A recent Legal Intelligencer story, “Firm Must Pay Fee to Avandia MDL Committee,” reports that a firm that used work product from a plaintiffs' steering committee in the Avandia multidistrict litigation must pay a percentage of the settlement proceeds from its cases to the committee's attorney compensation fund.

The U.S. Court of Appeals for the Third Circuit affirmed a ruling from the district judge presiding over the MDL that the Girardi Keese firm of Los Angeles—which represented thousands of plaintiffs in Avandia cases in California state court and 25 in the Eastern District of Pennsylvania-based MDL—could not get out of paying into the committee's "common benefit fund."

Third Circuit Judge D. Michael Fisher said in the panel's opinion that the Avandia steering committee created the fund to compensate attorneys for administration and work product in the MDL.  By signing a contract to participate within the steering committee, Girardi Keese agreed to pay 7 percent of the gross recovery gained from its cases to the fund, a payment that the firm later refused after settling all of its cases.

When the district judge ordered Avandia's manufacturer, GlaxoSmithKline, to withhold 7 percent of the settlement proceeds for the common benefit fund, Girardi Keese appealed, challenging the court's jurisdiction.  The total amount of settlement money from the Girardi Keese cases was not clear.

Fisher said the agreements between attorneys and the steering committee were properly enforced by a court order.  "A district court that supervises a multidistrict litigation 'has—and is expected to exercise—the ability to craft a plaintiffs' leadership organization to assist with case management,'" Fisher said.  "Included in that ability 'is the power to fashion some way of compensating the attorneys who provide classwide services.' 

Here, the district court issued an order—Pretrial Order 70—dictating how it would allow the leadership organization—the steering committee—to be compensated.  One way was to assess a percentage of the recovery of the cases before the MDL.  The district court also permitted the steering committee to, essentially, trade work product for a share in the recovery in cases not before the MDL.  The district court identified a form agreement that the steering committee and interested counsel must use to participate in the common benefit scheme and 'incorporated' the agreement into the order."

Avandia is a prescription drug used to treat Type 2 diabetes.  Thousands of the drug's users sued GSK claiming that it increased the risk of heart failure.  The court appointed a steering committee in the MDL to direct the proceedings, Fisher said.

The agreement between the committee and Girardi Keese, in addition to providing work product such as expert reports to be used in Avandia state and federal cases, authorized Girardi Keese to request compensation for work performed for the common benefit.  The court's Pretrial Order 70 echoed that.

After Girardi Keese's settlements, a dispute arose over the firm's refusal to pay the 7 percent fee and the court's subsequent order.  Girardi Keese argued that by ordering the firm to adhere to the agreement, the district court improperly exercised jurisdiction over the state-court cases in California—cases outside of the MDL judge's jurisdiction, Fisher said.

"We agree with Girardi Keese that had the district court simply ordered the firm, as total strangers to the litigation, to contribute to the common benefit fund from the settlement of its clients' state-court cases, it would have exceeded its jurisdiction," Fisher said.  "However, that is not what the district court did here.  The proper question we must ask is did the district court properly exercise jurisdiction to enforce the contract Girardi Keese made with the plaintiffs' steering committee.  We conclude that it did."

Girardi Keese also argued that it should have received compensation for the work it did for the common benefit.  "Although Girardi Keese says it spent $14 million litigating its cases, it did not offer evidence that its efforts were for the common benefit as opposed to solely on behalf of its clients.  We cannot say the district court abused its discretion in failing to consider or grant a credit for the common benefit Girardi Keese provided when no evidence exists in the record that Girardi Keese actually provided a common benefit," Fisher said.