Multi-District Litigation Reform and the “Fairness in Class Action Act”

25 May 2017 Dashboard Insights Blog

In addition to it taking a swipe at class actions, the Fairness in Class Action Litigation and Furthering Asbestos Claim Transparency Act of 2017 (the “Fairness in Class Action Act”), would lead to multi-district litigation reform (MDL), limiting its reach in federal court.

Like class actions (covered in our last post), multi-district litigations, or MDLs, can pose a tremendous threat to corporate defendants caught in their crosshairs.  They pose their own set of challenges, though: unlike class actions that bring in a group of unnamed plaintiffs under one single case, MDLs collect a group of individual cases under one consolidated pretrial proceeding in a single forum.  Generally, a sampling of these cases are then chosen for “bellwether” trials tried by the MDL judge, the outcome of which gives the parties an idea of what a settlement range for the cases should look like.  If a settlement isn’t reached, the remaining cases—which may number in the thousands—are tried, either in the MDL court or in the court where the case would have been venued but for the MDL.  It is not hard to see the opportunity for enormous cost and enormous exposure in cases where this mechanism is used.

While MDLs pose some hurdles to plaintiffs that class actions do not—for starters, members of an MDL actually need to file their own case, and (in theory at least) cannot passively await an award—they, like class actions, also aggregate plaintiffs in a way that can blow up manageable claims into company-threatening disputes.  Recent headline-making judgments in MDLs show that, unlike most class actions, MDLs are threatening for another reason: each individual case can result in a multi-million dollar verdict.  Additionally, MDLs can linger for years longer than individual or class actions—over 50 of the currently pending MDLs were established before 2010.

A Universal Lone Pine Order

One of the issues that confront defendants in MDLs is that once they gain momentum, there is the potential for unscrupulous plaintiffs to file individual cases (which may involve little more than paying a filing fee and filling out a short-form complaint, which can be a form that the plaintiff’s basic information is plugged into), even with tenuous claims for relief, on the theory that if the defendants settle, there is the chance for a payout without the need to make a showing of injury or causation.  This creates other issues with MDL case management, such as cases selected to be bellwether trials that get dismissed before trial when plaintiffs cannot scrounge evidence backing their claims, leaving the parties and the court without the barometer that these early trials are supposed to provide.

One way that courts have addressed these problems is by the use of Lone Pine orders—case management orders that require plaintiffs to “put up or shut up” by providing some evidence to support their claims in order to keep their individual case live.  This can take the form of requiring expert affidavits spelling out how the plaintiff was injured by defendant’s conduct, which may require details such as how plaintiff was exposed to defendant’s product and providing a medical explanation for plaintiff’s injury.  These orders can be tremendously helpful to defendants in MDLs—by creating an obligation for plaintiffs to present some evidence in support of their claims, subject to review by the defendants and by the court, they can weed out some of the thinner cases that may otherwise be swept into an MDL.  For that reason, industry groups like the Chamber of Commerce have pushed hard for the aggressive use of Lone Pine orders in these proceedings.

But there are (at least from a defense perspective) problems with the current Lone Pine regime.  One is that they are completely discretionary—federal courts overseeing MDL cases can enter Lone Pine orders under their broad power to oversee their cases, but need not do so.  Another is that even where these orders are entered, that may not happen until case management problems have already reared their head, or until the parties are already in the midst of settlement negotiations.

The Fairness in Class Action Act would change that.  It would require any plaintiff in an MDL to: “make a submission sufficient to demonstrate that there is evidentiary support (including but not limited to medical records) for the factual contentions in plaintiff’s complaint regarding the alleged injury, the exposure to the risk that allegedly caused the injury, and the alleged cause of the injury.”  In short, it would make Lone Pine mandatory.  In addition to doing so, it would make Lone Pine mandatory at the outset: plaintiffs would need to make this showing within 45 days after joining the MDL (either by transferring in, or by directly filing in, the MDL).  Courts would need to evaluate this showing within 90 days after that deadline, and dismiss cases that fail to make a sufficient showing—a dismissal that would become with prejudice (i.e., permanent) if plaintiffs did not supplement their evidentiary showing within 30 days of dismissal.  While this may substantially increase the burden on the judiciary—again, some of these MDLs have thousands of individual cases—it may also result in these cases having more merit, and being more reliable indicators of the strength of the claims against defendants.

Limiting Plaintiffs’ Attorneys’ Fees

Another step the Fairness in Class Action Act would take if approved in its current form would be a reduction in the amount of attorneys’ fees that a plaintiff’s attorney could collect in a personal injury action in an MDL.  The Fairness in Class Action Act requires that such a plaintiff “shall receive not less than 80 percent of any monetary recovery obtained for those claims by settlement, judgment, or otherwise,” subject to any medical lien in place related to those claims.  This would of course have the effect of limiting any attorneys’ fees to no more than 20% of the recovered amount—a sharp reduction from what many plaintiffs’ attorneys currently provide in their fee agreements, which may be 30% or more.  While supporters of this bill may point to the efficiencies in the MDL mechanism to show why plaintiffs’ attorneys should not expect a full 30%+ contingent fee payment from each plaintiff that settles in an MDL, this would still plainly diminish the incentive for plaintiffs’ attorneys to bring these claims in the first place.

Prospects for Passage?

It bears repeating that the Fairness in Class Action Act is a long ways from becoming law, and there are elements of the bill that may be stripped out even if it proceeds (such as the limitations on attorneys’ fees provisions, or certain disclosure requirements that would be added for class action plaintiffs).  But with Republican control of Washington, it bears watching because it shows how that party views class actions and MDLs that have become major risks for business interests.  With groups like the Chamber of Commerce pushing for these judicial reforms, there is a strong likelihood that some elements of these reforms will pass in the next two years.

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