When a lawsuit settles, both sides get something. When one of our cases settles, one of the things we get is a raft of mixed emotions. Undeniably, there is a sense of relief. Three weeks of 20 hour days suddenly open up. We can go home. (That sounds a little funny now that we are
Judges should … judge. They should decide legal issues. But some judges think their primary role is to “manage” litigation. It turns out that such management often means strong-arming parties into settlement. Is that appropriate? We wondered about that. We wondered it aloud. We wondered it in the presence of one of our Summer associates,…
Today’s case under discussion, Robison v. Orthotic & Prosthetic Lab, Inc., 2015 Ill. App. LEXIS 68 (Ill. App. Ct. Feb. 4, 2015), makes us think of Jim Carrey, George Costanza, and Bruce Willis. You might already have heard of the Robison case. Only a week old, this product liability case, involving a claim that a prosthesis failed, has quickly garnered notoriety. The Illinois appellate court threw out a settlement because the plaintiff attorney extracted that settlement without bothering to disclose that his client had died.
Why do we think of those three particular cultural icons? To begin, let’s lay out the procedural posture of the Robison case. The defendant appealed from an order enforcing a settlement agreement in the product liability action. The defendant argued that the settlement agreement was invalid because the attorneys who purportedly represented the plaintiff during settlement negotiations lacked the authority to negotiate a settlement inasmuch as the plaintiff had died and a proper representative of the estate had not been substituted as the party plaintiff. (The substitution process begins with the quaintly named “suggestion of death” that many jurisdictions, including our home jurisdiction here in the Commonwealth of Pennsylvania, require.) The defendant also contended that the settlement agreement was invalid because the attorneys who purportedly represented the plaintiff during settlement negotiations failed to disclose the material fact that the plaintiff had died eight months prior to the commencement of the negotiations. Got it?
This post was actually written by Steve McConnell who is currently on vacation in a little country that gave Jay Gatsby an award for military heroism. So where in the world is Stevie Mac?
Any day now you might be getting your piece of the settlement proceeds in the Ticketmaster class action litigation, which has been banging around since 2003. The complaint alleged that the fee labels were misleading. Maybe everybody already suspected that the “convenience” fee (a misnomer if ever there was one) was a profit center, but the plaintiffs alleged that order processing and delivery fees were, too – that they had little to do with, er, order processing or delivery. The proposed settlement would offer roughly $400 million in credits to 50 million ticket buyers. But the defendant estimates that the settlement would cost it only $35 million, because of the low participation rate in class action settlements. Meanwhile, the plaintiff lawyers are seeking $15 million in fees, along with up to $1.5 million in expenses. The math speaks for itself.
The same day that we read about the Ticketmaster settlement, we read Judge Posner’s opinion that rejects – actually hammers – a proposed settlement of the Pella windows litigation. Posner called the settlement “scandalous,” pointing out plaintiff counsel’s conflicts of interest and challenging the valuation of the settlement. Judge Posner did some math on his own, and concluded that the purported $90 million settlement was more likely to be something on the order of $1 million. It is a judicial beat-down.
It is probably not a coincidence that two of the smartest judges in the land, Alex Kozinski (Chief Judge of the Ninth Circuit) and Jed Rakoff (District Judge in the Southern District of New York), have gone on record criticizing certain proposed litigation settlements. Rakoff shook up Wall Street when he rejected a Citigroup settlement…
This month, we’ve seen a couple of cases dealing with class action settlements and neither of them, frankly, leaves us with much confidence in the process. We’re referring to Dennis v. Kellogg Co., ___ F.3d ___, 2012 WL 2870128 (9th Cir. July 13, 2012), and In re Budeprion XL Marketing & Sales Litigation, 2012 WL 2527021 (E.D. Pa. July 2, 2012).
The Ninth Circuit Dennis (we’d add “the Menace” to the name) case involved food, not drugs. It is a poster child for the abuse of “cy pres” distribution in a class action settlement − so much so that even the Ninth Circuit, notoriously liberal on such things, couldn’t stomach it. California has become a center of food class action litigation, and in this particular instance the charge was that the defendant advertised certain cereals as “scientifically proven to improve children’s cognitive functions for several hours after breakfast.” 2012 WL 2870128, at *1. For present purposes it doesn’t matter whether the allegation has any merit or not, since the action was settled.
But what a settlement:
- A “claims-made” fund of $2.75 million where class members able to prove their purchases could get up to $15 (three boxtops) in refunds. Anything left over would be distributed cy pres to “charities chosen by the parties and approved by the court.” Id. at *2.
- An in-kind cy pres distribution of “$5 million worth” of the defendant’s food “to charities that feed the indigent,” with valuation apparently left to the defendant (although this is not clear). Id.
- The defendant would refrain from making the challenged claim for three years, but would be allowed to make a related claim of “11% better attentiveness” proven by “clinical studies.” Id.
- Counsel fees for class counsel of $2 million. Id.
According to class counsel, the total amount of refunds paid from the claims-made fund was $800,000. Id. at *2 n.1. Even though this figure was unverified and counsel had every incentive to overstate the payout, we’ll take it as face value.
Thus, of the nominal $9.75 million in value that purportedly changed hands (we’ll pass over the interesting discussion of the “value” of $5 million in-kind contribution, its tax deductibility, and whether the donation would have been made in any event, see id. at *7), all of $800,000 went to the supposed class. That’s a little more than 8%.
The attorneys for the class took home two and a half times more dollars than did the entire class. Divided by the hours the class attorneys spent, they received an hourly rate of $2100 − that’s right, over two-thousand dollars an hour. 2012 WL 2870128, at *1.
We’ve seen a couple of interesting cases lately involving global mass tort settlements and subsequent plaintiffs’ attempts to avoid them. A few days ago we read Juris v. Inamed Corp., ___ F.3d ___, 2012 WL 2681445 (11th Cir. July 6, 2012) (slip op. here), where a plaintiff tried to get around the…
Twenty-one million dollars is an awful lot of moola. Sure, it probably won’t even buy you one (at least towards the end of that contract) year of Cliff Lee befuddling opposing batters (yeah, we’re still feeling good about that). But in almost any situation, $21 million would seem like a pretty significant chunk of change.
But context is everything.
So we think everyone would agree with us, that $21 million seems like a relatively tiny sum compared to the catastrophic devastation wrought by Hurricanes Katrina and Rita a few years ago. Yet $21 million was the insurance policy limit for a group of defendants in Katrina-related litigation. And, not coincidentally, $21 million was the amount to be paid to proposed class members pursuant a “limited fund” class that was just bounced by the Fifth Circuit. See In re Katrina Canal Breaches Litig., No. 09-31156, slip op. (5th Cir. Dec. 16, 2010).
Our skepticism meters zoom whenever we hear “limited fund” in the same sentence as “mass tort.” It all goes back to the Bone Screw Litigation, where the fix was in over a supposed “limited fund” class action involving one of our co-defendants. The trial court let both sides get away with it, see In re Orthopedic Bone Screw Products Liability Litigation, 176 F.R.D. 158 (E.D. Pa. 1997), and any objectors were either bought off or scared off. Within a week of the settlement becoming final – guess what happened? The supposed “limited fund” company was sold for three times the amount of the [fill in adjective] limited fund. We concluded then that limited fund settlements in mass torts are rife with potential for abuse, and in Katrina Canal, the court of appeals pretty much agreed with us.
The decision provides valuable lessons, not only for parties trying to craft “limited fund” settlement classes, but for lawyers settling any kind of class or mass action requiring judicial approval.
We recently read an article about plaintiff law firm settlement mills. The article — Engstrom, Run of the Mill Justice, 22 Georgetown J. Legal Ethics 1485 (Fall 2009) — presents interesting contrasts and similarities with mass tort litigation. A “settlement mill” is marked by the following characteristics: (1) high volume of cases; (2) high volume of advertising; (3) “entrepreneurial legal practices;” (4) few if any cases go to trial; (5) tiered contingency fees; (6) little case screening and, therefore, lots of low value cases; (7) little attorney-client interaction; (8) incentivized settlements via quotas or rewards; (9) quick resolution of cases – usually within two to eight months of the accident; and (10) rare filing of lawsuits.
Some of that sounds familiar to us and some does not. Of course, the article isn’t about mass torts. Rather, the cases more often than not involve car accidents. The damages arise from medical bills and the dreaded “soft-tissue injuries.” Consequently, the settlements seldom reach five figures.
Engstrom includes case studies of settlement mills. Some of those firms no longer exist. Disbarment isn’t exactly foreign to this milieu. Hegel said that quantitative differences after a point become qualitative. When we learn that a settlement mill lawyer will have 300-400 open files on her desk at any time, we’re talking about something alien to our experience. How does one handle such an enormous case load with skill and diligence? It isn’t pretty. One of the “entrepreneurial” innovations is to allow non-lawyers to handle client-screening (of which there really isn’t any besides verifying the existence of insurance). Amazingly, non-lawyers sometimes even handle the negotiations with claims adjusters. Those “negotiations” might take all of ten minutes to resolve the case. Meanwhile, the client might not see a lawyer until he or she receives the settlement check. Well, to be more precise, they might not see a live lawyer. Many settlement mills simply plant their clients en masse in a conference room where they watch a videotape of a lawyer “explain” the process.
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: