Last week, I wrote about a commonplace problem in product liability lawsuits: when courts forbid plaintiffs’ lawyers from sharing relevant discovery evidence amongst themselves, they inadvertently enable the defendants to engage in discovery fraud by cherry-picking which evidence they produce in each case. A new article by the federal judge (and the special masters he appointed) who oversaw the 9/11 Responders litigation reveals another critical component of a successful and fair resolution of high-stakes litigation: the cases need to move.

 

The article, Managerial Judging: The 9/11 Responders’ Tort Litigation (via TortsProf), is one-part guidance for future courts in similar situations and one-part a defense of Judge Hellerstein’s unorthodox methods in the case, which included his rejection of the initial proposed settlement — an exercise of judicial power that, while common in class actions, is unheard of in individual personal injury cases. (Judge Hellerstein himself notes in the article that his power was disputed, and says, “if I was right in asserting supervisory control of the litigation and rejecting the initial settlement, then those powers should be clearly set forth” by future statutes and rules.)

 

On the one hand, the 9/11 Responders litigation was indeed “unprecedented,” but, then again, so are most mass torts. Pharmaceutical liability mass torts are somewhat routine these days, but, for example, the consolidated asbestos litigation presented many of the same problems of scientific causation and varied individual exposure as the 9/11 Responders cases. Each case presents new and unique challenges.

 

In many ways, the most unique aspect of the 9/11 First Responders was the defendants’ interest in settling — the biggest defendant was the “Captive” billion-dollar insurance fund created by the government for the purpose of settling the claims.  That certainly didn’t make the case easy, but it added an element missing from most mass torts: some willingness among the defendants to settle for a reasonable amount. Usually, defendants want to tell people to take their cancer, their uncontrollable hemorrhaging, their heart attacks, and go home penniless.  

 

The part I found encouraging was the authors’ recognition of the reality of mass torts litigation as a war of attrition in which the defendant usually has far more money and far more time, than the plaintiffs:

 

Defendants exert leverage by pressuring the plaintiffs’ contingent fee structure. Defendants’ counsel are paid on a current and hourly basis and staff liberally. The result is extensive discovery, numerous motions, and a general prolongation of proceedings. It becomes expensive for plaintiffs’ counsel to fund the litigation, and a practice has grown of financing mass tort actions at high compound interest rates with repayment deferred until a settlement or recovery is accomplished.

 

As the article notes, the Responders’ lawyers, from the plaintiffs’ firms Napoli Bern Ripka Shkolnik and Worby Groner Edelman, “borrowed by 2010 more than thirty million dollars to help finance over seven years of litigation,” in loans personally guaranteed by the partners of the firm, with interest rates ranging from 6% to 18%, ultimately resulting in approximately $11 million dollars in interest fees alone. Carrying tens of millions of dollars in debt around your neck for years, without receiving a penny of income meanwhile, unsurprisingly has an effect on how you pursue the cases, and your evaluation of the cases’ settlement value. As Judge Strine in Delaware rightly recognized, the “real risk” in litigation grows the longer the case is in suit.

 

In contrast, the defendant and their lawyers profit from the delay. The defendant gets to keep their money invested in the market making a nice and steady return (which means it’s still worth it, even if they are paying legal fees for additional hours of work), while the defense lawyers keep their practices flush with work. And that’s my biggest quibble with Judge Hellerstein’s article: in discussing leverage sought by the parties, he equates the leverage plaintiffs supposedly have in sheer numbers with the leverage defendants’ genuinely have by virtue of their superior resources. Consider this passage:

 

Plaintiffs exert leverage by bringing large numbers of cases, often with inadequate regard to the merits of the claims. They believe that the interrorem effect of mass claims may lead to quick settlements. Plaintiffs’ counsel’s assumption is that large numbers of claims produce added exposure to defendants, in potential liability and defense expenses, increasing incentives to settle. Plaintiffs’ counsel also tend to join as many defendants as possible to increase the number of potential contributors to settlement and to create opportunities for cross–pleadings by defendants against one another, adding additional expense to defendants and creating risks of one defendant seeking to prove fault against other defendants.

 

The “in terrorem” effect is real in some types of litigation, and it’s part of what drives patent trolls. When a small business or mid-sized business is facing with an uninsured claim, and thus potentially hundreds of thousands of dollars in legal fees, it can feel pressured to settle.

 

But that analysis has nothing to do adequately insured defendants or with mass torts litigation against solvent entities. In the 9/11 Responders case, the defendants — most of them government entities — had a billion-dollar government-funded war chest. The in terrorem effect of 10,000 claims on a billion-dollar war chest is like the in terrorem effect of a rubber ducky charging a battleship.

 

Indeed, as the Court swiftly figured out, over 40% of the plaintiffs did not even claim to have suffered a serious injury. Even the serious cases, involving death, cancer, or heart attacks, were, as the article admits, “likely to be vulnerable to Daubert motions on causation.” The judge and the special masters concluded,

 

Even if only half of the claims for death, cancer, and heart attack were likely to be weak, then another 4.25% of all plaintiffs presented no serious litigation threat to defendants, bringing the total of relatively weak cases to 73.15%.

 

In other words, right off the bat, it was clear that less than one-third of the cases even had a chance of producing a substantial verdict. So much for that  in terrorem effect; if anything, the sheer number of claims weighed more against the plaintiffs’ lawyers — because it’s an administrative nightmare, and each case adds thousands of more dollars in costs — than against the defendants.

 

So what did prompt settlement of the cases? The article admits, “Neither Judge Hellerstein nor the special masters [i.e., the authors of the article] were privy to the negotiations between the parties and therefore cannot speak definitively as to what brought them to settle the case,” but they believe six factors were involved:

 

(1) issuance by the court of a core discovery order requiring responses to a number of important questions; (2) agreement on objective medical criteria to be incorporated in a Severity Chart that ranked injuries according to relative severity; (3) development of a comprehensive, electronically-searchable database; (4) adoption of a schedule for early discovery and trials; (5) selection of plaintiffs, using the database, for early trials; and (6) comprehensive, big-picture correlations of data from the database.

 

Each of those was probably a good idea for the court to do itself to aid in settlement negotiations, and each is important in the management of a mass tort, but, in my humble opinion, one of those factors stands out above all the others: “adoption of a schedule for early discovery and trials.”

 

As I have said before, most cases revolve around the three Ds of corporate insurance defense: deny, delay, defend. I didn’t coin the phrase; it’s well-known among plaintiffs’ lawyers of all stripes, from those handling car accidents, to medical malpractice, to multi-million dollar mass torts.

 

With that in mind, here’s the timeline ordered by the court:

 

Parties could engage in extensive discovery as soon as the plaintiffs for early discovery and trial were chosen. Discovery for this first group of six plaintiffs was to be completed by November 21, 2009; all pre-trial motions were to be filed by January 5, 2010 and argued by February 4, 2010. Trials were to begin on May 17, 2010.

 

When was the settlement first reached? March 2010, or, to use a phrase common to plaintiff’s lawyers, “on the courthouse steps.” After seven years of litigation, the cases finally settled just two months before trial, just like most injury cases. The defendants denied, delayed, and defended until judgment day was upon them.

 

As commendable as Judge Hellerstein and the special masters efforts were, we shouldn’t lose sight of the big picture here: defendants and their insurance companies don’t willingly make reasonable settlement offers. The only thing that brings them to the table is the immediate threat of trial. If judges want to resolve these cases, they need to move them along to trial.