Thursday, May 21, 2009

ALI’s Principles Of The Law Of Aggregate Litigation Now Final – Sort Of

Since we blogged last week about the American Law Institute’s (“ALI”) imminent final consideration of the Principles project on Aggregate Litigation (“PLAL”) – that is to say, class actions and similar proceedings – we thought we owed our readers a report on how it turned out.

All three of the motions we discussed: about predominance/issue classes, medical monitoring, and choice of law, were sufficiently agreed to by the Reporters that each of the movants (John Beisner, the blog’s own Bexis, and Vic Schwartz, respectively) agreed to withdraw them subject to relevant revisions being made in the draft. No fireworks.

With that, we thought that the most problematic remaining issues in PLAL were sufficiently modified that the overall draft was acceptable. In the best of all possible worlds, we would have been content without the PLAL at all, but at least on those issues relevant to what we do (and thus to what we know most about), it’s now pretty innocuous, and in places downright helpful. For example, the PLAL will be yet another something we can cite for the proposition that class actions are affirmatively disfavored in personal injury litigation.

In the end, the PLAL passed without a dissenting vote – something we never thought would have been possible when we first got involved in that ALI project several years ago.
Since none of the expected debate over the merits of the pending motions actually happened, probably the most interesting development to us (other than Sen. Arlen Specter's speech at yesterday’s lunch describing a CIA briefing he received as “perjurious” – Speaker Pelosi’s got a friend in Pennsylvania) was the loophole that the PLAL (if acted on by the states) would create in the so-called “aggregate settlement rule” (“ASR”).

Briefly, the ASR requires unanimous consent, after full disclosure, whenever multiple plaintiffs represented by the same counsel agree to a joint settlement of litigation. It originated with multi-passenger auto accidents and other prosaic litigation, but also applies to mass tort litigation. The requirement of unanimous plaintiff consent to aggregate settlements creates an ethical minefield for the other side and leads to a variety of problems, such as hold-out plaintiffs shaking down other plaintiffs for a bigger share of a limited settlement pot. We’ve heard throughout the PLAL process that the ASR is an accepted ethical rule in all fifty states. That degree of unanimity tells us that the ASR must have some strong reasons behind it. Thus some commentators have been very much against changing it.

As defense lawyers, we have mixed feelings about the ASR. On the one hand, anything that makes mass torts harder to settle is to some degree a deterrent to their being brought in the first place. On the other hand, it’s not all that great a deterrent (just look at all the mass torts), and once we’re in a mass tort, we’d like to be able to settle it when we’re offered terms that are acceptable to our client.

What the PLAL does is create an alternative to the existing ASR –a new procedure (described in detail PLAL §3.17(b)) under which a plaintiff “would be bound by a substantial majority vote of all claimants concerning an aggregate-settlement proposal.” This is accompanied by a bunch of additional procedural provisions about informed consent and the like, but that agreement is at the heart of the new exception in the PLAL.

We have two observations about this proposal, which the ALI has just approved:

First, §3.17 gives lip service to prospective plaintiffs having a choice between engaging counsel under the ASR and the new “substantial majority” exception that the ALI adopted. But that's really all it is. The proposal was amended at the ALI meeting to eliminate any legal requirement that a would-be plaintiff be offered this choice when retaining counsel. That being the case, we’d be surprised if any plaintiff's lawyer in his/her right mind would actually offer an option that would later restrict his/her ability to settle a case - if the lawyer doesn’t have to. Thus, we expect that any jurisdiction's adoption of the ALI’s proposal means the gradual but inevitable disappearance of the ASR. The exception will swallow the rule.

Second, assuming (contrary to observation one) that both ASR and “substantial majority” plaintiffs do exist simultaneously in the same litigation, we see fertile ground for sharp practice. The Final Draft is silent about whether plaintiffs can switch in and out of the two options after suit is filed, so we’ll assume they can – at least if their counsel agrees to modify the terms of representation.

What then? Well, we think it's inevitable that plaintiffs with stronger cases would gravitate to the ASR model (and maintain absolute control over settlement), while plaintiffs with weak to fanciful cases, which is always the majority in any large mass tort, would end up stuck with the “substantial majority” model. Under these circumstances, it’s not hard to see what a typical settlement would look like: The stronger plaintiffs cut their individual deals, while everybody else gets a lump “best I could do” settlement that they can either take or leave. That happens already, of course, but now the same lawyer would ethically be able to represent both groups of plaintiffs at the same time.

We (well, Bexis) brought that up at the ALI meeting. The Reporters' response was essentially, “Well, anybody can game the system if they try hard enough.” We found that unsatisfying, because, we’re lawyers and gaming the system – otherwise known as taking full advantage of our clients' legal rights – is one of the things that we’re hired to do. We been practicing long enough to know that any system that can be gamed, will be gamed. That’s inevitable. Lawyers are supposed to find and exploit whatever loopholes exist in the law. The rules of ethics call it "zealous representation."

So, in the case of the ASR exception, we expect to see the two classes of plaintiffs being played off against one another - only now, by their own counsel.

Finally, since this will probably be our last post on the PLAL, we thought we’d go back to the first one and – at least as to PLAL Chapter II, which is what was voted on yesterday – compare where we were and where we ended up.
  • Material Advancement Test (we’re leaving out section and comment numbers, since they’ve all changed) – The test is still used, but now there are two explicit caveats: the newly phrased test: (1) “is not expected to make for substantial change in the law of aggregate litigation,” specifically “in terms of a predominance of common questions,” and (2) “is not intended to suggest that the tendency of aggregate treatment to make settlement more likely . . . should operate, in itself, as a consideration in favor of aggregate treatment.” So our original criticism was pretty fully been dealt with. Essentially a complete fix.
  • Broad Use of Single Issue Classes – this is the subject of the Beisner amendment that the Reporters largely agreed to. We expect it to end up some neutral language and a statement regarding the law being divided on the point. We expect a substantial, if not complete, fix.
  • Creative procedural arrangements and trial plans – “Creative” is gone. What’s better is that the final version expressly endorses trying cases, bellwether and otherwise. §2.02(b)(3). A complete fix, and maybe better than that.
  • Liability versus remedy – The same fix that prevents the “material advancement” test from being circular also applies here. Beyond that, the illustrations have been revised and are no longer grossly unbalanced in favor if aggregating cases. Substantially fixed.
  • Single-point pollution cases – This problem still exists in §2.03, Illustration 3, but it’s been limited to the geographic scope issue, so it’s not quite as bad. This isn’t fixed, but it’s not a drug/medical device issue, so we reluctantly let it go. No fix.
  • Merchantability – It’s still there, but with the caveat that it “does not speak to the context of personal-injury claims. . ., which may pose additional complications may prevent aggregate treatment.” This is one of many places where the final draft reminds readers that class actions are peculiarly disfavored in cases of personal injury. Not a complete fix, but no problems will be caused with drugs or medical devices.
  • Class certification in mass torts – The offending language, and the pre-AmChem/Ortiz case cites, have been entirely removed. A complete fix.
  • Medical monitoring generally – The final draft now recognizes several reasons why medical monitoring classes are uncertifiable in given cases. Bexis’ amendment, which the Reporters largely accepted, collects these reasons in one place and acknowledges non-certification as the most common result. The final version will specify that no position is being taken on the viability of medical monitoring. An expected complete fix.
  • Medical monitoring as indivisible remedy – The final draft already had illustrations going both ways, so that medical monitoring no longer appeared invariably certifiable as a mandatory, non-opt out case. Bexis’ amendment will sharpens this contrast further. This will end up as a complete fix, congruent with existing case law.
  • Broad definition of indivisibility – The “simply receive” language is gone, and the section is much more nuanced on what facts are necessary to make a remedy indivisible. Essentially a complete fix.
  • Choice of law/burden of proof – This discussion has been substantially clarified to specify that the defendant only has “to demonstrate the need to decide a choice-of-law question,” and that “some evidence” is enough. The defendant’s entitlement to preliminary discovery to make this showing is also explicitly provided. Thereafter, the burden is whatever the law of the relevant jurisdiction requires. That’s essentially a complete fix, in that this is basically what the law is where the issue has been considered.
  • Principal place of business and choice of law – The reference is still there, but the next sentence now reads: “At the present time, choice-of-law principles that point towards application of the law of the defendant’s principal place of business remain quite rare across the various states.” This position is also now described as an “outlier” in the Reporters' Notes. The Schwartz amendment will add language to the effect that whatever choice of law principles are applicable to litigation generally apply equally to aggregated litigation. We’d rather not see principal place of business mentioned at all, but short of that, it’s essentially a complete fix.
  • Patterns in substantive law – The selection of precedent in the Reporters' Note has been cleaned up and updated, but some pre-AmChem/Ortiz precedent remains. A substantial fix, but not complete. Also, since it’s just Reporters’ Notes, it’s relatively minor in the scheme of things.
  • Advocating reversal of Lexecon case – Gone. Complete fix.
  • Punitive damages class actions – Punitives are no longer mentioned in the comment, but only in the Reporters’ Notes concerning limited fund classes. The issue of punitive damages classes being precluded entirely by due process is now discussed in a neutral fashion, but at some length. Complete fix.
  • Due process rights of defendants – The due process rights of plaintiffs and defendants are now “parallel.” We still don’t like use of the word “admonition,” but that’s now immediately followed by, “Aggregation should not proceed if the court is unable to formulate an adjudication plan that ensures due process for a defendant.” The notes also discuss defendants’ due process rights in some detail. Almost complete fix.
  • Common costs – The whole issue has been deleted. Complete fix.
  • Opt-in class involving foreign litigation – It’s still here, but we dropped our opposition to it after hearing horror stories from lawyers who defend mass torts in foreign countries. Objection withdrawn.
  • Seventh Amendment – The problematic discussion of constitutional law has been deleted and the Seventh Amendment simply identified generically as a constraint on aggregation. Complete fix.
  • Collateral estoppel – It’s still there, and it still calls for reversal of Bridgestone/Firestone case (in which we were involved) case. But with the enactment of CAFA ("Class Action Fairness Act"), problem of plaintiffs shopping the same nationwide class in multiple state courts until somebody certifies it doesn’t happen anymore. We still don’t like it, but it’s not nearly as important. No fix, but much less of an issue.
  • Trial Plans – Still there, but our main objection was to the original draft’s failure to consider the alternative of actually trying some cases. As already mentioned, that’s now specifically provided for as an alternative in §2.02(b)(3), so with that done, we don’t have any objection to trial plans per se. Complete fix elsewhere in the draft.

So of all the many objections we had to PLAL Chapter Two way back when, all but two of them have been substantially or completely fixed (not counting the one we don’t object to anymore). And of those two, one of them isn’t as important as it used to be and the other doesn’t affect drug and medical device litigation.

Not only that, but the weird provision in the original ASR material (Part III) that would have made defendants financially responsible for inducing ethical lapses by their opposing counsel is gone, too. Good riddance.

So all and all we’re surprised - in a good way - with the way things have worked out with the PLAL.

Beyond that, we’ve learned something important for the future – if the issue’s important, a constructively phrased and offered written amendment is a great way to make sure your views are considered when the language of an ALI project is finalized. The ALI is a group that greatly prefers to operate by consensus, and well-supported motions are very likely to be incorporated. We expect to be active in the ALI for a long time, so we'll quite likely be filing more motions to amend.

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