May 23, 2023
A recent Reuters article by Alison Frankel, “Appeals Court Will Decide If Lawyers Can Evade Common Fund Fees in Consolidated Cases,” reports on common fund fees in class actions and MDLs. The story reads:
Can a plaintiffs lawyer who was a member of the steering committee in consolidated multidistrict litigation get out of paying common benefit fees for cases resolved outside of the MDL’s confines? That’s the question that will be argued before the 9th U.S. Circuit Court of Appeals in a case arising from consolidated litigation over C.R. Bard Inc’s blood clot filter implants. The 9th Circuit punted last year in a similar case addressing common fees in the Roundup MDL because the fee ruling on appeal was not a final order.
But assuming there are no jurisdictional problems in the Bard case – as both parties assured the appeals court in a joint supplemental brief filed earlier this month – the 9th Circuit will be just the third federal appeals court in the last decade to offer answers to vexing questions about the scope of MDL judges’ power to order fees in cases they do not oversee.
Common benefit fees, as you know, are intended to compensate MDL lead counsel who expend significant time and money to conduct discovery and litigate legal issues that affect all of the cases in the MDL. The fees address what might otherwise be the problem of “free-riding” by lawyers trying to capitalize on the efforts of MDL leaders without paying for it.
There’s little doubt that MDL judges have the authority to order plaintiffs lawyers whose cases are part of the consolidated proceeding to turn over a share of their clients’ settlements to MDL leadership. (In the Bard MDL, common benefit fees have been held back in an escrow account before ever reaching plaintiffs and their lawyers.) But what about cases outside of the MDL, such as state-court lawsuits, claims that were settled before they were formally filed or cases filed after the closure of the MDL? Can MDL judges require plaintiffs lawyers to pay common benefit fees in those cases?
Federal circuits have reached different conclusions. In 2014, the 8th Circuit ruled in In re Genetically Modified Rice Litigation that the MDL judge did not have authority to order fees from plaintiffs’ lawyers in state-court GMO suits. But in 2015’s In re Avandia, the 3rd Circuit ruled that MDL courts are entitled to enforce their own orders, so an MDL judge had authority to order a plaintiff’s firm that participated in the MDL to pay a common benefit fee on all of its settled cases.
Two highly-regarded MDL judges also recently diverged on the scope of their authority. U.S. District Judge Jesse Furman of Manhattan ruled in 2020’s In re: General Motors that his MDL orders required lawyers who had litigated before him to pay common benefit fees from settlements of unfiled cases. But U.S. District Judge Vince Chhabria of San Francisco held in 2021’s In re: Roundup that his power to order fees was limited to cases within the MDL.
Like I said, this is a vexing issue. The twist in the Bard case is that plaintiffs lawyer Ben Martin of Martin Baughman was appointed to the MDL’s steering committee at the very beginning of the case in 2015. He and the lawyers at his firm settled about 200 cases in the MDL. But they also settled an additional 300 or so cases that were never formally filed, were brought in state court, or were filed after U.S. District Judge David Campbell of Phoenix closed the Bard MDL.
Martin’s counsel, Howard Bashman of the indispensable How Appealing blog, told the 9th Circuit that Campbell erred when he ruled in 2022 that all of Martin’s cases – and not just those settled within the MDL -- were subject to a fee holdback. Bashman argued that MDL judges simply do not have a right, under their inherent case management power or common fund doctrine, to order fees in cases that are not before them.
In a phone interview, Bashman acknowledged the free rider problem, but said that the 9th Circuit must distinguish between the legitimate goal of deterring abusive case-filing by plaintiffs lawyers who want to avoid common benefit fees and the limited power of MDL judges to accomplish that end. “Those are two different questions,” Bashman said. (He emphasized that Martin and his firm were not trying to avoid common benefit fees by settling cases outside of the MDL.)
The other lawyers on the Bard MDL steering committee, who are represented by Shannon Clark of Gallagher & Kennedy, assert that MDL judges have inherent power to assess fees on cases outside of their court. But the lawyers' primary argument is that Martin and his firm agreed to common benefit fee holdbacks for all of their cases when Martin accepted an MDL leadership role, based on a participation agreement attached to a Campbell case management order. (Martin has also received common benefit fees under those orders.) Clark, who did not respond to my email query, argued that Martin waived his right to challenge the fees by failing to object to Campbell’s orders.
Bashman told the 9th Circuit that there is no evidence Martin signed the relevant participation agreement. And even if he did, Bashman said, the MDL judge is not entitled to exceed his authority by imposing an impermissible condition on Martin’s ability to represent his clients.
In some ways, the stakes in the Bard appeal are small. Martin’s briefing does not say precisely how much money has been held back but says his clients’ 2% share amounts to less than $1 million. The overall holdback is 10%, so this fight seems to involve between $5 and $10 million. On the other hand, common benefit fees affect every MDL, and surely total hundreds of millions of dollars across all of the consolidated multidistrict cases being litigated in U.S. court.
Moreover, Bashman said, the 9th Circuit panel – 9th Circuit judges John Owens and Bridget Bade and Judge Miller Baker of the U.S. Court of International Trade – might not be the last word on the fee question, regardless of who wins. “This does seem like the kind of issue the U.S. Supreme Court would be interested in,” he said.