Morphing Case Boundaries in Multidistrict Litigation Settlements

• Jurisdiction: United States,Federal
• Publication year: 2014
• Citation: Vol. 63 No. 6

Morphing Case Boundaries in Multidistrict Litigation Settlements

Margaret S. Thomas

MORPHING CASE BOUNDARIES IN MULTIDISTRICT LITIGATION SETTLEMENTS

Margaret S. Thomas^*

Abstract

The boundaries of federal multidistrict litigation (MDL) are blurring as district courts seek innovative ways to facilitate global settlements to resolve multijurisdictional, multidimensional, national mass torts. The techniques emerging from the district courts have mostly evaded appellate review and received little scholarly attention, but they raise important challenges to traditional understandings of the nature of MDL and complex litigation. This Article argues that factually similar cases proceeding in multiple court systems in mass tort disputes create a "federalism problem " for global settlements: global settlements typically benefit from oversight by a single judge, but often there is no single judge who can exercise control over all the parties who might participate in such a settlement. This Article identifies a trend emerging in MDL settlements that attempts to solve the federalism problem by extending the MDL court's authority. In the settlement phase, some MDL judges have begun experimenting with the exercise of power over state litigants (and even individuals who made private claims but never filed suit in any court), in order to facilitate global settlements. In this situation, the "case" appears to encompass the national mass tort settlement itself. This Article concludes that the aggregative trend toward transjurisdictional settlement authority in MDL has no basis in the MDL statute. The emerging practice submerges the federalism problem into the settlement agreement without regard to the inherent limitations on the federal court's structural power, but the federalism problem remains unsolved.

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Introduction............................................................................................1341

I. The Evolving Nature of Multidistrict Litigation Settlements...................................................................................1349

A. Limited Power over Individual Cases Comprising Multidistrict Litigation ............................................................. 1352
B. Coordination Between State and Federal Courts as an Alternative to Formal Aggregation .......................................... 1357
C. Trailblazing New Paths to Global Peace Through Transjurisdictional Settlement Administration......................... 1362

1. In re Zyprexa's Invention of the "Quasi-Class Action" .... 1363
2. In re Guidant's Extension of MDL Power over State Court Settlements .......................................................................... 1364
3. Pushing the Boundaries of the Quasi-Class Action to New Frontiers in the In re Vioxx Global Settlement Agreement 1366
4. Expanding MDL Power in the Deepwater Horizon Litigation in the Absence of a Global Settlement Agreement ........................................................................... 1372

II. The Persistence of the Federalism Problem in Multidistrict Litigation.............................................................1373

A. The Narrow Conception of MDL Power: Locating the Federalism Problem in MDL's Narrow Statutory Definition ... 1374
B. The Broad Conception of MDL Power: Locating the Federalism Problem Lurking in Mass Settlements................... 1376

Conclusion................................................................................................1380

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Introduction

Over a decade ago, Professor Erichson observed that complex litigation finds ways to aggregate itself.¹ His observation remains true: innovative forms of aggregation in multidistrict litigation (MDL) are developing to achieve global peace in complex litigation.² Among the most important of these innovations are transjurisdictional global settlements under the authority of the MDL court,³ affecting claimants outside the MDL, including private claimants who never filed lawsuits.

The important disaggregative innovations identified by Professor Dodge in her article pose a challenge to the conventional understanding of complex litigation.⁴ The private claims settlement facilities she identifies as postdispute "disaggregative mechanisms" promise to expedite payment to persons harmed by mass torts by resolving individual claims privately, outside the court systems.⁵ As she points out, they are defendant-designed private alternatives to litigation, and they seek to allow defendants to get out of mass tort liability quickly and cheaply.⁶ However, early experiments with such devices suggest these private claims resolution mechanisms have difficulty resolving mass torts without intervention from public courts.⁷

MDL and aggregate settlements remain the primary path to global peace in complex litigation. This Response thus focuses on how MDL helps foster global settlements, the forces that drive these settlements toward aggregation, and the structural difficulties posed by mass tort litigation spanning multiple court systems.

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The British Petroleum (BP) oil spill litigation provides a useful illustration of the shortcomings of private claims resolution systems. Recent scholarly scrutiny of the results obtained in the private claims facility created by BP after the Gulf Coast oil spill disaster has raised questions about whether private alternatives to litigation provide any real benefits over public litigation.⁸ The Gulf Coast Claims Facility (GCCF) was supposed to resolve all private claims against BP for the oil spill privately, without resort to any courts.⁹ In theory, this informal, private system of paying claims should have offered cost savings to both claimants and BP, and resulted in more efficient compensation.¹⁰ It failed to do either. The task of crafting a global settlement of private claims ultimately fell upon the federal court system because the private system was unable to achieve global peace. Along the way, the terms of the court-enforced settlement were heavily litigated (and are in fact still subject to dispute).¹¹

Despite the GCCF paying out over $6.2 billion to more than 220,000 GCCF claimants in 18 months,¹² the vaunted benefits of the GCCF's private resolution never fully materialized—even for BP, as the defendant that designed it. Thousands of claimants still opted to file lawsuits instead of pursuing claims in the GCCF.¹³ These suits ultimately were consolidated in a very expensive, lengthy MDL in federal court.¹⁴ The document discovery alone involved 90 million pages of documents.¹⁵ The cost and complexity of the MDL caused BP to abandon its disaggregated approach seeking individual settlements in the GCCF and work instead toward a court-supervised mass settlement with the Plaintiffs' Steering Committee (PSC) in the MDL, ultimately resulting in two traditional aggregate settlements through the formal class action device.¹⁶ The settlements then spawned multiple appeals to the Fifth Circuit.¹⁷ The GCCF was an abject failure if its goal was for the

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defendant to avoid the transaction costs of aggregate settlements: these transaction costs have been estimated to have cost BP $600 million.¹⁸

Despite these transaction costs, the highly contested, court-administered aggregate settlements in the Deepwater Horizon case appear to have generated better results for the plaintiffs than the GCCF—though BP has vigorously disputed the interpretation of the settlement agreement yielding those results.¹⁹ New research by Professors Issacharoff and Rave suggests the GCCF claimants generally received significantly smaller payments than those participating in the aggregate settlements.²⁰ The aggregate public litigation thus generated higher compensation than private claims resolution, despite higher transaction costs.²¹ They observe this creates a paradox that challenges the conventional economic theory that lowered transaction costs should benefit both parties.²² In fact, their analysis shows public litigation produced better results for injured parties, even though it was much more complicated and expensive.²³ Quite simply, aggregate litigation in federal court appears to have been worth the trouble and cost to bring.²⁴ This suggests that dysfunctions within private claims facilities identified by Professor Dodge appear to be real,²⁵ and the benefits may be illusory.

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The GCCF experience shows that such private resolution devices are likely to be inadequate to achieve global peace without intervention from the courts and some form of aggregate settlement—at least in "elastic" cases with vast numbers of undefined plaintiffs.²⁶ Instead of "radically upending the traditional view that aggregation was the only way to resolve mass claims,"²⁷ flaws in the GCCF demonstrated the necessity of both public litigation and aggregation to resolve elastic mass torts. Disaggregative private claims facilities, like the one used by BP, thus have to be understood in the context of their relationship to MDL, and the elusive quest for global peace in complex litigation.

This Response identifies a trend toward transjurisdictional aggregation in MDL mass torts settlements that runs counter to the disaggregative trend identified by Professor Dodge and other scholars.²⁸ MDL courts are finding ways in the settlement phase to collectively resolve staggering numbers of claims in nationwide, transjurisdictional mass settlements. These mass settlements are becoming more aggregated, not less, even when Rule 23 class certification is unavailable. Some of the same problems with class litigation that are producing the disaggregative trend Professor Dodge identifies in the private sector appear to be producing the opposite trend in MDL.²⁹ A new form

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of MDL settlement is emerging that is increasingly aggregative, and sometimes even operating transjurisdictionally to control all claims related to a mass tort, regardless of whether...