Professor Howard Erichson, of Fordham Law School, has posted on SSRN (here) and discussed at the Mass Tort Litigation Blog (here) his new paper, “The Trouble With All-Or-Nothing Settlements.” Erichson’s thesis is that defendants’ demands for global peace in mass torts create ethical tensions.
The abstract describes the seven tensions:
“First, all-or-nothing settlements create client-client and lawyer-client conflicts of interest. Second, such settlements exacerbate problems concerning the allocation of settlement funds, including incentives to misallocate. Third, they create a risk of strategic hold-outs as savvy clients may attempt to extrt additional money by withholding consent. Fourth, they create an incentive for lawyers to keep settlement money in reserve as a slush fund to ensure full participation, leading to problems of misallocation and client deception. Fifth, they generate loyalty problems by pressuring lawyers to withdraw from representing non-settling clients. Sixth, they create special problems concerning clients’ informed consent to aggregate settlements. And seventh, they introduce a risk of collusion as the interest of plaintiffs’ counsel aligns with the defendant’s interest in getting every plaintiff to sign on to the deal.”
Although the abstract doesn’t make this clear, the text of the article correctly notes that those ethical tensions are all on the plaintiffs’ side of the “v”: The defendant demands global peace in a mass tort, and plaintiffs’ counsel must then struggle with their ethical obligations.
(We struggled mightily with several versions of a concluding sentence to the preceding paragraph, and then decided that silence was the only was to control ourselves. We want a prize for self-restraint.)
Erichson’s proposed solution is that parties might negotiate “most-or-nothing” settlements — in which, say, 90% of mass tort claimants must participate — to reduce these ethical tensions.
That’s nice in theory, but much tougher in practice.
Defendants want global peace for good reasons. If defendants buy 90% peace, then the 90% of the plaintiffs with crappy claims take the dough, and the 10% of the plaintiffs with more legitimate cases choose not to participate. The settlement thus costs the defendant a lot of money, but it doesn’t cure the headache.
Erichson would say, we assume, that the cost of the settlement should be much lower if it resolved only 90% of the claims (and none of the strong ones). And it should be. But defendants in mass torts are concerned only partly (and often only minimally) with sweeping away the chaff; they also want to identify, and deal with, the wheat.
We’re going to think harder about Erichson’s proposal. There’s more to this than what we’ve written here, and we look forward to hearing what others have to say on this subject.