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This is the fourth 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, and Session 3

Giving Away Money: Calculating Damages & Allocating Damages

Professor Francis McGovern, Duke University Law School chaired this panel of authorities on the management of compensation funds.  A pioneer in the development of mass compensation programs, Professor McGovern has assisted with the administration of similar mass tort settlements in the United States, as well as reparations involving international disputes, such as the United Nations Compensation Commission, through which he is currently assisting in developing a framework for handling approximately 2.6 million reparations claims against Iraq.

Professor Jasminka Kalajdzic, University of Windsor, Canada, presented the case study and offered her insights into practical aspects of the case study.   The case study focused on a $1.9 billion fund for victims of abuse within the notorious Canadian Indian Residential Schools (IRS) program, in which aboriginal children were forced to attend Christian schools in an effort to force assimilation into white culture.  The purposes of the program had been described as “killing the Indian in the child” and turning native populations into English-speaking farmers and Christians.  The children were forced to attend the schools were subjected to harsh corporal punishment, psychological, physical, and sexual abuse.  By the early 2000s more than 50,000 individual claims and a number of class actions had been filed by victims of the IRS programs.  In 2005, following an alternative dispute resolution process, the Canadian government set up a $1.9 billion fund to compensate victims.  Compensation schedules established monetary award amounts based on a variety of factors, such as the amount of time spent in the schools, and the number of specific instances and types of abuse that a claimant had been subjected to.

Each of the panelists had been responsible for administering compensation funds, but the funds themselves had a variety of sources and purposes.

Dr. Norbert Wühler, Director of Reparations Programmes, International Organization for Migration, directs international claims facilities that provide reparations or other compensation arising out of international conflicts.  They include the Iranian Claims Tribunal, which provides compensation to U.S. citizens and companies who were harmed or displaced from Iran following the revolution of the late 1970s, and a program to compensate victims of Iraq’s invasion of Kuwait in the early 1990s.

Mr. Pieter van Regteren Altena, Partner, Van Doorne NV, administered the DES fund in the Netherlands, a fund established as a result of a mass tort settlement of claims against the pharmaceutical companies who manufactured DES, a synthetic hormone given to pregnant women prior to the late 1970s.  A collective settlement of DES claims was approved in 2006, resulting in the establishment of a 38 million Euro fund for the benefit of people who suffered adverse consequences from the use of DES, such as infertility, cancer, and birth defects.

The final panelist, and also the Keynote Speaker at the dinner held later that evening, was Kenneth Feinberg, who has been charged with administering some of the most high-profile compensation funds in history.  They include the September 11 Victim Compensation Fund established by Congress in 2001, the Gulf Coast Claims Facility established by BP following the 2010 Gulf of Mexico oil spill, and a settlement fund arising out of claims by victims of the use of the compound Agent Orange during the Vietnam war.

Professor McGovern opened the discussion with the observation that what all of the panelists had attempted to do in administering monetary funds was “rough justice.”  He then led a discussion on the similarities and differences between different compensation programs and the various issues and themes that can arise in the process of administering compensation funds.

Several of the obvious ways that compensation programs can differ are the source of the assets to be distributed and the sources of authority for the distribution and management of the compensation fund.  In a mass tort case, such as the DES case in the Netherlands or the Agent Orange case in the United States, the source of funding is a corporate defendant, but the source of authority for the settlement is a court.  In many international disputes, the source of authority can be an international tribunal, the United Nations, or a treaty among nations, and the source of funding can differ significantly from case to case.  For example, in the Iranian Claims Tribunal, the source of funding was frozen Iranian assets from outside Iran.  In the case of the fund established for victims of the Iraqi invasion of Kuwait, the funds came out of a percentage of oil sales that were permitted as an exception to a trade embargo.  Other funds have had sources of authority and funding that are unlikely to be repeated again in the future, including the 9/11 fund, which was established and funded by Congress only weeks after the terrorist attacks occurred, and the Gulf Coast Claims Facility, which was established and funded voluntarily by BP following what was essentially a handshake agreement with President Obama.

The structure of a compensation program is dependent on a number of factors.  Feinberg and Wühler both made the point that the volume of claims has a large impact on the structure of the compensation scheme.  In the Iranian Claims Tribunal, there were only 2700 claims, so individual claims could be handled more like a commercial arbitration, whereas with the reparations from the Iraqi invasion of Kuwait, there were many more claims, so the structure had to have a very different composition.  In the case of the 9/11 Victims’ Compensation Fund, the task of determining individual recoveries was handled mainly by accountants, whereas in the case of BP, distribution of benefits also required the work of claims adjusters.

Organizational systems for compensation funds are also influenced by other factors.  The need to prove causation is a factor.  For example, in the DES case, one of the main issues in determining who should receive compensation was the causal link between the drug and adverse health consequences suffered by the individual.  There, van Regteren Altena explained, the fund administrators fell back to the law of evidence, and an individual assessment procedure was implemented.  By contrast, Feinberg explained that in the Gulf Coast Claims fund, the level of evidence needed to prove an adverse impact resulting from the oil spill differed depending on how far removed the claimant was located geographically from the site of the spill.

The issue of causation highlights a common difficulty in administering settlement programs.  That is, the problem of efficiently distributing the funds while maintaining a sense of fairness and proportionality among individual claimants.  As Feinberg pointed out, although the goal of the program may be “rough justice,” there is a big tension between rough justice and individual compensation in any settlement program.  Success in a compensation program requires the administrator to walk a fine line between the efficient and speedy distribution of limited resources and paying enough attention to individual claims so that the claimants as a whole perceive the settlement as fair.  To achieve this goal, allowing claimants an opportunity to be heard makes an enormous difference.  Many of the structures described by the panelists had multiple levels of individual assessment.  For example, in the IRS settlement, claimants were paid according to a schedule but also had the opportunity to request an individual hearing.  Many mass tort settlements, such as the DES settlement, allow individual members to opt out and pursue their own claims individually.  Where individual hearings are impractical due to the number of claims, providing claimants with different options can help resolve the tension.

As a final thought, I would add a personal note that although many of the programs discussed during the presentation involved unique situations that most of us as practitioners are never likely to encounter, the themes and concepts discussed by the panelists are likely to be applicable in fashioning a wide variety of class action and mass tort settlements.  I have been involved with several not-so-high profile class action settlements that involve many of the issues and tensions discussed during the program.  So, as a practitioner, a key question from the Q&A portion of the program that piqued my interested was whether there are any resources or guides available to assist with the development or implementation of compensation funds.  Several of the panelists pointed to a comprehensive guide published by the Center for Public Resources, the Master Guide to Mass Claims Resolution Facilities.

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