Ethical issues raised in bulk settlement agreements in mass torts Judge Charles McCoy Assistant Presiding Judge Superior Court for the County of Los Angeles 111 N. Hill Street, Room 204 Los Angeles, CA 90012 Thomas Girardi Girardi & Keese 1126 Wilshire Blvd. Los Angeles, CA 90017 David A. Rosen Kathleen Strickland Rose, Klein & Marias, LLP Greenberg Traurig LLP 801 S. Grand Avenue, 1900 University Avenue, 11th Floor 5th Floor, Los Angeles, CA 90017 East Palo Alto California 94303
The Rules Rule 1.8 of the Model Rules of Professional Conduct provides: (g) A lawyer who represents two or more clients shall not participate in making an aggregate settlement of the claims of or against the clients unless each clients gives informed consent, in writing signed by the clients. The lawyer s disclosure shall include the existence and nature of all the claims or pleas involved and of the participation of each in the settlement 2
The Rules -- continued California Rules of Professional Conduct, Rule 3-3103 310 provides: (A) For purposes of this rule: (1) Disclosure means informing the client or former client of the relevant circumstances and of the actual and reasonably foreseeable adverse consequences to the client or former client; (2) Informed written consent means the client s or former client s written agreement to the representation following written disclosure; (3) Written means anything in writing as defined in Evidence Code Section 250. 3
The Rules -- continued (C) A member shall not, without informed written consent of each client: (1) Accept representation of more than one client in a matter in which the interests of the clients potentially conflict; or (2) Accept or continue representation of more than one client in a matter in which the interests of the clients actually conflict; or (3) Represent a client in a matter and at the same time in a separate matter accept as a client a person or entity whose interest in the first matter is adverse to the client in the first matter. (D) A member who represents two or more clients shall not enter into an aggregate settlement of the claims of or against the clients without the informed written consent of each client. 4
State Bar s Position The California State Bar takes the position that representation of multiple parties in the same or related matters constitutes the representation of potentially conflicting interests and always requires written conflict waivers. See In Re Matter of Sklar (rev. Dept. 1994), 2 Cal. State Court Bar Reporter 602. 5
Timing of Disclosure At intake, signup of the client; or Otherwise, when settlement becomes imminent. Once the disclosure letter is sent, written consent needs to be obtained to engage in settlement negotiations/mediation. The preference is to get the written consent before engaging in settlement talks. A good time to send out the letter and written consent form is when the mediation date is set. Benefits: avoids surprise, can incorporate their concerns 6
Types of Aggregate Settlements Class settlements distinguished. Negotiation of settlements of a large number of individual cases pending in a mass tort. Negotiation of a settlement grid where the defendant seeks to negotiate a grid or matrix with negotiated settlement values. Matrix based on age, type of injury, and factors using a scoring system. Negotiation of a lump settlement payment without negotiating any particular case values, leaving it the claimants/lawyers/special masters to decide the values for each case. 7
The Issue The primary ethical issue is that all individual clients must be provided full disclosure regarding the circumstances surrounding the settlement, the settlement terms and the settlement process so they are in a position to make an informed decision as to whether to accept or reject any settlement amount ultimately offered in their individual case. In the aggregate settlement case, most state have ethical rules governing aggregate settlements. The general rule is that a lawyer may not make an aggregate settlement unless the lawyer obtains each client s informed consent after disclosing the full scope of the settlement. 8
The Lawyer s Dilemma You should not allow yourself to be caught between conflicting obligations to two or more clients. You should have signed waivers before disbursing any settlement funds from the client trust account. You need to establish a mechanism for determining how to split the settlement proceeds that does not involve advocating for one client against another. At the moment of the settlement disbursement, you should remind the clients that they have agreed to waive any potential conflict that the joint representation created and to not involve you if there is a dispute over the division of the proceeds. 9
Content of Disclosure Letter The overall procedural status of the litigation and mediation date of the case; The status of any settlement negotiations or discussions that have already taken place; Identify the ethical rules, enclose them, governing aggregate settlements; A disclosure of all potential conflicts of interest regarding the negotiation of an aggregate settlement. Each case is different re: liability, causation, damages; Mention that the attorney cannot favor one client and that there may be differing positions with each client; An acknowledgment that the client has the ability to accept or reject any ultimate settlement terms presented; The client has the right to obtain the advice of independent counsel. 10
Options Retention of ethics counsel to provide advice regarding the ethical issues concerning the negotiation of the terms of the aggregate settlement and the settlement process, and to review drafts of disclosure letters sent to the clients. Retention of third party referee. Court appointed settlement master 11
Options -- continued Get the Court Involved. Obtain Imprimatur or Tacit Approval. Third Party Referee: if retained, you may consider obtaining an order from the court appointing the referee to oversee the settlement and allocation process. In California, CCP section 638 permits you to seek appointment of a referee. In federal court, you can have the referee appointed as a special master. 12
Their tasks/jobs: What Do They Do? Assist in developing and implementing procedures for administering, evaluating and resolving individual claims under the terms of the aggregate settlement; Assist in advising clients regarding the settlement and the settlement process; Assist in gathering appropriate information regarding each individual case to responsibly, fairly and expeditiously resolve the claims; Review, process and administer the claims and assign a settlement value for individual claimants under the settlement terms and procedures; 13
What They Do -- continued Employ assistants and institutions to help in the ministerial processing of claims; If court appointed, hearing and adjudication or making recommendations to the court concerning compromise of claims by minors or incompetent adults, and claims among the heirs or representatives of deceased claimants; Assist in setting up special needs trusts or other equivalent instruments to preserve need- based benefits that claimants may wish to preserve; and Assist plaintiffs counsel in the resolution of liens or assignments to third parties, including Medicare and Medicaid liens. Appeal 14
Why Use A Third Party Referee When: if it appears that the aggregate settlement will require implementation of an allocation process, such as a pre-negotiated matrix or lump sum settlement with the defendant that will require allocation. It will preclude any claim that conflicts exerted on you as plaintiff s counsel clouded your impartiality in assigning settlement values or in allocating the settlement sums. The Advantages: the referee is independent The referee provides a forum for clients and co- counsel to be heard on their individual cases; Ensures consistent and objective criteria is used in the allocation process of individual cases 15
Settlement Disclosure Letter Disclosure of Aggregate Settlement Terms and Process to Clients: should include the process used in reaching the settlement, any and all contingencies or conditions placed on the settlement, including any requirement that a certain percentage of the claimants accept the settlement. Letter should update the clients on the status of the litigation and settlement process, the lawyer s recommendation and any other matters affecting the decision as to whether to accept the settlement amount. It should include the right to obtain independent counsel. Explain the anticipated allocation process and the client s ability to accept or reject the proposed settlement. It should also address the ethical considerations and potential conflicts that may exist. 16
Settlement Allocation Process If the negotiation or settlement terms require an allocation process, either through the development of a case matrix or set of criteria for allocation a lump sum settlement for an aggregate of cases, and a subsequent review of each individual case, then a number of procedural and ethical questions arise regarding that process. The allocation of individual cases within an aggregate settlement should be completed dispassionately and on the case merits. Individual cases must be evaluated on the merits. It is inadvisable for you as the settling attorney simply to take your case list and allocate the distribution without using objective criteria and without reviewing the medical records or other supporting documentation. In a personal injury mass tort, a settlement matrix or grid may be appropriate. The benefit is that the matrix and scoring system are objective. Any allocation methodology should be based on objective and consistent criteria that are verifiable from either medical records or other documentation. 17
Settlement Allocation -- continued Basic criteria used in PI mass tort cases: Product usage/exposure Analysis of plaintiff s pre-existing existing condition Documentation of injuries/causation analysis: Need to determine the strength of the causal relationship between exposure and the claimed injuries the clients should be informed as to how the causal analysis is undertaken in each of the categories on injuries claimed, and why certain injuries may be compensated more then others. Thorough review of each individual case by knowledgeable individuals, reviewers who work with referee. The reviewers should perform their work under the supervision of a third party referee with authority. Final informed consent letter sent to clients w/updated disclosures. Advised of right to independent counsel and of right to accept or reject the individual settlement amount All contingencies and conditions must be disclosed. Disclosing the settlement amounts of other participants. 18
Conclusion QUESTIONS? THANK YOU. 19