Reforming 28 U.S.C. section 1407 to fix Lexecon would not only conserve resources, but also help plaintiffs regain bargaining power to reach better settlements.

Author:Cutler, Michael


Multidistrict Litigation ("MDL") is an indispensable mechanism that allows federal courts to centralize related actions pending in various district courts in one venue for the purpose of coordinated pretrial proceedings. MDL centralization is overseen by the Multidistrict Litigation Panel ("PANEL") and is authorized by 28 U.S.C. [section] 1407 to achieve the following goals: (1) centralization of related actions; (2) avoidance of duplicative discovery; (3) prevention of inconsistent trial rulings; and (4) conservation of the resources of the parties, their counsel, and the judiciary. The language of the statute mandates remand of transferred cases to the original courts at the conclusion of the pretrial process in the MDL venue. However, over the course of three decades and under the auspices of Panel rules, MDL judges have regularly self-assigned transferred cases for trial. In 1998, the United States Supreme Court in Lexecon v. Milherg Weiss Bershad Hynes & Lerach brought this long-standing practice to an end, requiring MDL judges to remand transferred cases back to the original court. (2)

Section 1407 has not been reformed to allow self-assignment, despite forceful criticism from the MDL legal community, and the highest ranks of the judiciary who have decried Lexecon's potential blow to the efficiency of the MDL process. Thus, MDL judges are powerless to retain transferred cases for trial at the conclusion of the pretrial stage. Nevertheless, judges and litigants have found creative ways to attempt to avoid the Lexecon holding and harness the perceived advantages of remaining in the MDL court for trial. These avoidance methods, however, are characterized by procedural obstacles that waste the resources of the judiciary and the parties to litigation, and are not able to fully replicate the streamlined self-assignment process available before Lexecon.

Most importantly, by prohibiting self-assignment, Lexecon deprived plaintiffs of significant leverage to reach favorable settlements: the concrete threat of trial in the forum where the parties are expected and pressured to reach a settlement. The loss of this leverage may be particularly harmful to plaintiffs because MDL centralization often benefits defendants more than it benefits the plaintiffs due to the effects of delay and economies of scale. However, some may argue that reform is not warranted because plaintiffs retain considerable power to negotiate fair settlements post-Lexecon by bargaining in a class action manner, and threatening to disperse the conveniently consolidated litigation back to the original venues.

Nevertheless, in the aggregate, the scales tip towards the desirability of reforming [section] 1407 not only to bring an end to the inefficiencies of Lexecon avoidance methods, but to also allow plaintiffs the ability to conduct pretrial litigation under conditions similar to those available in a non-MDL courtroom, such as the prospect of a streamlined transition to trial in the same venue where the settlement is expected to be reached.

Part I of this paper discusses the background of MDL. Specifically, Part I discusses what prompted Congress to enact [section] 1407, how the Panel decides whether centralization is warranted, and what trends can be observed in MDL centralization over time. Part II then discusses the "self-assignment" practice, how the Lexecon case brought the practice to an end, and how the legal community reacted and adapted to the decision. Part III explains why the inability of an MDL court to try transferred cases erodes plaintiffs' bargaining power to settle on favorable terms, examines Lexecon's effect in light of other disadvantages plaintiffs face in MDL, and presents the possible counterarguments that plaintiffs already have enough tools to settle fairly under the Lexecon regime.


    1. Judicial Management Challenges Prompt Congress to Enact the MDL Statute

      Modern civil litigation has become increasingly characterized by complex lawsuits featuring multiple plaintiffs with claims against a single defendant, or multiple defendants. (3) In the course of the last century, technology has furthered the boundaries of mass production and marketing, allowing the placement of goods and services in the hands of an unprecedented number of customers. (4) As a result, actions of corporate defendants have acquired the potential to injure thousands of people, bringing about mass torts arising under related circumstances. (5) This reality has presented a growing administrative challenge for a judicial system that traditionally has been calibrated to handle "one-on-one" lawsuits where a single plaintiff sued a single defendant for a claim arising out of a single incident. (6)

      The problem could no longer be ignored when, in the 1960's, more than 1800 related civil actions involving conspiracy allegations among electrical equipment managers were filed in over thirty federal courts across the nation. (7) To coordinate discovery in the involved courts, Chief Justice Earl Warren created the Coordinating Committee for Multiple Litigation of the United States District Courts ("COMMITTEE"). (8) At the end of its work, the Committee recognized the unequivocal need for an efficient judicial mechanism to manage pretrial issues in the surge of related litigation and recommended a more formal procedure for handling groups of similar cases; Congress obliged by enacting 28 U.S.C. [section] 1407. (9)

      The pertinent part of [section] 1407 states the following:

      (a) When civil actions involving one or more common questions of fact are pending in different districts, such actions may be transferred to any district for coordinated or consolidated pretrial proceedings. Such transfers shall be made by the judicial panel on multidistrict litigation authorized by this section upon its determination that transfers for such proceedings will be for the convenience of parties and witnesses and will promote the just and efficient conduct of such actions. Each action so transferred shall be remanded by the panel at or before the conclusion of such pretrial proceedings to the district from which it was transferred unless it shall have been previously terminated: Provided, however, That the panel may separate any claim, cross-claim, counter-claim, or third-party claim and remand any of such claims before the remainder of the action is remanded. (10)

    2. The MDL Panel Decides Which Cases Satisfy Centralization Requirements

      The statute created the Multidistrict Litigation Panel ("PANEL"), which consists of seven sitting federal judges who are appointed by the Chief Justice of the United States Supreme Court. (11) Congress gave the Panel broad powers to transfer groups of cases involving one or more common questions of fact to a single district court for pretrial proceedings without consideration of personal jurisdiction over the parties and without having to meet

      the venue requirements of 28 U.S.C [section] 1404. (12) In MDL terms, "the court to which an action or actions are transferred ... under 28 U.S.C. [section] 1407 is referred to as the 'transferee' court, and the court from which the action or actions are transferred is called the 'transferor' court." (13) The purposes of this transfer or "centralization" process are to avoid duplication in discovery; to prevent inconsistent pretrial rulings; and to conserve the resources of the parties, their counsel, and the judiciary. (14)

      Moreover, the Panel "is neither a trial court nor an appellate court interested in the merits of litigation.... [Instead, it] acts as a weigh station along the federal highway of docket management." (15) Chief Judge Heyburn, the current Chairman of the Panel, stressed that

      The Panel considers only the underlying record on its face and does not attempt to make independent judgments about the state of the record or the reasons for, or the correctness of, a particular transferor court ruling. The Panel does not consider the legal or factual strength of a given case. (16)

      Any party to the litigation may move for a [section] 1407 transfer. (17) In addition, the Panel may initiate transfer proceedings sua sponte. (18) When ruling on [section] 1407 motions, the Panel considers two closely related issues: (1) "whether common questions of fact among several pending civil actions exist such that centralization of those actions in a single district will further the convenience of the parties and witnesses and promote the just and efficient con duct of the actions," and (2) "which federal district and judges are best situated to handle the transferred matters." (19)

      In resolving the first issue regarding whether actions should be centralized, the Panel focuses on whether the parties' legitimate discovery needs are substantially similar in all of the proposed transferee actions: "[T]he Panel looks to whether similar facts are at issue with respect to the various claims in the different cases. Generally, the greater the factual commonality of the cases, the more likely it is that centralization will benefit the involved parties and the system as a whole." (20) In addition, the Panel takes into consideration the relative stage of the pretrial proceedings in question. Cases in their initial phases of discovery and motion practice are more likely to be centralized by the Panel: "Older cases may be less suitable for transfer because significant discovery may have already occurred, and, thus, centralization with other cases could delay the more advanced actions." (21) The sheer number of cases and common parties may also play a part in the Panel's decision to centralize the actions. Usually, "the greater the number of cases and the greater number of common parties, the more likely it is that centralization will create significant efficiencies." (22) Finally, while the Panel is more likely to centralize when all parties agree that transfer is...

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