Mass Tort Litigation Blog

Michael Downey on Ethical Issues Related to Incentive Payments for Class Representatives

As part of the ABA Sound Advice series, Michael Downey (Armstrong, Teasdale) addresses ethical issues related to incentive payments for class representatives.

BGS

D. Theodore Rave on Governing the Anticommons in Aggregate Litigation

D. Theodore Rave (Furman Fellow, NYU) has posted his article, Governing the Anticommons in Aggregate Litigation, to SSRN.  Here is the abstract:

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.

BGS

Chevron, Ecuador, and Allegations of Misconduct

In yesterday's Wall Street Journal, Mary Anastasia O'Grady has an article, Chevron's Ecuador Morass: The U.S. oil company charges that the $18 billion judgment against it was secured by fraud, which discusses Chevron's attempts in federal district court in Miami to obtain records to show bribery of a court expert.

Another article in today's Wall Street Journal discusses recent decisions from the Southern District of New York. In one opinion, the court allowed certain claims by Chevron, including RICO claims, to proceed against attorney Steven Donziger in connection with Donziger's alleged role as advisor in the Ecuadoran lawsuit, but in the other opinion, the court denied Chevron's motion to attach various assets. 

BGS 

Businesspersons in Law Firms

Interesting article in today's Wall Street Journal on the increasing influence of businesspersons in managing law firms -- Practicing Business: Professional Managers Gain Wider Presence at Law Firms, by Jennifer Smith and Ashby Jones.  As defense firms expand their offices globally and sometimes exceed a billion dollars in annual revenue, business expertise is clearly beneficial, but must be integrated with professional ethical responsibilities and firm culture.  Not discussed in the article are the possible benefits to plaintiffs' firms in including businesspersons.  Increasingly, plaintiffs' firms in mass torts are collaborating globally, as well, and might benefit from specialized business insight.  

BGS

Sixth Circuit Affirms Kentucky Fen-Phen Convictions

On Tuesday, the Sixth Circuit U.S. Court of Appeals affirmed the convictions and sentences of William Gallion and Shirley Cunningham for their handling of a massive settlement of fen-phen claims. Here is the  Sixth Circuit opinion, and here are news accounts from Thomson Reuters and Bloomberg. The lawyers had been sentenced to 25 years and 20 years, respectively. The opinion provides interesting and useful background on the diet drugs litigation and settlement, and it offers a picture of how badly things can go when mass tort aggregate settlements are mishandled. Because the Daubert exclusion of defendants' expert was an issue on appeal, the Sixth Circuit referred to my trial testimony as an expert on behalf of the United States -- I don't know whether I should be offended or flattered that I was accused of espousing ivory tower ideals, but I take some solace in knowing that the court thought the ivory tower had it right.

HME

Hermann on Aggressive Lawyering

A great post on Above the Law by Mark Hermann (formerly of Drug and Device Law Blog & Jones Day) today explains why a blowhard isn't necessarily the best lawyer.

ADL

Catherine Sharkey on the Vicissitudes of Tort

Professor Catherine Sharkey (NYU) has posted to SSRN her article, The Vicissitudes of Tort: A Response to Professors Rabin, Sebok & Zipursky.  Here is the abstract:

This response essay probes three themes that tie together three articles submitted for a tort symposium on “The Limits of Predictability and the Value of Uncertainty.” First, I explore the use of unpredictability as a code word for an assault on tort doctrine in response to an out-of-control tort system. In his historical account of the evolution of tort, Professor Rabin focuses on the canonical “no duty” rules of the nineteenth century and the contemporary rules-based limitations on open-textured liability in the twentieth century. But largely missing from this account is the story of rules promoting tort liability, such as strict liability, vicarious liability, negligence per se, and the like. Second, I probe the link between unpredictability and insurance. I argue that Professor Sebok’s efforts to distinguish champerty from illegal gambling and to analogize it to a form of insurance will inevitably fall short of establishing social acceptance or embrace of the practice. Third, I highlight the role of the U.S. Supreme Court and its incursions into the state law domain of tort in the name of predictability. Professor Rabin is doubtful that the U.S. Supreme Court will achieve great strides in its endeavor to quell unpredictability in punitive damages. Professor Zipursky has considerable angst about the Court’s making inroads into privacy and emotional distress torts. Such incursions are in keeping with the Court’s longer-term project of procedural reform of the civil litigation system in the name of unpredictability, but are novel in their ambition to launch frontal attacks.

BGS

Fordham Lecture on Third-Party Litigation Funding by Lisa Rickard fo U.S. Chamber Institute for Legal Reform

Lisa Rickard, the President of the U.S. Chamber Institute for Legal Reform, will present the 2012 Noreen E. McNamara Memorial Lecture at Fordham Law School in New York.  Her lecture is entitled, The Commercialization of Legal Practice: Legal and Ethical Perils of Third-Party Litigation Funding, and the lecture will take place at 6:00 p.m., February 28, 2012.

BGS

Zamir, Medina, and Segal on the Uniformity of Lawyers' Contingent Fee Rates

Eyal Zamir (Hebrew Univ.), Barak Medina (Hebrew Univ.), and Uzi Segal (Boston College, Economics) have posted to SSRN their article, The Puzzling Uniformity of Lawyers’ Contingent Fee Rates: An Assortative Matching Solution.  Here is the abstract:

Lawyers’ Contingent Fee (CF) rates are rather uniform, often one-third of the recovery. Arguably, this uniformity attests to collusion in the market, resulting in clients paying supra-competitive fees. This paper challenges this common argument.

Uniform CF rates are not necessarily superior to negotiable ones; yet they provide clients with an important advantage. They result in clients making a defacto “take-it-or-leave-it” offer. It precludes lawyers from exploiting their private information about the lawsuit’s expected value and the amount of work it requires. The uniformity of CF rates enables clients to hire the best available lawyer, either directly, if clients know lawyers’ ranking, or indirectly, through the referral system. This uniformity thus fosters a positive assortative matching of lawyers and clients. Finally, the fact that both direct clients and clients obtained through paid-for referrals pay the same CF rate does not attest to cross-subsidization, as the cases a lawyer gets through referrals are quite different than those she gets directly.

 BGS

Chevron Appeals $8.6 billion Judgment to Ecuador's National Court

CNN reports that Chevron has appealed the $8.6 billion environmental judgment to Ecuador's National Court.  The case has been closely watched not only for its high dollar amounts, but for the questions raised by Chevron about the integrity of Ecuador's courts.  Questions of foreign-court bias may be more frequent as mass tort litigation increasingly becomes global tort litigation, and disputes against large, deep-pocketed corporations are brought by foreign claimants in foreign courts.

BGS

Federal Government to Require Pharmaceutical Company Reporting of Payments to Doctors

The New York Times reports that under new regulations to be announced by the Obama administration, pharmaceutical companies will have to report payments to non-employee doctors for "research, consulting, speaking, travel and entertainment."  The reporting requirements are to cover any company that has a product covered by Medicare or Medicaid, and the reporting information is to be subsequently posted by the government on a publicly accessible website.

BGS 

Fight Ensures over Attorneys' Fees in BP Oil Spill MDL

Yesterday's NY Times had an article by John Schwartz titled, "Plaintiffs' Lawyers in a Bitter Dispute Over Fees in Gulf Oil Spill Cases."  The article chronicles the now typical battle over attorneys' fees in multidistrict litigation where judges compensate Plaintiffs' Steering Committee members from other attorneys' fee awards.  This dispute is particularly bitter; the steering committee is asking for fees not just from those involved in the federal multidistrict litigation, but from those who negotiated their own recoveries from the privately administered Gulf Coast Claims Facility.

ECB

Fifth Annual Conference on the Globalization of Class Actions and Mass Litigation at The Hague

The Fifth Annual Conference on the Globalization of Class Actions and Mass Litigation is being hosted by Tilburg University and will be held on December 8-9, 2011 in The Hague, Netherlands.  The conference is being organized by Professors Deborah Hensler (Stanford Law School), Christopher Hodges (Oxford Centre for Socio-Legal Studies and Erasmus University), and Ianika Tzankova (Tilburg University).  Master claim administrator Kenneth Feinberg is delivering the keynote speech.

BGS  

Morris Ratner on A New Model of Plaintiffs' Class Action Attorneys

Morris Ratner (Harvard) has posted to SSRN his article, A New Model of Plaintiffs' Class Action Attorneys, Rev. Litig. (forthcoming).  The article presents a nuanced, updated portrait of plaintiffs' class action firms today that challenges prior conceptions of class-counsel bias.  Here's the abstract:

This Article offers a new model for conceptualizing plaintiffs’ class action attorneys, and thus for understanding principal-agent problems in class action litigation. It responds to the work of Professor John C. Coffee, Jr., who, in a series of influential articles, demonstrated that principal-agent problems may be acute in class action litigation because class members lack the information or financial incentive to monitor class counsel; class counsel is thus free to pursue his own interests at the expense of the class members. But what are those interests, and how do they diverge from the class members’ interests? Professor Coffee provided one answer to this sub-set of questions, presenting a conventional account of class counsel and the precise parameters of his disloyalty corresponding with three descriptive assertions: that class counsel is either a solo practitioner or in a small firm; that he is predominantly interested in maximizing his law firm profit; and he capably pursues his fee-maximizing goal by investing his time in cases based on confident predictions about expected fees. In this Article, I articulate an updated and competing conception of the dominant class action attorneys and firms: the leading firms today are relatively large and internally complex; law firm structural complexity creates diverse incentives other than maximization of law firm profit; and class counsel invest time in cases for complex reasons other than the effect on expected fees, particularly because fees are notoriously difficult to predict. Modeling class counsel to recognize this complexity has three virtues: it better reflects the actual characteristics of the most significant class action attorneys, and hence is a more accurate descriptive tool; as such, it enables a more precise understanding of the extent and nature of agency or loyalty problems; and thus, finally, it provides a more solid basis for reforms. In particular, this new model sheds insight on the importance of direct versus incentive-based regulation to manage agency costs in class actions. In light of the diverse incentives this new model reveals, direct regulation of outcomes by trial courts using enhanced final approval standards should be a central part of any package of reforms to manage agency costs in class litigation.

BGS

All or Nothing Aggregate Settlements in Trouble

(With apologies to HME for stealing his title)

The Second Circuit last week (just in time for the Jewish New Year) decided Johnsons v. Nextel Communications, Inc., -- F.3d -- , 2011 WL 4436263 (2d Cir. Sept. 26, 2011) .  You can find the opinion here.  That case involved an aggregate settlement with all kinds of schenanigans that our own Howard Erichson described in his article "The Trouble With All or Nothing Settlements." (download it while its hot! ...as they say....)

The Second Circuit allowed the clients to sue the lawyers on a broad breach of fiduciary duty theory.  The clients may also sue the defendants on an "aiding and abetting" theory.

I learned from this opinion from Adam Zimmerman (St. John's) who has also blogged about it on the ADR Prof Blog. 

ADL

RAND Reports on Asbestos Bankruptcy Trusts and Tort Compensation

RAND's Institute for Civil Justice last week released its report, Asbestos Bankruptcy Trusts and Tort Compensation, by Lloyd Dixon and Geoffrey McGovern.  Here's the summary:

Payments by asbestos bankruptcy trusts have played an increasingly important role in compensating asbestos injuries and have become a matter of contention between plaintiff and defense attorneys. At issue is how tort cases take into consideration compensation paid by trusts and the evidence submitted in trust claim forms. This monograph examines how such evidence and compensation are addressed by state laws and considered during court proceedings. It also examines how the establishment of the trusts potentially affects plaintiff compensation from trusts and the tort system combined, payments by defendants that remain solvent, and the compensation available to future, as compared to current, plaintiffs. The authors find that the potential effects of trusts' replacement of once-solvent defendants are very different in states with joint-and-several liability than in states with several liability. In states with joint-and-several liability, total plaintiff compensation should not change. In several-liability states, the replacement of once-solvent defendants by trusts can cause total plaintiff compensation to increase, decrease, or remain unchanged. The findings underscore the importance of information on plaintiff exposure to the products and practices of the bankrupt firms in determining the trusts' effects on plaintiff compensation and on payments by defendants that remain solvent. 

RAND also published the shorter Research Brief, Bankruptcy Trusts, Asbestos Compensation, and the Courts, by the same authors.  

BGS

Potential Solutions for the Frivolous Lawsuit -- Of Rule 11 Proposals and Loser Pays

The U.S. Chamber of Commerce is arguing in favor of the Lawsuit Abuse Reduction Act, which is pending in the House and would change Rule 11 back to its pre-1993 mandatory sanctions approach and remove the current 21-day "safe harbor" for a litigant to withdraw challenged filings.  In the 1980s, I believe the mandatory-sanctions/no-safe-harbor regime was blamed for increasing costly satellite Rule 11 litigations brought by both plaintiffs and defendants who perhaps in an excess of zeal repeatedly argued that the other side's positions were utterly meritless and frivolous.

The U.S. Chamber of Commerce also suggests that the Lawsuit Abuse Reduction Act would make it easier for parties challenging to recover their attorneys' fees.  That modification raises the larger question of "loser pays" as a broad and perhaps more effective way to deter frivolous lawsuits.  Under loser pays, the party that loses in a litigation must pay the attorneys' fees of the prevailing party. Followed in much of the world outside the U.S., loser pays deters frivolous litigation by removing much of the litigation costs that are used as a weapon to extract a nuisance-value settlement.  For example, if it costs a defendant $50,000 in legal fees to obtain a ruling that a lawsuit is meritless, a plaintiff lawyer might offer to settle with the defendant for $25,000 -- less than it costs to litigate to a judge ruling.  Unless the defendant thinks the plaintiff lawyer will turn around and sue the defendant again, the defendant may well choose the $25,000 settlement, even if the lawsuit seems clearly meritless or frivolous.  But the $25,000 settlement may sufficiently compensate (via contingency fee) the plaintiff lawyer to incentivize the plaintiff lawyer to file another meritless claim against another defendant, and indeed, the plaintiff lawyer might even develop a successful business in frivolous claims.  In contrast, if a loser-pays rule applies, defendant might well reject the $25,000 settlement and elect to spend $50,000 to obtain a court ruling exposing and dismissing the frivolous claim, also confident that the defendant can seek to recover the $50,000 in attorneys' fees from the plaintiff under the loser-pays rule.  Moreover, ex ante, the plaintiff lawyer in a loser-pays jurisdiction should decline to even file a meritless claim, because the plaintiff lawyer would expect that the defendant would refuse a nuisance settlement and instead litigate to a ruling that will impose defendant's attorneys' fees on the plaintiff.  The presence of loser pays is often cited as one reason that countries outside the United States have less litigation -- see, e.g., John Stossel, When Lawyers Become Bullies, Real Clear Politics (April 8, 2008).

One significant objection to loser pays is that impecunious plaintiffs will elect never to file their claims not because their claims are frivolous, but because they are risk averse about the possibility of defendants' attorneys fees being imposed on them.  This concern is even greater in tort litigation, where injured plaintiffs are regular folks whose finances may already be strained by an injury.  So the argument goes, loser pays should be rejected because these impecunious plaintiffs will not file what are meritorious suits -- and access to justice is denied.

But what if the cost of loser pays were permitted to be shifted from a plaintiff to his or her attorney?  Plaintiff attorneys already make entrepreneurial decisions about the likelihood of success in a case when plaintiff attorneys decide whether to take a case on contingency fee and risk no reimbursement if they lose at trial or by judicial ruling.  Adding fee-shifting via loser pays would only increase the size of the bet on each case, and plaintiff firms could adjust to that larger bet by becoming somewhat larger and greater diversifying that risk, or even by gaining greater access to outside capital and loans (the latter of which is itself controversial).  Ultimately, injured plaintiffs would conceivably still have access to attorneys for meritorious cases, but having lost the threat of nuisance-value settlements and now fearing fee-shifting via loser pays, plaintiff lawyers would screen out frivolous claims and never file them.

I think there is much to recommend this market-finance-oriented version of loser pays, but of course plaintiff lawyers might resist it because it would remove the stream of income from nuisance-value settlements.  And even though they might not admit it, defense lawyers also benefit from being hired to defend frivolous cases, so they might not vigorously push such a proposal, unless their defendant clients vigorously pushed them to do so.  Ultimately, a reduction in frivolous litigation reduces the wealth of the entire bar, but the bar has no valid entitlement to enrichment by waste.  Notwithstanding lawyers' interests, Alaska has had a version of loser pays, and Texas over a month ago enacted a version of loser pays.  If Texas Governor Rick Perry enters the Republican primary as a candidate for President in 2012, loser pays as litigation reform (and tort reform) may well receive substantial national attention. That would be a good thing.

BGS

Litigation Finance: Lend to the Lawyers

BNA reports on Core Funding Group LP v. McIntire, E.D. La., Civ. No. 07-4273, 5/11/11.  In this case, the Eastern District of Louisiana Judge upheld an agreement between a mass tort lawyer and a creditor who had loaned the lawyer money to fund his part in a mass tort litigation.

Because the loan was to the lawyer, not the client, and therefore did not promote speculation or invite meddling in the lawsuit.  If you have access to BNA you can find the squib here.

ADL

Video for Mississippi College Law Review Symposium on BP Oil Spill

The Mississippi College Law Review has posted the video for its symposium, Beyond the Horizon: The Gulf Oil Spill Crisis -- Analyzing the Economic, Environmental, and Legal Implications of the Oil Spill. 

Panel One included Ms. Trudy Fisher, Executive Director, Mississippi Department of Environmental Quality; Professor Kenneth Murchison, James E. & Betty M. Phillips Professor, Paul M. Herbert Law Center Louisiana State University; and Professor David Robertson, W. Page Keeton Chair in Tort Law University Distinguished Teaching Professor, University of Texas at Austin.  The moderator for Panel One was Ms. Betty Ruth Fox, Of Counsel, Watkins & Eager.

Panel Two included Professor Jamison Colburn, Professor of Law, Penn State University; Professor Edward Sherman, W.R. Irby Chair & Moise S. Steef, Jr. Professor of Law, Tulane University; and myself.  The moderator for Panel Two was Professor Jeffrey Jackson, Owen Cooper Professor of Law, Mississippi College School of Law.

Kenneth Feinberg, claims administrator for the Gulf Coast Claims Facility, delivered the symposium Keynote Presentation.

Papers from the symposium will published in the Mississippi College Law Review.  Here's the abstract for my symposium talk and forthcoming article: 

The Gulf Coast Claims Facility set up following the BP Gulf Oil Spill might be seen as creating a new category of claims fund that might be termed a quasi-public mass tort claims fund.  Unlike purely public funds such as the 9/11 Victim Compensation Fund, or purely private funds such as are increasingly created for mass settlements as in Vioxx, the Gulf Coast Claims Facility is funded privately by BP, but bears the public imprimatur of having been initially negotiated by President Obama.  Indeed, in an Oval Office Address, President Obama promised that claims would be "fairly" paid and that the fund would "not be controlled by BP," but would instead be administered by an "independent third party."  While a quasi-public fund has the advantage of delivering swift compensation in response to an ongoing crisis, the quasi-public fund risks claimant confusion about claim-administrator independence and whether claimants should retain their own counsel to assist in evaluating fund settlement offers.  In turn, that claimant confusion can jeopardize the fund's societal savings in attorney-fee transaction costs, and lower claimant participation in the fund.  Accordingly, to minimize claimant confusion, a quasi-public fund should provide transparency in its fee structure for claims administrators, and seek a claims-administrator fee structure that minimizes bias, such as utilizing a fixed fee not subject to reevaluation or having defendant agree to a third-party panel's assessment of fees for claims administrators.  With regard to the Gulf Coast Claim Facility, claimant participation would likely be enhanced by greater transparency and use of a third-party panel to determine claim-administrator fees.

BGS 

Mississippi College Law Symposium on BP Gulf Oil Spill

On this Friday, February 18, Mississippi College School of Law will be hosting a law review symposium, Beyond the Horizon: The Gulf Oil Spill Crisis -- Analyzing Economic, Environmental, and Legal Implications of the Oil Spill.  Here's the short-form brochure:  Download MC Law Review Symposium Brochure.

Speakers include Professors Jamison Colburn (Penn State), Kenneth Murchison (LSU), David Robertson (Texas), Edward Sherman (Tulane), and Trudy Fisher (Miss. Dep't Envt'l Quality).  Moderators include Jeffrey Jackson (Mississippi College) and Betty Ruth Fox (Watkins & Eager).  Papers will subsequently be published in the Mississippi College Law Review.

I will also be speaking at the symposium, discussing issues of claim-administrator compensation, transparency, and independence in connection with the Gulf Coast Claims Facility.  My talk will expand upon my prior blog posts raising concerns (see here and here), which last summer triggered two articles in Forbes (see here and here), as well as a post from Legal Ethics Forum.  Two weeks ago, the federal MDL court overseeing the BP litigation granted in part plaintiffs' motion to have the court oversee communications by the Gulf Coast Claims Facility, and the MDL court ordered that the Gulf Coast Claims Facility may not state that it is "neutral" or completely "independent" of BP.  Here's the MDL opinion:  Download Order - Mot to Supervise GCCF Doc 1098 2-2-2011.  On the recent MDL opinion, see also this Reuters article from Moira Herbst, quoting David Logan (Roger WIlliams), Monroe Freedman (Hofstra), and me.

BGS

UPDATE -- Here's the full-length brochure for the symposium:  Download MC Law BP Symposium Handout.