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Posts Tagged ‘mdl’

This is the fourth of what will be six posts summarizing my notes of the six presentations at the ABA’s 16th Annual Class Actions Institute held last month in Chicago.  For more on this excellent conference, see my October 31November 5, and November 6 CAB posts.

The fourth session was entitled “Sifting Through All the Big Shoulders,” Litigating Class Actions Alongside Opt-Outs – Free-Riding or Riding Shotgun.  Vincent J. Esades moderated another distinguished panel, which included Professor Geoffrey Parsons Miller, The Honorable Lee H. Rosenthal, and attorneys Joseph R. Saveri and David C. Eddy.

Managing parallel class and opt out cases in multidistrict litigation is an increasingly common and complicated venture, especially in antitrust litigation, where individual institutional plaintiffs may have a sufficient enough individual stake to justify hiring their own counsel and pursue their own claims.  A potential free-rider problem arises in this context because individual plaintiffs have a right under Rule 23(b)(3) to opt out of any class, at least for the purpose of pursuing damages claims.  This means that individual plaintiffs and their lawyers can take advantage of the time and effort expended by the named plaintiffs and their counsel early on in the case, only to opt out later and pursue their own litigation without having to share the benefits of any recovery with class counsel.

The panelists seemed to agree that there is an inherent tension between the opt out rights embodied in Rule 23 and the burdens on the courts of managing both class and individual litigation over the same issue.   They also seemed to agree that, short of re-writing Rule 23, there is no simple solution to ensure that the parties and attorneys who come late to litigation are not free riders on the efforts of others.  Professor Miller raised the question whether these problems suggest a fundamental change is needed in how mass litigation occurs, including a convergence of mass tort and class actions or a recognition that those labels don’t mean anything in the context of certain multidistrict litigation.  Alternatively, can existing rules of civil procedure could be used to solve the problem?  Whether the solution to this problem is litigation reform, a change in judicial philosophy, or creative solutions already within existing rules, much of the discussion surrounded a very pragmatic question, “What’s the blueprint?”

The allocation of fees and costs between a class and individual plaintiffs raises a host of difficult questions, including 1) can a court force an opt-out to pay a portion of the fees of class counsel? 2) does a court have jurisdiction to require the defendant to pay any portion of any individual settlement with one or more plaintiffs into an escrow account, where a portion of any fee award can be claimed by the counsel for other plaintiffs, depending on the work performed? and 3) if allocation between counsel is somehow permitted, how should non-monetary aspects of settlements be valued, such as agreements to provide a guaranteed source of supply of a particular product?

The judge does, of course, have express case management authority under Rule 16 as well as more general inherent discretionary case management authority.  However, the problem in using these case managemnt tools tends to be a lack of information about the precise problems that need to be resolved.  Judge Rosenthal pointed out that the judge is typically not in a good position to make that decision without the help of the lawyers because there is usually very little information the economic incentives driving different groups of lawyers.   (In what might have been the most quotable quip of the entire program, she implored the three lawyers on the panel, “How do I get you guys to lift up your skirts?”)  If there is more transparency by the parties and their attorneys, she argued, a judge would be a better able to allocate costs fairly.  Once the problems and incentives are identified, there are case management tools available to incentivize conduct properly, even if a judge does not have direct authority to order one party to pay another’s fees.  For example, the judge can help parties to understand the benefits of coordination of efforts voluntarily.

One key question debated by the panelists was whether procedures used in mass tort litigation can be applied to the class action context.  On one hand, as one panelist pointed out, the management of class and individual actions in a single MDL raises different challenges than the management of mass tort cases in an MDL.  In the mass tort context, one panelist pointed out, all the parties and their attorneys have to be involved in the proceedings from the beginning because of the nature of mass torts as a collection of individual actions.  In the class action context, by contrast, individual plaintiffs can wait and see how the class action proceedings develop before having to get involved individually through their own counsel.  On the other hand, as with any complex litigation, there are models and protocols that both parties and judges to look to in order to bring efficiencies to the litigation even when not every problem can be solved.  While mass tort litigation is not completely analogous it can provide a source of ideas for judicial management of certain problems.

In the end, the point was made that this is not so much an issue of jurisprudence as it is a problem of judicial management.  As with any issue with case management, the solutions will develop over time through experience, trial, and error.

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In December, I posted this preview of the then forthcoming book, Drug and Device Product Liability Litigation Strategy, by Mark Herrmann and David B. Alden (Oxford University Press 2011).  I received my copy of the book just before the holidays, and it is as good as advertised. 

The book has many strengths.  It is comprehensive, generally accessible, eloquently written, and well-researched.  Perhaps its greatest accomplishment is the breadth of its usefulness to a wide range of readers with varying levels of sophistication.  The book starts at the beginning, with a discussion of the history of mass tort litigation and a summary of the relevant FDA regulations.  Following a discussion of each of the typical causes of action in drug and device cases, the book goes on to cover every conceivable procedural phase, from MDL assignment, to motions practice, to discovery, and finally through the rarest of events in mass tort litigation: trial.  The step-by-step approach makes the book a perfect starting point for a new associate, client, or colleague who is just becoming familiar with medical products litigation.  But packed in to the logically organized chapters are a wealth of practice tips and research summaries that make the book a handy practice aid to even the most seasoned practitioner. 

The book’s authors admit (and make no apologies for the fact) that it has a defense-oriented slant, and it’s main audience would certainly be defense-oriented practitioners and corporate legal departments, but that does not mean that it would not be a useful guide to plaintiffs in pharmaceutical or other mass tort litigation. 

In short, this book is a welcome addition to my personal law library.  Now, my problem is figuring out how to protect it from being permanently “borrowed” from one of my colleagues.

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This is the fifth in a multi-part post summarizing last week’s 5th Annual Conference on the Globalization of Class Actions and Mass Litigation.  Click these links to see the summaries for Session 1, Session 2, Session 3, and Session 4.

Who Has Jurisdiction in a Global Market?

This presentation was chaired by Professor Deborah Hensler, Stanford Law School/Tilburg University and co-founder of the annual conference on the globalization of class actions and the Stanford Global Class Actions Exchange.  The panelists were Mrs. Femke van ‘t Groenewout, Senior Advisor, Responsible Investment PGGM Investments, Mr. Daan Lunsingh Scheurleer, Mass Litigation Partner at NautaDutilh, and Professor Peter Cashman, University of Sydney Law School.

Professor Manual Gomez, Florida International University College of Law, presented the case study, which focused on the Lago Agrio (“sour lake”) litigation in Ecuador against oil company Texaco.  The toxic tort litigation arose out of allegations that Texaco’s dumping activities from the mid 1960s to the early 1990s caused severe degradation of a lake in the Amazon rain forest.  Ten separate proceedings were filed in Ecuador against the two companies.  A separate case was filed in the United States, but the United States District Court for the Southern District of New York, but that court dismissed the case on forum non conveniens grounds in 2002, a decision that was upheld by the Second Circuit Court of Appeals.  A court in Ecuador ultimately rendered an $18 billion judgment in favor of the plaintiffs.  This has led to additional litigation in the United States about whether the judgment was procured by fraud, whether the U.S. courts have the power to enjoin its enforcement globally, and whether agreements made by Texaco, before it was acquired by Chevron in 2001, bind the current corporate parent.  Most recently, the Second Circuit Court of Appeals vacated a lower court’s preliminary injunction against the enforcement of the judgment.  (For a recent update on the status of the Lago Agrio litigation in the United States, see this September 20, 2011 American Lawyer article by Michael Goldhaber).

The first panelist to comment was Femke van ‘t Groenewout, who provided an institutional investor’s perspective on the issue of global forum selection.  She started by making clear that institutional investors rarely look to litigation as a means to protect investments because it usually is not cost-effective.  Other strategies, such as regulatory engagement and excluding bad actors from the investor’s portfolio, are much more common.  In the few instances where litigation is necessary, institutional investors will look to joining existing class actions and will file opt out actions if necessary.  When asked during the Q&A portion of the presentation what factors dictate whether to take an active role in pursuing litigation, she pointed to multiple factors, including the amount of loss, the degree of misconduct, and the time an effort required to pursue reimbursement. 

To date, nearly all of the litigation that van ‘t Groenewout has been involved in has been brought in the United States.  However, she pointed to what she considers a negative trend in the U.S. courts to exclude foreign investors from the forum, a trend culminating in the Supreme Court’s decision in Morrison v. National Australia Bank, which barred so-called foreign-cubed securities class actions.  This, she observed, may lead other jurisdictions to open their courthouse doors to foreign investors.  As an example, she pointed to the Royal Dutch Shell settlement in the Netherlands.  In light of the decreased legal protection in the U.S. for foreign investors, she raised the question whether investors will consider whether they can continue to invest in the United States.  In addition to lobbying Congress, she discussed the alternative of pursuing litigation in other parts of the world.  However, there are two problems with this approach 1) there are signficant differences in the substantive securities law in other parts of the world, which makes litigation less efficient and therefore less appealing; and 2) institutional investors are unlikely to want to pay for counsel up front, as opposed to simply paying a percentage of recovery as is customary in the United States.  Van ‘t Groenewout summed up by stating that institutional investors have an obligation to protect their own investors in the case of severe fraud, and they cannot always count on regulators to remedy acts of investor fraud.  Therefore, in her view, institutional investors need more mechanisms for collective redress outside the United States.

Daan Lunsingh Scheurleer opened his remarks by challenging the notion that the Morrison case leaves foreign investors unprotected in the U.S. Courts, pointing out that foreign investors can still seek relief in the U.S. for securities purchased on U.S. exchanges, among other situations.  He then focused on barriers to the development of procedures for transnational litigation in Europe.  There is a prevailing reluctance to create procedures that would impose uncertainty about where a defendant may be sued.  For example, a general rule within European court systems is that a defendant should only be sued in the jurisdiction where it is situated.  There are some exclusions to this general rule, including where there are multiple defendants.  If so, there is a choice.  All of them may be sued in the country where one of them is situated provided that there is enough connectivity between the rest of the defendants and the forum.  In the case of tort law, a defendant may be sued where the tortious act occurred or where the damage is felt.  In a securities case, this means that you can only sue on behalf of investors that reside in a particular jurisdiction.  The challenge for Europeans, Lunsingh Scheurleer concluded, is to convince their lawmakers that they need a remedy in their home jurisdiction, but prevailing cultural norms will make it difficult to implement a system that allows all plaintiffs from multiple European jurisdictions to pursue relief in a single forum.

In his remarks, Professor Cashman pointed out some additional barriers to the development of transnational litigation procedures within any given country, including: 1) the problem of exercising personal jurisdiction over class members in other countries (he noted that this issue is still murky in both the United States and Canada); 2) uncertainty about whether the courts of another jurisdiction give preclusive effect to the judgment (as an example, he pointed to the Canadian courts, where even the judgment of a court in one Province is not enforceable in the courts of another Province); 3) forum non conveniens issues, such as those highlighted by the case study; and 4) other issues of comity, such as what one court does while the same issue is pending in a court within another jurisdiction.

Professor Hensler observed that there is a tension between finding a single forum versus taking into account the fact that there are differences in the substantive laws from one jurisdiction to another.  Cashman has a somewhat modest proposal to solve this quandary: create an international MDL process for the adjudication of transnational mass claims.  He suggested several existing mechanisms that could be used to establish an MDL process, including conventions, treaties, or simply a memorandum of understanding between courts.  He also pointed to protocols that are already being developed by the courts of the United States and Canada to assist with the cooperative management of cross-border litigation. 

When asked what he thought about the possibility of an international MDL process as a solution to the problem of transnational disputes, Lunsingh Scheurleer responded that it was hard to envision a framework that would apply to all sorts of claims in all situations.  He thought it might be possible to come up with different procedures for different claims that bore a “family resemblance” to one another, but that it would be hard to find a “one-size fits all” approach.  It might, however, be possible to come up with a set of simple rules that could help guide courts in some situations.  For example, a rule requiring that tort claims be moved to the corporate law umbrella might provide more predictability because it could permit a defendant to be sued in its home jurisdiction by all alleged victims, regardless of their country of residence.

Van ‘t Groenewout said that she favored the idea of an MDL process in principle, but noted that there are some cases where it is clearly more appropriate to litigate in a single jurisdiction. 

Hensler noted that one problem with the MDL concept is that discovery procedures differ so widely from jurisdiction to jurisdiction.

The panelists were asked whether international arbitration might be a solution.  Van ‘t Groenewout pointed out that fraud claims aren’t contract claims, so class actions often better fit than arbitration.  Lunsingh Scheurleer pointed out another practical problem to the idea, at least with respect to consumer claims: arbitration agreements with consumers are generally not enforceable in Europe.

There are a few interesting side notes in this presentation.  The first is that the Lago Agrio litigation has many interesting facets that overlap with all of the earlier presentations at the conference.  As Professor Gomez pointed out in presenting the case study, the litigation in Ecuador was the subject of mass public relations campaigns, a topic discussed in Session 1.  There were also significant case management concerns raised in the litigation both in Ecuador and the United States, a topic discussed in Session 3.  Finally, as discussed by Alison Frankel in this December 12, 2011 article, the litigation has been supported through investments from private litigation funders, a topic discussed in Session 2

Finally, someone (I believe it was Professor Tzankova) noted during this presentation that the conference had been the subject of a story that day in the local Amsterdam media in which the assertion was made that the conference was  contributing to a “claims” consciousness in the Netherlands.  I assumed that this was another way of saying that there was a fear that hosting a conference on the globalization of class actions was going to turn the Dutch sue-happy.  We shall see…

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