ETHICAL RULES AND AGGREGATE SETTLEMENTS

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1 ETHICAL RULES AND AGGREGATE SETTLEMENTS Eliot Jubelirer Schiff Hardin LLP San Francisco Aggregate Settlements Are Common and Necessary To Resolve Mass Consolidated Actions Toxic tort and pharmaceutical cases with more than 2,000 individual plaintiffs have been settled through aggregate settlements. With no aggregate settlement procedure, mass tort cases could not be efficiently resolved. Plaintiffs gain the advantage of scale in pursuing their claims by joining together. Defendants gain the advantage of collective and final resolution of cases.

2 What Are Aggregate Settlements? Allocation and Conditionality Defendant(s) pays a lump sum to settle an entire group of claims made by individuals who are all represented by the same attorney and The offer requires as a condition of the settlement that all or a substantial portion of the group agree to be bound Degrees of allocation and conditionality: 1) Lump sum paid to entire group; allocation left to plaintiffs and their attorney; 2) Individual amounts negotiated with the defendant against a capped amount; 3) Determining each plaintiff s settlement according to a matrix or formula; 4) All plaintiffs must agree for the deal to be made or 5) A super majority of plaintiffs must agree for the deal to be made; 6) Use of third-party mechanisms to allocate settlement: i. Ask for court approval ii. Retain a mediator or private judge to review allocations

3 Aggregate Settlements Trigger Ethics Rules on Concurrent Conflicts and Informed Consent ABA Model Rule 1.8(g) A lawyer who represents two or more clients shall not participate in making an aggregate settlement of claims of or against the clients, or in a criminal case an aggregated agreement as to guilty or nolo contendere pleas, unless each client gives informed consent, in a writing signed by the client. The lawyer s disclosure shall include the existence and nature of all the claims or pleas involved and of the participation of each person in the settlement. All states have the same or very similar rules: e.g. California Rule of Professional Conduct Illinois Rules of Professional Conduct 1-8(g) Massachusetts Rules of Professional Conduct 1-8(g) Texas Rules of Professional Conduct 1.08(F) Ohio Rules of Professional Conduct 1.8(g) New York Rules of Professional Conduct 1.8(g) All rules require informed consent of all jointly represented clients after full disclosure of the existence and nature of all claims involved and some also require (e.g., Texas) disclosure of the extent of participation of each person in the settlement.

4 Assume proposed settlement of: 200 cases total: 5 mesothelioma cases 20 lung cancer cases 35 confirmed asbestosis cases of varying degrees of severity 140 disputed asbestosis cases Are These Aggregate Settlements? 1) Lump sum settlement of $1,770,000 2) Lump sum settlement by disease category 5 mesothelioma cases 500,000 ($100,000 each) 20 lung cancer cases 500,000 ($ 25,000 each) 35 asbestosis cases 350,000 ($ 10,000 each) 140 disputed asbestosis 420,000 ($ 3,000 each) cases $1,770,000 3) Individual analysis and negotiation with the defendant of the value of each case with a cap on the total. 4) Individual analysis and negotiation with the defendant of the value of each case with no set cap.

5 Jointly Represented Plaintiffs May Have No Attorney-Client Privilege Among the Group Query whether all of the plaintiffs are entitled to learn about each other s medical histories and conditions in order to give informed consent about whether the allocation of settlement funds is fair? Are Conflicts Waivable In Advance? Query whether plaintiffs can waive in the retention agreement the inherent conflict by agreeing in advance to allow the attorney to do the allocation or agreeing to less than full disclosure about jointly represented plaintiffs. Query whether the allocations can be made without informed consent of each plaintiff even when a third party neutral approves the allocation?

6 Penalty for Violating the Rule 1) Suit by disappointed plaintiff member of the group for malpractice and breach of fiduciary duty a) To recover a greater amount assuming no settlement or a better settlement b) To recover the attorneys fees paid to plaintiff s counsel. See Burrow v. Arce (1999) 997 S.W.2d 229 (Supreme Court, Texas) 2) To set aside the settlement in its entirety Bibliography: Silver, et al., Mass Lawsuits and The Aggregate Settlement Rule, 32 Wake Forest L. Rev. 733 (1997) Moore, The Case Against Changing The Aggregate Settlement Rule in Mass Tort Lawsuits, 41 S. Tex. L. Rev. 149 ( ) Erickson, A Typology of Aggregate Settlements, 80 Notre Dame L. Rev ( ) Cramton, Lawyer Ethics on the Lunar Landscape of Asbestos Litigation, 31 Pepp. L. Rev. 175 (2003) Brickman, Lawyer s Ethics and Fiduciary Obligation in the Brave New World of Aggregative Litigation, 26 Wm. & Mary Envtl. L. & Pol y Rev. 243 (2001) Rheingold, Ethical Constraints on Aggregated Settlements of Mass Torts, 31 Loy. L.A. L. Rev. 395 (1998) Silver, et al., I Cut, You Choose: The Role of Plaintiffs Counsel in Allocating Settlement Proceeds, 84 Va. L. Rev (1998) Issacharoff, et al., The Inevitability of Aggregate Settlement: An Institutional Account of American Tort Law, 57 Vand. L. Rev (2004)