defense to the tort of negligence.   Even if it is established that the defendant’s misrepresentations caused a price distortion and a loss to the plaintiff, the defendant can nonetheless escape liability by proving that the plaintiff was actually aware of the falsity of the misrepresentation and chose to engage in the market transaction nevertheless.  Defendant Halliburton’s petition to overrule Basic has nothing to do with this third aspect of Basic.

Halliburton’s challenge to Basic’s presumption of reliance relates to the combination of the substantive and evidentiary presumptions described above.   The Court in Basic allowed that materiality (given an efficient market) was enough, from an evidentiary point of view, to create a rebuttable presumption of price distortion, and it additionally concluded – as a substantive matter – that distortion suffices to replace the impact-on-plaintiff finding that reliance fulfills in the common law tort of fraud.   It is these two ideas, taken together, that have permitted securities fraud plaintiffs to go forward without direct proof of reliance.   Crucially, although Basic itself describes the combined effect of these two presumptions as establishing indirect proof of reliance, that description is inaccurate. Taken together, they instead amount to indirect proof of distortion, not of reliance. 

            Clarifying the distinction between the evidentiary and substantive aspects of the presumption in Basic is critical for evaluating what is and what is not at issue in Halliburton.   Halliburton contends that Basic should be overruled because the efficient-market hypothesis has been rejected by economists during the quarter century since Basic was decided.   Whether the efficient-market hypothesis actually has been rejected is a highly contentious issue.  Even assuming, however, that it is unsound, that affects only the evidentiary aspect of the presumption of reliance—that is, only the part of Basic which states that material representations in an open market will be reflected in the market’s pricing of securities, and hence can be presumed to have distorted their price.  If the evidentiary side of Basic is rejected or modified, that still leaves intact the substantive side of the presumption of reliance – the side which states that price distortion caused by the misrepresentations will suffice in place of individual reliance.  

Appreciating the irrelevance of the efficient-market hypothesis to the substantive side of Basic is critically important for two reasons.   First, the substantive side of Basic has received little cogent criticism over the decades.  The courts that first recognized private rights of action under federal securities laws did so on the ground that those laws were established in the midst of the Great Depression to protect investors from losses resulting from deceptive practices.  Under these circumstances, it was eminently sensible for these courts to interpret federal law as including an individual right to be free from economic harm caused by deceptive practices, whether through price distortion or individual reliance.   And since then, both Congress and the Court have shown a steady commitment to the substantive side of Basic.

Second, price distortion is a common issue of fact in securities fraud litigation.  This means that the securities defense bar’s effort to undermine securities class actions through a critique of the efficient-market hypothesis is misconceived.   The alleged shakiness of the efficient-market hypothesis is an argument against the evidentiary side of Basic, not against its substantive side.   But the substantive side --  the move from reliance to price distortion – is what makes class actions an appropriate vehicle for 10b-5 claims.   If the Court is truly persuaded by the efficient-market hypothesis critique, and is not moved by stare decisis or any other reasons to leave Basic untouched, then it is, at most, the evidentiary side of the presumption of reliance that might bear revisiting.  Of course, new questions might then arise at or before trial as to whether event studies or other sorts of evidence will suffice to establish price distortion, but that is a different matter, unconnected to the general question of whether distortion-based 10b-5 claims can be adjudicated as class actions.   

            The wrong of causing economic loss through misrepresentations that distort market prices is not identical to common law fraud.  But it is closer to what Congress actually sought to protect in the Securities Exchange Act, it is consistent with what Congress has very thoughtfully kept alive in its more recent securities legislation, and its justifiability has nothing to do with the soundness of the efficient-market hypothesis.    So long as this wrong remains the core of 10b-5 claims, class actions will continue to be an appropriate means for resolving them.