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September 30, 2011 Mass Tort Settlements Ethical Rules and Considerations Beasley, Allen, Crow, Methvin, Portis & Miles, P.C. Montgomery, Alabama www.beasleyallen.com.

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Presentation on theme: "September 30, 2011 Mass Tort Settlements Ethical Rules and Considerations Beasley, Allen, Crow, Methvin, Portis & Miles, P.C. Montgomery, Alabama www.beasleyallen.com."— Presentation transcript:

1 September 30, 2011 Mass Tort Settlements Ethical Rules and Considerations Beasley, Allen, Crow, Methvin, Portis & Miles, P.C. Montgomery, Alabama 1

2 Trend: Class Certification Difficulty Firm represents hundreds or thousands of clients in putative class action Class certification fails Defendant later desires to enter a settlement covering all or a large subset of claims Ethical Rules and Considerations in Mass Tort Settlements Trend ∙ Resulting Issue ∙ Aggregate Settlement Rule ∙ Rule Purpose ∙ Problems for Attorneys ∙ Key Elements ∙ Adequate Disclosure ∙ Waiver ∙ No Majority Rule ∙ Consequences ∙ BP Settlements 2

3 The Resulting Issue Conflict of Interest – In an aggregate settlement, all clients must consent after consultation before the agreement can be final and binding. Ethical Rules and Considerations in Mass Tort Settlements Trend ∙ Resulting Issue ∙ Aggregate Settlement Rule ∙ Rule Purpose ∙ Problems for Attorneys ∙ Key Elements ∙ Adequate Disclosure ∙ Waiver ∙ No Majority Rule ∙ Consequences ∙ BP Settlements 3

4 Aggregate Settlement Rule “A lawyer who represents two or more clients shall not participate in making an aggregate settlement of the claims of… the clients… unless each client consents after consultation, including disclosure of the existence and nature of all the claims… involved and of the participation of each person in the settlement.” -- ABA Model Rule 1.8(g) Adopted: Ga. R. & Regs. St. Bar 1.8 (2011) Ethical Rules and Considerations in Mass Tort Settlements Trend ∙ Resulting Issue ∙ Aggregate Settlement Rule ∙ Rule Purpose ∙ Problems for Attorneys ∙ Key Elements ∙ Adequate Disclosure ∙ Waiver ∙ No Majority Rule ∙ Consequences ∙ BP Settlements 4

5 Purpose To discourage client favoritism in order to maximize fee. A lawyer might represent the interests of the clients with the largest dollar claims. Ethical Rules and Considerations in Mass Tort Settlements Trend ∙ Resulting Issue ∙ Aggregate Settlement Rule ∙ Rule Purpose ∙ Problems for Attorneys ∙ Key Elements ∙ Adequate Disclosure ∙ Waiver ∙ No Majority Rule ∙ Consequences ∙ BP Settlements 5

6 Problems that Arise Interference with practical settlement negotiations and the efficient resolution claims Uncertainty in litigation – One client’s ability to derail a settlement Attorneys unwilling to proceed due to severe penalties and sanctions even if client is not actual harmed by settlement. Ethical Rules and Considerations in Mass Tort Settlements Trend ∙ Resulting Issue ∙ Aggregate Settlement Rule ∙ Rule Purpose ∙ Problems for Attorneys ∙ Key Elements ∙ Adequate Disclosure ∙ Waiver ∙ No Majority Rule ∙ Consequences ∙ BP Settlements 6

7 Key Elements 1.Adequate disclosure – 5 things that must be disclosed 2.Consent Ethical Rules and Considerations in Mass Tort Settlements Trend ∙ Resulting Issue ∙ Aggregate Settlement Rule ∙ Rule Purpose ∙ Problems for Attorneys ∙ Key Elements ∙ Adequate Disclosure ∙ Waiver ∙ No Majority Rule ∙ Consequences ∙ BP Settlements 7

8 Five things an attorney must disclose regarding any aggregate settlement: 1.Total amount of the aggregate settlement 2.Existence and nature of all of the claims involved 3.Details of “every other client’s” participation – Including any “non-monetary remuneration” 4.Total fees and costs to be paid to the lawyer – Including whether those fees were paid from settlement proceeds 5.Methods by which costs are to be apportioned among the clients -- ABA Formal Ethics Op (Feb. ’06) Trend ∙ Resulting Issue ∙ Aggregate Settlement Rule ∙ Rule Purpose ∙ Problems for Attorneys ∙ Key Elements ∙ Adequate Disclosure ∙ Waiver ∙ No Majority Rule ∙ Consequences ∙ BP Settlements 8

9 Ethical Rules and Considerations in Mass Tort Settlements Case examples: Adequacy of Disclosure Court ordered sanctions for plaintiffs' lawyer’s failure to disclose enough information about their settlements before getting them to sign releases. – In re Guidant Corp. Implantable Defibrillators Prods. Liab. Litig., MDL No , 2009 WL (D. Minn. Dec. 15, 2009). Trend ∙ Resulting Issue ∙ Aggregate Settlement Rule ∙ Rule Purpose ∙ Problems for Attorneys ∙ Key Elements ∙ Adequate Disclosure ∙ Waiver ∙ No Majority Rule ∙ Consequences ∙ BP Settlements 9

10 Case examples: Adequacy of Disclosure Lawyers presented Claimant with a settlement agreement that totaled $3 million, with the Claimant netting $1.47 million. Lawyer failed to disclose Defendant had made an aggregate offer of $73.5 million, with net $55 million for the Mississippi claimants and $18.5 million for the Virginia claimants Lawyers also represented. According to the majority, one of the things that saved the Claimant’s fraud claim was that the settlement agreement signed by Lawyers and Defendant provided that Lawyers would comply with Rule 1.8. – Waggoner v. Williamson, 2009 Miss. LEXIS 88 (Miss. Feb. 26, 2009). Trend ∙ Resulting Issue ∙ Aggregate Settlement Rule ∙ Rule Purpose ∙ Problems for Attorneys ∙ Key Elements ∙ Adequate Disclosure ∙ Waiver ∙ No Majority Rule ∙ Consequences ∙ BP Settlements 10

11 Ethical Rules and Considerations in Mass Tort Settlements Case examples: Consent Waiver Unavailable The Tenth Circuit has held that requirement in Rule 1.8(g) that each party give informed consent to aggregate settlement agreement cannot be waived. - Hayes v. Eagle-Picher Indus., Inc., 513 F.2d 892 (10th Cir. 1975). Trend ∙ Resulting Issue ∙ Aggregate Settlement Rule ∙ Rule Purpose ∙ Problems for Attorneys ∙ Key Elements ∙ Adequate Disclosure ∙ Waiver ∙ No Majority Rule ∙ Consequences ∙ BP Settlements 11

12 Ethical Rules and Considerations in Mass Tort Settlements Engagement letter signed by joint plaintiffs that provided that says a majority vote can bind all to a settlement violated New Jersey's version of Model Rule 1.8(g) – The Tax Authority, Inc. v. Jackson Hewitt, Inc., 898 A.2d 512 (N.J. 2006). Case examples: Consent No majority vote Trend ∙ Resulting Issue ∙ Aggregate Settlement Rule ∙ Rule Purpose ∙ Problems for Attorneys ∙ Key Elements ∙ Adequate Disclosure ∙ Waiver ∙ No Majority Rule ∙ Consequences ∙ BP Settlements 12

13 Ethical Rules and Considerations in Mass Tort Settlements Case examples: Orders, Penalties, Sanctions Distribution of $200 million Fen-Phen aggregate settlement results in disbarment of the lawyers, removal of the judge approving the settlement, and malpractice suit against the lawyers. Lawyers took too much of the settlement fund and told 431 individual clients nothing about how the settlement was arrived at. – Cunningham v. Abbott, 2011 Ky. App. LEXIS 24 (Ky. App. Feb. 4, 2011). Trend ∙ Resulting Issue ∙ Aggregate Settlement Rule ∙ Rule Purpose ∙ Problems for Attorneys ∙ Key Elements ∙ Adequate Disclosure ∙ Waiver ∙ No Majority Rule ∙ Consequences ∙ BP Settlements 13

14 Ethical Rules and Considerations in Mass Tort Settlements Case examples: Orders, Penalties, Sanctions Forfeiture of Fees Clients may be able to sue for forfeiture of the lawyers’ fees even without proving actual damages. – Burrow v. Arce, 997 S.W.2d 229 (Tex. 1998) Trend ∙ Resulting Issue ∙ Aggregate Settlement Rule ∙ Rule Purpose ∙ Problems for Attorneys ∙ Key Elements ∙ Adequate Disclosure ∙ Waiver ∙ No Majority Rule ∙ Consequences ∙ BP Settlements 14

15 Ethical Rules and Considerations in Mass Tort Settlements Case examples: Orders, Penalties, Sanctions Court denied a Rule 12(b)(6) motion to dismiss a legal malpractice complaint arising out of a settlement of a claim against a pharmacist who had, in hundreds of cases, sold diluted chemotherapy drugs. A lawyer's violation of aggregate settlement rules can support a malpractice claim. – Booth v. Davis, 2010 U.S. Dist. LEXIS (D. Kan. Aug. 31, 2010). Trend ∙ Resulting Issue ∙ Aggregate Settlement Rule ∙ Rule Purpose ∙ Problems for Attorneys ∙ Key Elements ∙ Adequate Disclosure ∙ Waiver ∙ No Majority Rule ∙ Consequences ∙ BP Settlements 15

16 Case examples: Orders, Penalties, Sanctions BP Oil Spill Case Court found that "the hybrid role" played by Kenneth Feinberg in administering a $20 billion settlement fund "has led to confusion and misunderstanding by claimants." Court ordered Feinberg, a lawyer, among other things, not to tell claimants they don't need a lawyer or to claim he is "neutral" or "completely independent." (Feinberg was hired by BP and is being paid by BP, pursuant to a contract with BP.) Trend ∙ Resulting Issue ∙ Aggregate Settlement Rule ∙ Rule Purpose ∙ Problems for Attorneys ∙ Key Elements ∙ Adequate Disclosure ∙ Waiver ∙ No Majority Rule ∙ Consequences ∙ BP Settlements 16

17 Ethical Rules and Considerations in Mass Tort Settlements Case examples: Orders, Penalties, Sanctions BP Oil Spill Case The court also ordered Feinberg to tell claimants they have a right to a lawyer and to expand upon their rights under the relevant law. The court gave no indication how Feinberg's communications with claimants might affect settlements already reached. – In re Oil Spill by the Oil Rig "Deepwater Horizon," 2011 U.S. Dist. LEXIS (E.D. La. Feb. 2, 2011). Trend ∙ Resulting Issue ∙ Aggregate Settlement Rule ∙ Rule Purpose ∙ Problems for Attorneys ∙ Key Elements ∙ Adequate Disclosure ∙ Waiver ∙ No Majority Rule ∙ Consequences ∙ BP Settlements 17

18 Ethical Rules and Considerations in Mass Tort Settlements The questions arise: Are the “final settlements” entered into by claimants with Feinberg enforceable? Was Feinberg subject to Rule 1.8(g) in his “hybrid role” and if so, did he comply with the stringent disclosure requirements? Trend ∙ Resulting Issue ∙ Aggregate Settlement Rule ∙ Rule Purpose ∙ Problems for Attorneys ∙ Key Elements ∙ Adequate Disclosure ∙ Waiver ∙ No Majority Rule ∙ Consequences ∙ BP Settlements Case examples: Orders, Penalties, Sanctions BP Oil Spill Case 18

19 Ethical Rules and Considerations in Mass Tort Settlements Conclusion Mass torts, generally, must use aggregate, non-class settlement Rule 1.8(g) requires disclosure and consent from all clients Compliance with rule may not be a practical, or efficient settlement of claims Orders, penalties, and sanctions can be severe for violation Trend ∙ Resulting Issue ∙ Aggregate Settlement Rule ∙ Rule Purpose ∙ Problems for Attorneys ∙ Key Elements ∙ Adequate Disclosure ∙ Waiver ∙ No Majority Rule ∙ Consequences ∙ BP Settlements 19


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