Usually, we comment on stuff that affects us.
That’s way too limiting.
Today, we’re going to comment on something that doesn’t affect us at all.
Here’s the spat, which we both observed last week at the annual meeting of the American Law Institute: Historically, the decision whether to settle a lawsuit has been reserved exclusively to the client. It’s not the lawyer’s decision, or a co-plaintiff’s (or co-defendant’s) decision, or anyone else’s decision. The client alone decides whether to settle.
That rule can make life tricky in mass tort litigation. Assume the defendant, BigCo . . . . No! Wait! It’s our blog, and we refuse to buy into that routine. We’re calling the defendant GoodCo. No! HeavenlyCo. That’s the ticket — HeavenlyCo.
Okay — we have that out of the way.
Our hypothetical plaintiffs’ counsel represents 100 plaintiffs. Suppose HeavenlyCo wants to buy global peace — with all 100 plaintiffs, thus putting the litigation behind it. If only 99 plaintiffs agree to accept the settlement, the one holdout may be able to receive a bigger settlement by threatening to torpedo the whole 100-plaintiff deal. That plaintiff enriches himself or herself simply by being part of a group.
Or suppose HeavenlyCo wants to settle a whole collection of cases with groups of plaintiffs represented by many different counsel. HeavenlyCo wants some protection against plaintiffs’ counsel recommending that their clients with crappy cases accept the settlement, but recommending that the clients with strong cases refuse it. If that occurs, the defendant has paid a lot of money to resolve litigation, and the nasty part of the litigation remains outstanding.
It’s easier to resolve mass tort litigation if it’s possible to negotiate global peace. The rule of ethics that gives each client control over whether to accept a settlement causes the problem of strategic holdouts.
At this point, the smart guys at the American Law Institute enter the room. They propose a draft “Principle of the Law of Aggregate Litigation” that would allow an individual plaintiff to “agree in advance to be bound in a proposed settlement by the collective decisionmaking of a substantial majority of the claimants represented by one lawyer or group of lawyers who are covered by the proposed settlement.” Principles of the Law of Aggregate Litigation (Tentative Draft No. 1) at Sec. 3.17(b).
Voila! No more strategic holdouts or inability to negotiate global peace. So long as a proposed deal is acceptable to a supermajority of the clients of one lawyer, all of the clients are bound.
Here’s an illustration:
A plaintiff claims to have been hurt by HeavenlyCo’s product. Let’s call it . . . AngelStuff. We like that — AngelStuff.
A plaintiff’s lawyer has already signed up 99 other AngelStuff plaintiffs. This new plaintiff comes in and is asked to sign a retention agreement that says, for example, “HeavenlyCo and plaintiffs’ counsel may find it mutually beneficial to settle all of counsel’s AngelStuff claims at the same time. In that situation, so long as 75% of counsel’s AngelStuff clients vote in favor of accepting the settlement, then you agree that you will be bound by that 75% vote and will settle your case on the proposed terms.”
A bunch of folks at the ALI raised a ruckus, saying that (1) all extant ethics rules require that the client, not the lawyer, decide whether to accept a settlement, (2) other ALI projects (such as the Law Governing Lawyers) are generally designed to protect clients, not to shift power in favor of lawyers, (3) unsophisticated clients will never fully understand, when they’re at the beginning of a case and just hiring a lawyer, the true implications of what they’re signing, yada, yada, yada.
The Reporters of this project respond: (1) Clients often benefit by being represented by a plaintiffs’ lawyer who controls a large inventory of cases. That lawyer may obtain a better settlement for the group of cases than a lawyer representing just one client would obtain. (2) This new rule leaves the decision whether to settle in the hand of the clients, not the lawyer. It is expressly a super-majority of the clients, not the lawyer, who decide whether to accept a settlement. (3) The proposed new rule has many protections built in (which it does) to protect clients’ rights. (4) Clients are allowed to waive things like the right to a jury trial and other constitutional rights. Surely clients can waive individual control over whether to accept a settlement offer. Anti-yada, anti-yada, anti-yada.
We basically have no horse in this race. We represent defendants, so we don’t often meddle with the rights of plaintiffs when they’re retaining counsel. We have an academic (and ethical) interest in the relationship between plaintiffs and their counsel, but it’s not really our turf.
Defense lawyers are of two minds as to whether they want it to be easier (or possible at all) to settle mass tort litigation. Some defense lawyers say they want it to be easier to settle these cases — they’re going to be filed; there should be a way to end them.
Other defense lawyers say that if the cases couldn’t be settled, maybe fewer of them would be filed.
We won’t take sides on that.
But we did have a couple of reactions to the ALI debate: First, the Reporters’ suggestion that the ALI proposal leaves the decision whether to settle in the hands of the clients is hokum. Clever, elegant hokum, but hokum nonetheless.
When a plaintiffs’ lawyer wants to agree to a settlement, that lawyer will surely be able to convince the vast majority of his or her clients to accept the settlement. The lawyer, after all, understands the law, is an authority figure, is the client’s route to recovery, and holds all the cards. The client in a mass tort is some guy off the street who says that AngelStuff gave him a bad cough. You can say that the ALI provisions leave the decision in the hands of the clients, but you’re fooling yourself. As a practical matter, it just ain’t so.
Second, the clients are, in fact, very unlikely to understand the implications of the retention agreement they’ll be offered under the ALI proposal. It’s true that clients are permitted to waive a right to jury trial — but when they make that decision, they’re being advised by a lawyer who doesn’t have an inherent conflict of interest. When clients are being asked by counsel to sign the new-form retention agreement, the lawyer wants the client to sign and so is not exactly a neutral adviser.
You could fix that by insisting that clients retain separate counsel to advise them whether to sign the retention agreement. But that solution makes the legal environment awfully expensive and complicated.
Finally, the question really isn’t whether the new ALI proposal is perfect. The question is whether the new ALI proposal is better than what currently happens when mass torts are being settled. And we suspect, but we don’t know, that there may be some pretty coercive stuff going on under current law when plaintiffs’ counsel are trying to bring their strategic holdout clients into line. The ALI proposal may not be perfect, but it may well be better than the current reality.
Ultimately, the ALI did not vote on this provision, but rather approved certain other sections of the Principles and chose to defer consideration of this provision until next year.
That’s not a bad solution. It’ll give us time to make up our minds how to vote.