Multidistrict Litigation: The Good, the Bad, the Ugly

Author: Brian J. Donovan
January 2018

 

The Good: The Intent of Congress in Its Passage of the MDL Statute

The United States Judicial Panel on Multidistrict Litigation (“JPML”) traces its origins to the early 1960s when more than 1800 related civil actions involving price-fixing allegations in the electrical equipment industry flooded the federal courts. To coordinate discovery among the electrical equipment antitrust cases in the over thirty involved courts, Chief Justice Earl Warren created the Coordinating Committee for Multiple Litigation of the United States District Courts. At the end of its work, the Committee recommended a more formalized procedure for handling groups of similar cases. In response, in 1968, Congress enacted the Multidistrict Litigation Statute (28 U.S.C. § 1407), the statute to which the JPML owes its existence.

 

The multidistrict litigation (“MDL”) statute provides, in pertinent part, “When civil actions involving one or more common questions of fact are pending in different districts, such actions may be transferred to any district for coordinated or consolidated pretrial proceedings. Such transfers shall be made by the judicial panel on multidistrict litigation authorized by this section upon its determination that transfers for such proceedings will be for the convenience of parties and witnesses and will promote the just and efficient conduct of such actions. Each action so transferred shall be remanded by the panel at or before the conclusion of such pretrial proceedings to the district from which it was transferred.”

 

In plain English, the JPML was created to:

(a) determine whether civil actions pending in different federal districts involve one or more common questions of fact such that the actions should be transferred to one federal district for coordinated or consolidated pretrial proceedings;

(b) ensure such transfer of cases to one federal district will be for the convenience of parties and witnesses and will promote the just and efficient conduct of such actions; and

(c) select the federal district and judge(s) best situated to handle the transferred cases.

 

Theoretically, the purpose of this transfer or “centralization” process is threefold:

(a) to avoid duplication of discovery;

(b) to prevent inconsistent pretrial rulings; and

(c) to conserve the resources of the parties, their counsel, and the judiciary.

 

The U.S. Supreme Court has held that a district court conducting pretrial proceedings pursuant to 28 U.S.C. §1407(a) has no authority to invoke 28 U.S.C. §1404(a) to assign a transferred case to itself for trial. See Lexecon Inc. v. Milberg Weiss Bershad Hynes & Lerach, 523 U.S. 26 (1998).

 

Justice Souter, in delivering the opinion of the U.S. Supreme Court, explained 28 U. S. C. §1407(a) authorizes the Judicial Panel on Multidistrict Litigation to transfer civil actions with common issues of fact “to any district for coordinated or consolidated pretrial proceedings,” but imposes a duty on the Panel to remand any such action to the original district “at or before the conclusion of such pretrial proceedings.” “Each action so transferred shall be remanded by the panel at or before the conclusion of such pretrial proceedings to the district from which it was transferred.”

 

The Bad: The Refusal to Remand

Many federal judges and attorneys are vaguely aware that the number of cases in MDLs has grown, but few are aware of the rate of recent growth. As of September 30, 2015, there were a total of 341,813 civil cases pending in federal court of which 132,788 cases were pending in MDLs. In sum, 38.9% of the civil cases pending in the nation’s federal courts were consolidated in MDLs. As of September 2017, more than 40% of the civil cases pending in the nation’s federal courts are consolidated in MDLs. That percentage will only continue to increase.

 

Since its creation in 1968, the JPML has centralized 553,249 civil actions for pretrial proceedings. By the end of 2015, a total of 15,844 actions had been remanded for trial. In short, the JPML remanded only 2.86% of cases to their original districts.

 

Writing in dissent for the Ninth Circuit, Judge Alex Kozinski presaged the U.S. Supreme Court’s ruling in Lexecon by characterizing self-transfer as “a remarkable power grab by federal judges,” because the practice exceeded the authority Congress granted to transferee judges.

 

Pursuant to Congressional intent and U.S. Supreme Court decisions, the endgame for MDL is remand. Accordingly, although transferee judges deem settlement a hallmark of their success, I believe it is important to appreciate the potential advantages of remand, rather than focusing solely on what transferee judges allege to be “judicial efficiency.”

 

Remand’s scarcity is caused by the uniform interest of repeat players (transferee judges, cooperative attorneys appointed to PSCs, defendants and fund administrators) in settlement.

 

An MDL is not a litigation. Attorneys appointed to the PSC are not appointed by the transferee judge to be litigators. These attorneys are not selected for the purpose of zealously advocating on behalf of their clients. Attorneys appointed to the PSC are cooperative dealmakers. Describing an attorney appointed to the PSC as “cooperative” means the attorney would never consider rocking the metaphorical boat of judicial efficiency.

 

In short, the main criteria for membership in every multidistrict litigation PSC, is very simple:

(a) The attorney must be “cooperative;”

(b) The attorney should be a “repeat player;” and

(c) The attorney must have signed-up a large stable of clients which he or she is already directly representing.

 

It is helpful to remember what I refer to as “the three Cs” of any PSC: cooperation, control, and compensation. Greater cooperation (between the dealmakers) and control (in terms of a significant market share of plaintiffs) results in closing the deal faster with the defendant and clearing the docket faster which results in greater compensation. A happy transferee judge is a generous transferee judge. Obviously, I am referring to the compensation received by the members of the PSC. The hapless plaintiffs will most likely receive little or no compensation.

 

The Ugly: The Use of Victims’ Compensation Funds and Settlement Class Actions to Maximize Judicial Efficiency

One of the most egregious examples of blatant collusion in MDL involves the well-known BP oil well blowout in the Gulf of Mexico on April 20, 2010. In this on-going MDL, a relatively small group of repeat and self-interested “cooperative” PSC attorneys, who are permitted to be grossly over-compensated for merely acting as dealmakers, uses a victims’ compensation fund and a settlement class action to maximize judicial efficiency and limit the liability of BP.

 

The BP Victims’ Compensation Fund

Kenneth R. Feinberg, masquerading as a “Fund Administrator,” was employed by BP to limit its liability.

 

In the BP oil well blowout MDL, Feinberg used a “Delay, Deny, Defend” tactic against legitimate oil well blowout claimants/victims to limit BP’s liability. This tactic, commonly used by unscrupulous insurance companies, is as follows: “Delay payment, starve claimant, and then offer the economically and emotionally-stressed claimant a miniscule percent of all damages to which the claimant is entitled. If the financially ruined claimant rejects the settlement offer, he or she may sue.”

 

The ultimate objective of Feinberg’s “Delay, Deny, Defend” tactic was to limit BP’s liability by obtaining a signed “Release and Covenant Not to Sue” from as many BP oil well blowout victims as possible.

 

The BP/Feinberg victims who executed a “Release and Covenant Not to Sue” (approximately 220,000 in number) were subsequently excluded from the settlement class action.

 

The BP Settlement Class Action

In February 2011, only 4 months after Judge Barbier appointed his cooperative attorneys to the BP oil well blowout MDL PSC and Plaintiff Executive Committee, settlement negotiations began in earnest. The PSC and BP negotiated a total amount which BP was willing to pay in order to settle the BP oil well blowout case.

 

The PSC and BP worked backwards from that agreed upon total amount to draft the terms and conditions of the settlement.

 

The BP Settlement Class Action Limits the Compensation Period to 2010

The Honorable Carl J. Barbier clearly states, “The long term effects [of the BP oil well blowout] on the environment and fisheries may not be known for many years.” Nevertheless, in order to limit BP’s liability, one tactic employed by BP and the PSC was to limit the compensation period to 2010.

 

Incredibly, Judge Barbier found that limiting the compensation period to 2010 is reasonable. He explains, “Certain objectors complain that the Economic Damage Claim Frameworks are unfair because they do not compensate persons who did not begin suffering losses until 2011. Yet this provision is reasonable for three reasons: (i) the Macondo well ceased flowing in July 2010; (ii) there is evidence that by late 2010, Gulf Coast tourism had returned to or surpassed 2009 levels; and (iii) as to claims by individuals and businesses in charter fishing, seafood processing, or other businesses relying on access to Gulf waters, nearly all federal and state waters were reopened for commercial fishing by November 2010. Thus, extending compensation to 2011 would cover losses not likely caused by the spill.”

 

The BP oil well blowout settlement contains various causation requirements for Business Economic Loss (“BEL”) claims. Two of the causation tests, the Modified V-test and the Decline-Only test, require a revenue calculation based on benchmark periods and, in addition, a decline in the share of total revenue generated by non-local customers or customers in Zones A to C as reflected in specified documentation.

 

The Settlement Includes a Magical RTP

Judge Barbier reassures BP oil well blowout claimants/plaintiffs that “the settlement claims program’s Risk Transfer Premium (“RTP”) enhances the compensation amount for, among other things, certain claimants whose damages could be recurring, to account for that risk of future damages.”

 

Judge Barbier further instructs, “RTP payments are meant to compensate class members for pre-judgment interest, the risk of oil returning, consequential damages, inconvenience, aggravation, the risk of future loss, the lost value of money, compensation for emotional distress, liquidation of legal disputes about punitive damages, and other factors.”

 

RTP payments are simply magical.

 

If an MDL which resorts to a settlement class action rather than remand has resulted in a loss of faith in the U.S. federal judicial system, then an MDL which employs a Kenneth R. Feinberg victims’ compensation fund and a settlement class action virtually guarantees the eventual meltdown of the U.S. federal judicial system.

 

The BP Oil Well Blowout MDL Ugly Numbers

(a) Kenneth R. Feinberg denied payment to approximately 61.46% of the claimants who filed claims.; the average total amount paid per approved claimant was a paltry $27,466.47.

 

(b) The Deepwater Horizon Claims Center (“DHCC”) denied payment to approximately 60.03% of the submitted claims; the average total amount paid per approved claim was a paltry $64,700.02.

 

(c) BP paid Kenneth R. Feinberg $24.7 million for serving as the victims’ compensation “Fund Administrator” from approximately June 15, 2010 to April 15, 2012.

 

(d) The total compensation paid to the 19 cooperative MDL 2179 PSC attorneys and their law firms is guesstimated to be $3.035 billion.

 

(e) Since 2011, Judge Barbier has declined to permit formal discovery on Feinberg. To date, the lawsuits filed against Feinberg have been put on ice for approximately 7 years.

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