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April 30, 2015 Articles

The Evolution of the Common Benefit Order

By Karen Woodward and Matthew A. Reed

In a mass tort proceeding, there is no possible way for every attorney who has filed a case to litigate that action in the manner one would typically litigate a single, one-off case. The very purpose of coordinated proceedings is to aggregate like cases in a manner that results in efficiencies and cost savings to the parties and to the courts. See, e.g., In re Phenylpropanolamine (PPA) Prods. Liab. Litig., 460 F.3d 1217, 1229 (9th Cir. 2006) (the goal of multidistrict litigation is to “promote the just and efficient conduct” of cases involving common questions of fact). For this reason, one of the first judicial mandates in any coordinated proceeding is the issuance of an order appointing a limited number of plaintiffs’ counsel to a single plaintiffs’ leadership committee. The committee is then tasked with the responsibility of general case management, developing common issues for trial, and positioning the litigation for resolution.

To compensate plaintiffs’ attorneys for work done for the common benefit of all plaintiffs, a mechanism known as a common benefit order (CBO) was devised. See, e.g., Turner v. Murphy Oil USA, Inc., 422 F. Supp. 2d 676, 680–81 (E.D. La. 2006) (collecting cases). A CBO requires the defendant to pay into a common fund a percentage of any settlement or a judgment as a set-aside. See, e.g., In re Zyprexa Prods. Liab. Litig., 467 F. Supp. 2d 256, 265 (E.D.N.Y. 2006). Moneys deposited into the fund are overseen by an independent escrow agent, who ensures that claims for compensation made against the fund are paid only upon a showing that the underlying time spent or expenses incurred were of significant assistance to all plaintiffs. Id. at 266. It is from this fund that general litigation expenses (such as filing fees, travel, deposition expenses, and the like) and fees for tasks accruing to the common benefit of all plaintiffs may be reimbursed to those plaintiffs’ attorneys who incurred them.

Increase in Burden and Scope of CBOs
Because a CBO is established solely for the recovery of costs incurred by plaintiffs’ counsel and the defendant derives no separate benefit from the establishment of such a fund, common sense and basic fairness dictate that any obligations imposed by a CBO on a defendant should be minimal. See, e.g., In re Guidant Defibrillators Prods. Liab. Litig., 2006 WL 409229, at *1 (D. Minn. Feb. 15, 2006). There has been a trend, however, in CBOs placing increasing administrative burdens on defendants. For instance, instead of a defendant paying a single percentage of every settlement or judgment into one common benefit fund, a CBO may require payment into one of several common benefit funds or into a single fund at different rates, depending on the characteristics of the settling or winning plaintiff. As an example, in In re Diet Drugs, the court ordered the establishment of three different common benefit funds, distinguished by how long the settling or winning plaintiff had taken the drugs at issue. In re Diet Drugs (Phentermine, Fenfluramine, Dexfenfluramine) Prods. Liab. Litig., 2002 WL 32154197, at *6 (E.D. Pa. Oct. 3, 2002). Similarly, in In re Genetically Modified Rice, the court established three different pools of plaintiffs with different associated contribution percentages for a single common benefit fund, so that an 11 percent set-aside was required for rice producer plaintiffs, 10 percent for non-rice producer plaintiffs, and 9 percent for European non-rice producer plaintiffs. In re Genetically Modified Rice Litig., 2010 WL 716190, at *6 (E.D. Mo. Feb. 24, 2010).

In other cases, defendants are prohibited from dismissing settled cases governed by the CBO unless they file a certificate signed by defense and plaintiff’s counsel stating that the CBO assessment was withheld and paid into the common benefit fund. See, e.g., In re Guidant, 2006 WL 409229, at *2; In re Bextra & Celebrex Mktg., Sales Practices & Prod. Liab. Litig., 2006 WL 471782, at *2 (N.D. Cal. Feb. 28, 2006).

Some CBOs are broadening their jurisdictional scope, purporting to extend their reach to cases not filed in the proceeding. For instance, in the Zyprexa multidistrict litigation (MDL), the plaintiffs’ steering committee sought “to hold back for use in the common benefit fund a percentage of attorneys’ fee recoveries in state cases where the state plaintiff’s attorney also represents federal plaintiffs.” In re Zyprexa, 467 F. Supp. 2d at 267–68. Similarly, in the genetically modified rice litigation, plaintiffs sought to require the MDL defendants “to hold back and contribute amounts from settlements and judgments related to cases pending in state courts.” In re Genetically Modified Rice, 2010 WL 716190, at *1. There, however, the MDL judge declined to do so because she lacked “jurisdiction to order hold-backs for those state cases.” Id.

Most concerning, CBOs now often require defendants to report settlement activity to the court, the plaintiffs’ leadership, or both. See, e.g., In re Bausch & Lomb Contact Lens Solution Prods. Liab. Litig., 2008 WL 2330571, at *4 (D.S.C. May 21, 2008) (“Defendant’s counsel shall provide at least quarterly notice to the Court, or its designee, and Plaintiffs’ Personal Injury Lead Counsel of the names and docket numbers of the cases for which it has withheld an assessment.”); In re Bextra & Celebrex, 2006 WL 471782, at *4 (“Defense Counsel shall provide at least quarterly notice to the Court or its designee of the names and docket numbers of the cases for which it has made an assessment.”). The effect of such a requirement seriously compromises the confidentiality of the details of those settlements, as it is often possible to reverse-engineer at least the approximate amount of each settlement, despite CBO language stating that the settlement amounts are to remain confidential. Moreover, nothing prohibits plaintiffs’ leadership from using its knowledge of past settlements to attempt to influence pending and future settlements.

Cause and Effect on Defendants of Expanded CBOs
CBOs have become increasingly broad and burdensome over the years because defendants often stipulate to the entry of such orders, presumably without a full comprehension of what they entail. This is understandable, considering that CBOs were traditionally understood as dealing with technical matters among plaintiffs’ counsel, with which the defense need not be concerned. Indeed, when proposing entry of CBOs, plaintiffs’ counsel routinely argue that the defendants should have no say in the orders’ content, because they have nothing to do with the defendants. The increasing burdens placed on defendants in more recent orders, however, render that argument dangerously inaccurate. But because those orders were often entered unchallenged in the past, defendants who now attempt to take a stand against overreaching CBOs must defeat the plaintiffs’ argument that such orders are increasingly standard. Such arguments for the status quo are often difficult to overcome.

Proposed Defense Response to Increased CBO Burdens
If defendants are to curtail the expanding scope of CBOs, they must take a stand against any CBO that imposes more than the most minimal obligations on them. There is at least one decision holding that a CBO that imposes any administrative obligation on a defendant beyond a single payment should not be entered. In In re Zyprexa, the Plaintiffs’ Steering Committee moved the court for the establishment of a common benefit fund and requested that the defendant be ordered to set aside a portion of each such recovery to be included in the common benefit fund. In re Zyprexa, 467 F. Supp. 2d at 267. The defendant opposed the motion, contending that requiring it to administer the fund would place an unfair burden on it. Id. The court’s analysis at least implicitly acknowledged that because the establishment, administration, and benefits of a common benefit fund rest entirely with the plaintiffs and their counsel, the defendants should not be tasked with the fund’s administration, as a matter of equity. The court granted the motion, but specifically found that the defendant had “no responsibility” to administer the fund: “There is no need to burden defendant . . . with this chore.” Instead, the court ordered the Plaintiffs’ Steering Committee to provide for the administration of the fund itself. Id. at 275.

The scope of CBOs entered in coordinated proceedings has broadened significantly in recent years, imposing more and more burdens on defendants and even allowing insights into defendants’ settlement activities. Defendants cannot allow such orders to be entered unchallenged. Plaintiffs’ counsel reap the entirety of the benefits from a CBO and should be responsible for the entirety of its administration. Defendants should not be co-opted into that administration, especially when it compromises the confidentiality of their settlements and settlement strategies. Defendants must challenge overreaching CBOs now, or they will move from misguided trend to de rigueur.

Keywords: mass torts litigation, common benefit order, common fund, plaintiffs' steering committee

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