After the MDL Panel coordinates a bunch of product liability cases, the transferee court is likely to appoint lead and liaison counsel for plaintiffs. Those lawyers often take the lead in conducting MDL-wide discovery, and they also “perform functions necessary for the management of the case but not appropriately charged to their clients.” Manual for Complex Litigation (Fourth) Sec. 14.125, at 202 (2004).

How are those folks paid for their efforts?

MDL transferee courts often create “common benefit funds.” Courts require settling parties to pay a small percentage of the settlement proceeds into that fund, and the fund is then used to reimburse lead and liaison counsel (and possibly others) periodically.

Lots of people don’t like those funds, for lots of different reasons. Many plaintiffs’ lawyers refer to those common benefit assessments as an “MDL tax” and choose to file their cases in state court, rather than federal, to avoid the MDL and, they hope, to avoid the tax.

The idea is that a federal court has jurisdiction to tax only cases pending before it. A federal court thus lacks power to tax a state court settlement.

Is that right?

MDL transferee courts may believe that the MDL lead and liaison counsel are doing work that benefits all plaintiffs — state and federal alike — so even state court settlements should contribute to the common benefit fund. A transferee judge may order, for example, that the settlement tax applies to all state court cases being handled by a plaintiffs’ lawyer who has even one case pending in the federal MDL, or to all state court cases being handled by a plaintiffs’ lawyer who has signed an agreement to cooperate with the MDL process. That type of order seemingly extends the MDL tax to cases over which the federal court lacks jurisdiction. Is that allowed?

In In re Showa Denko K.K. L-Tryptophan Prods. Liab. Litig. — II, 953 F.2d 162 (4th Cir. 1992), the MDL transferee court assessed an MDL tax on “actions venued in state courts, untransferred federal cases, and any unfiled claims in which any MDL defendant is a party or payor.” Id. at 166. The Fourth Circuit reversed in part, because an MDL transferee court lacks jurisdiction over cases that have not been transferred to it. Showa Denko has since been cited with approval by In re Baycol Prods. Liab. Litig., 2004 WL 1058105 (D. Minn.), and In re Linerboard Antitrust Litig., 292 F. Supp. 2d 644 (E.D. Pa. 2003).

We won’t pass judgment on this issue (because, frankly, we have no idea where the bread may be buttered in some later case, so we’re forced to be agnostic), but it’s worth noting a procedural quirk:

When the MDL court is entering an order to establish a common benefit fund, the court will hear only from the parties before it — the MDL plaintiffs and MDL defendants. The issue in dispute, however, primarily affects people who are not present in the MDL court — plaintiffs and their lawyers who have filed cases in state court.

That’s an awkward situation for a court, and it thus require special thought.

MDL transferee courts that are asked to create common benefit funds should consider how to protect the rights of lawyers and litigants who are not appearing in the MDL court, but who may be affected by entry of an order creating the fund.