Monday, November 30, 2009

Opposing MDL Common Benefit Funds

In multidistrict litigation, the MDL transferee judge typically appoints a plaintiffs steering committee to manage the litigation for all plaintiffs. And the lawyers on that committee often say that the cost of work done for the "common benefit" of all plaintiffs should be borne by all plaintiffs, not just the clients of the lawyers on the steering committee.

MDL transferee judges thus frequently enter orders creating "common benefit funds" to pay the members of the steering committee for work performed for the good of all MDL plaintiffs. Those orders impose a tax on all settlements (or judgments) obtained by MDL plaintiffs -- some portion of each individual plaintiff's recovery is taken away from the plaintiff (or that plaintiff's counsel) and paid to the members of the steering committee.

(Here's a link to a recent, and helpful, article by William Rubenstein (of Harvard) discussing some procedural issues related to the entry of those orders and collecting in one place the amounts of the common benefit taxes imposed in an assortment of MDLs.)

In one -- wrong -- sense, defendants have no interest in whether an MDL judge imposes a tax on plaintiffs' settlements. After all, they're plaintiffs' settlements -- why should a defendant care whether a plaintiff's settlement is reduced?

But in another -- right -- sense, defendants are deeply interested in the imposition of a tax on plaintiffs' settlements. After all, if a settlement will be taxed, say, five percent, then the cost of a typical settlement will increase by roughly five percent.

That's surely ample interest to give defendants a right to speak when a plaintiffs steering committee files a motion seeking to create a common benefit fund.

What might the defendant say in such a brief?

A recent article gives food for thought.

In "The Quasi-Class Action Method of Managing Multidistrict Litigations: Problems and a Proposal," Charles Silver and Geoffrey P. Miller really mean to suggest a new way for steering committees to perform common benefit work. And the article is worth a read on that score.

But, at the top of page 3, Silver and Miller write these words:

"Compensation of Lead Attorneys. Over the long history of MDLs, judges have awarded lead attorneys billions of dollars in fees and cost reimbursements. The practice supposedly rests on the common fund doctrine, a creature of the law of restitution which undergirds fee awards in class actions. Yet, the U.S. Supreme Court has never said the doctrine applies in MDLs, which are consolidations not class suits, and the American Law Institute’s Restatement (Third) of the Law of Restitution and Unjust Enrichment says it does not: 'By comparison with class actions, court-imposed fees to appointed counsel in consolidated litigation frequently appear inconsistent with restitution principles.'"

This recent scholarship thus proposes certain wholesale attacks on the very notion of creating common benefit funds.

We could say more, but we won't.

Defense lawyers reading this post will surely find plenty to think about even if we stop here.

Happy thinking!

1 comment:

Ron Miller said...

Don't think there is a tax that is passed along. i'm not sure that applies good economic principles. But if there was a tax that was passed along, it would be more than 5% because it would be more like 12.5% because 5% is 1/8th of the attorneys fees. To "get to even" lawyers would need to get 12.5% more to get the same recovery in attorneys' fees.