In MDLs, federal courts have on an unconscionable number of occasions set up “common benefit funds” to ensure that the other side gets paid – even from the settlement of cases not before them. We’ve decried this practice as ultra vires on several occasions. Precedent that actually analyzes this issue rejects such power. In re Showa Denko K.K. L-Tryptophan Products Liability Litigation II, 953 F.2d 162, 165-66 (4th Cir. 1992) (MDL jurisdiction “is limited to cases and controversies between persons who are properly parties to the cases transferred” to it; no power to “compel contributions from plaintiffs in state or federal litigation who are not before the court and by claimants who have chosen not to litigate but to compromise their claims outside the court”); In re Genetically Modified Rice Litigation, 2010 WL 716190, at *5 (E.D. Mo. Feb. 24, 2010) (“[I]t is not allowed by the law. I have no jurisdiction over the state cases and I cannot order the defendants to withhold amounts they may end up owing the state plaintiffs”); In re OSB Antitrust Litigation, 2009 WL 579376, at *3 (E.D. Pa. March 4, 2009) (“the common fund doctrine does not afford me jurisdiction to order non-Parties . . . to pay Class Counsel’s fees”); Manual for Complex Litigation (Fourth) §22.62 (“fees . . . may not be imposed by an MDL transferee judge on attorneys in cases that are not within the jurisdiction of the MDL court”). We have yet to see a persuasive analysis of where such jurisdiction comes from, and we think that MDL judges that do this are setting themselves up for a Lexecon-like fall, should somebody seriously challenge it and get the Supreme Court interested.
But assuming for the time being that such reach is permitted at all, how far does it go? That question was recently addressed in the Vioxx MDL. In Vioxx the plaintiffs’ steering committee – having already taken a chunk of a of the substantial master settlement – decided to try for a bite of settlement agreements in litigation brought, not by them, but by governmental entities, both state and federal.
Well, the Vioxx MDL judge just cut the plaintiffs’ lawyers off at the knees. See In re Vioxx Products Liability Litigation, 2012 WL 10548 (E.D. La. Jan. 3, 2012).
The Vioxx court acknowledged substantial questions regarding jurisdiction (what we’ve complained about) and sovereign immunity, but didn’t need to decide them to deny the lawyers’ motion to take 6.5% of all Vioxx settlements involving governmental entities. Id. at *3. Holding that the steering committee’s motion to put those funds in escrow must be judged by the stringent standards for a preliminary injunction, id. at *2-3 (in itself a useful ruling), the court held, essentially, that there was no proximate cause between the “benefit” the steering committee claimed and the governments’ eventual settlement.
The court found an “insurmountable disconnect” between the claimed benefit and the settlements. 2012 WL 10548, at *3. That “disconnect” to our ears sounds a lot like the distinction between remote and proximate cause. The court points out that these state settlements were the “independent” result of a government “investigation that began before this MDL was created.” Id. Further, the settlement was available to all states, whether or not they had filed their own actions. Id. Thus any “benefit” from the steering committee’s MDL efforts was remote and secondary:
It may well be, as the PSC argues, that “Government Action Participants who have litigated their claims in the MDL . . . have benefitted from the work product of the … PSC, and other common benefit lawyers.” But the issue here is not one of benefit, but one of nexus. The . . . settlement fund does not appear to be a product of any benefit conveyed on the settling states by the PSC’s efforts. All fifty states have the option to accept the . . . agreement . . . regardless of litigating or non-litigating status. [States that] never filed suit . . . and never had an action pending before this Court . . . would be in no different position.
Id. at *3. Thus the court did “not find it appropriate to stretch the common benefit doctrine” to parens patriae actions “where the PSC’s efforts, though perhaps useful,” were not necessary to the governments’ ultimate recovery. Id. at *3-4.
So while we think that all “common benefit” taxation upon cases not in the MDL are beyond the court’s jurisdictional powers, it’s useful to see the Vioxx court place some limits on this sort of overreaching for fees.