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September 30, 2011 Mass Tort Settlements Ethical Rules and Considerations

September 30, 2011 Mass Tort Settlements Ethical Rules and Considerations. Beasley, Allen, Crow, Methvin , Portis & Miles, P.C. Montgomery, Alabama www.beasleyallen.com.

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September 30, 2011 Mass Tort Settlements Ethical Rules and Considerations

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  1. September 30, 2011 Mass Tort Settlements Ethical Rules and Considerations Beasley, Allen, Crow, Methvin, Portis & Miles, P.C.Montgomery, Alabamawww.beasleyallen.com

  2. Trend ∙ Resulting Issue ∙ Aggregate Settlement Rule ∙ Rule Purpose ∙ Problems for Attorneys ∙ Key Elements ∙ Adequate Disclosure ∙ Waiver ∙ No Majority Rule ∙ Consequences ∙ BP Settlements Trend: Class Certification Difficulty • Firm represents hundreds or thousands of clients in putative class action • Class certification fails • Defendant later desires to enter a settlement covering all or a large subset of claims Ethical Rules and Considerations in Mass Tort Settlements

  3. Trend ∙ Resulting Issue ∙ Aggregate Settlement Rule ∙ Rule Purpose ∙ Problems for Attorneys ∙ Key Elements ∙ Adequate Disclosure ∙ Waiver ∙ No Majority Rule ∙ Consequences ∙ BP Settlements The Resulting Issue • Conflict of Interest • In an aggregate settlement, all clients must consent after consultation before the agreement can be final and binding. Ethical Rules and Considerations in Mass Tort Settlements

  4. Trend ∙ Resulting Issue ∙ Aggregate Settlement Rule ∙ Rule Purpose ∙ Problems for Attorneys ∙ Key Elements ∙ Adequate Disclosure ∙ Waiver ∙ No Majority Rule ∙ Consequences ∙ BP Settlements Aggregate Settlement Rule “A lawyer who represents two or more clients shall not participate in making an aggregate settlement of the claims of… the clients… unless each client consents after consultation, including disclosure of the existence and nature of all the claims… involved and of the participation of each person in the settlement.” -- ABA Model Rule 1.8(g) Adopted: Ga. R. & Regs. St. Bar 1.8 (2011) Ethical Rules and Considerations in Mass Tort Settlements

  5. Trend ∙ Resulting Issue ∙ Aggregate Settlement Rule ∙ Rule Purpose ∙ Problems for Attorneys ∙ Key Elements ∙ Adequate Disclosure ∙ Waiver ∙ No Majority Rule ∙ Consequences ∙ BP Settlements Purpose • To discourage client favoritism in order to maximize fee. • A lawyer might represent the interests of the clients with the largest dollar claims. Ethical Rules and Considerations in Mass Tort Settlements

  6. Trend ∙ Resulting Issue ∙ Aggregate Settlement Rule ∙ Rule Purpose ∙ Problems for Attorneys ∙ Key Elements ∙ Adequate Disclosure ∙ Waiver ∙ No Majority Rule ∙ Consequences ∙ BP Settlements Problems that Arise • Interference with practical settlement negotiations and the efficient resolution claims • Uncertainty in litigation • One client’s ability to derail a settlement • Attorneys unwilling to proceed due to severe penalties and sanctions even if client is not actual harmed by settlement. Ethical Rules and Considerations in Mass Tort Settlements

  7. Trend ∙ Resulting Issue ∙ Aggregate Settlement Rule ∙ Rule Purpose ∙ Problems for Attorneys ∙ Key Elements ∙ Adequate Disclosure ∙ Waiver ∙ No Majority Rule ∙ Consequences ∙ BP Settlements Key Elements • Adequate disclosure • 5 things that must be disclosed • Consent Ethical Rules and Considerations in Mass Tort Settlements

  8. Trend ∙ Resulting Issue ∙ Aggregate Settlement Rule ∙ Rule Purpose ∙ Problems for Attorneys ∙ Key Elements ∙ Adequate Disclosure ∙ Waiver ∙ No Majority Rule ∙ Consequences ∙ BP Settlements Five things an attorney must disclose regarding any aggregate settlement: • Total amount of the aggregate settlement • Existenceand nature of all of the claims involved • Details of “every other client’s” participation • Including any “non-monetary remuneration” • Total fees and costs to be paid to the lawyer • Including whether those fees were paid from settlement proceeds • Methods by which costs are to be apportioned among the clients -- ABA Formal Ethics Op. 06-438 (Feb. ’06)

  9. Trend ∙ Resulting Issue ∙ Aggregate Settlement Rule ∙ Rule Purpose ∙ Problems for Attorneys ∙ Key Elements ∙ Adequate Disclosure ∙ Waiver ∙ No Majority Rule ∙ Consequences ∙ BP Settlements Case examples:Adequacy of Disclosure • Court ordered sanctions for plaintiffs' lawyer’s failure to disclose enough information about their settlements before getting them to sign releases. • In re Guidant Corp. Implantable Defibrillators Prods. Liab. Litig., MDL No. 05-1708, 2009 WL 5195841 (D. Minn. Dec. 15, 2009).  Ethical Rules and Considerations in Mass Tort Settlements

  10. Trend ∙ Resulting Issue ∙ Aggregate Settlement Rule ∙ Rule Purpose ∙ Problems for Attorneys ∙ Key Elements ∙ Adequate Disclosure ∙ Waiver ∙ No Majority Rule ∙ Consequences ∙ BP Settlements Case examples:Adequacy of Disclosure • Lawyers presented Claimant with a settlement agreement that totaled $3 million, with the Claimant netting $1.47 million.  • Lawyer failed to disclose Defendant had made an aggregate offer of $73.5 million, with net $55 million for the Mississippi claimants and $18.5 million for the Virginia claimants Lawyers also represented.  • According to the majority, one of the things that saved the Claimant’s fraud claim was that the settlement agreement signed by Lawyers and Defendant provided that Lawyers would comply with Rule 1.8. • Waggoner v. Williamson, 2009 Miss. LEXIS 88 (Miss. Feb. 26, 2009). 

  11. Trend ∙ Resulting Issue ∙ Aggregate Settlement Rule ∙ Rule Purpose ∙ Problems for Attorneys ∙ Key Elements ∙ Adequate Disclosure ∙ Waiver ∙ No Majority Rule ∙ Consequences ∙ BP Settlements Case examples:ConsentWaiver Unavailable • The Tenth Circuit has held that requirement in Rule 1.8(g) that each party give informed consent to aggregate settlement agreement cannot be waived. • - Hayes v. Eagle-Picher Indus., Inc., 513 F.2d 892 (10th Cir. 1975). Ethical Rules and Considerations in Mass Tort Settlements

  12. Trend ∙ Resulting Issue ∙ Aggregate Settlement Rule ∙ Rule Purpose ∙ Problems for Attorneys ∙ Key Elements ∙ Adequate Disclosure ∙ Waiver ∙ No Majority Rule ∙ Consequences ∙ BP Settlements Case examples:Consent No majority vote • Engagement letter signed by joint plaintiffs that provided that says a majority vote can bind all to a settlement violated New Jersey's version of Model Rule 1.8(g) • The Tax Authority, Inc. v. Jackson Hewitt, Inc., 898 A.2d 512 (N.J. 2006). Ethical Rules and Considerations in Mass Tort Settlements

  13. Trend ∙ Resulting Issue ∙ Aggregate Settlement Rule ∙ Rule Purpose ∙ Problems for Attorneys ∙ Key Elements ∙ Adequate Disclosure ∙ Waiver ∙ No Majority Rule ∙ Consequences ∙ BP Settlements Case examples:Orders, Penalties, Sanctions • Distribution of $200 million Fen-Phen aggregate settlement results in disbarment of the lawyers, removal of the judge approving the settlement, and malpractice suit against the lawyers.  • Lawyers took too much of the settlement fund and told 431 individual clients nothing about how the settlement was arrived at. • Cunningham v. Abbott, 2011 Ky. App. LEXIS 24 (Ky. App. Feb. 4, 2011).  Ethical Rules and Considerations in Mass Tort Settlements

  14. Trend ∙ Resulting Issue ∙ Aggregate Settlement Rule ∙ Rule Purpose ∙ Problems for Attorneys ∙ Key Elements ∙ Adequate Disclosure ∙ Waiver ∙ No Majority Rule ∙ Consequences ∙ BP Settlements Case examples:Orders, Penalties, Sanctions Forfeiture of Fees • Clients may be able to sue for forfeiture of the lawyers’ fees even without proving actual damages. • Burrow v. Arce, 997 S.W.2d 229 (Tex. 1998) Ethical Rules and Considerations in Mass Tort Settlements

  15. Trend ∙ Resulting Issue ∙ Aggregate Settlement Rule ∙ Rule Purpose ∙ Problems for Attorneys ∙ Key Elements ∙ Adequate Disclosure ∙ Waiver ∙ No Majority Rule ∙ Consequences ∙ BP Settlements Case examples:Orders, Penalties, Sanctions • Court denied a Rule 12(b)(6) motion to dismiss a legal malpractice complaint arising out of a settlement of a claim against a pharmacist who had, in hundreds of cases, sold diluted chemotherapy drugs.  • A lawyer's violation of aggregate settlement rules can support a malpractice claim. • Booth v. Davis, 2010 U.S. Dist. LEXIS 90377 (D. Kan. Aug. 31, 2010).  Ethical Rules and Considerations in Mass Tort Settlements

  16. Trend ∙ Resulting Issue ∙ Aggregate Settlement Rule ∙ Rule Purpose ∙ Problems for Attorneys ∙ Key Elements ∙ Adequate Disclosure ∙ Waiver ∙ No Majority Rule ∙ Consequences ∙ BP Settlements Case examples: Orders, Penalties, Sanctions BP Oil Spill Case • Court found that "the hybrid role" played by Kenneth Feinberg in administering a $20 billion settlement fund "has led to confusion and misunderstanding by claimants."  • Court ordered Feinberg, a lawyer, among other things, not to tell claimants they don't need a lawyer or to claim he is "neutral" or "completely independent." (Feinberg was hired by BP and is being paid by BP, pursuant to a contract with BP.) 

  17. Trend ∙ Resulting Issue ∙ Aggregate Settlement Rule ∙ Rule Purpose ∙ Problems for Attorneys ∙ Key Elements ∙ Adequate Disclosure ∙ Waiver ∙ No Majority Rule ∙ Consequences ∙ BP Settlements Case examples: Orders, Penalties, Sanctions BP Oil Spill Case • The court also ordered Feinberg to tell claimants they have a right to a lawyer and to expand upon their rights under the relevant law.  The court gave no indication how Feinberg's communications with claimants might affect settlements already reached. • In re Oil Spill by the Oil Rig "Deepwater Horizon," 2011 U.S. Dist. LEXIS 10497 (E.D. La. Feb. 2, 2011).  Ethical Rules and Considerations in Mass Tort Settlements

  18. Trend ∙ Resulting Issue ∙ Aggregate Settlement Rule ∙ Rule Purpose ∙ Problems for Attorneys ∙ Key Elements ∙ Adequate Disclosure ∙ Waiver ∙ No Majority Rule ∙ Consequences ∙ BP Settlements Case examples: Orders, Penalties, Sanctions BP Oil Spill Case The questions arise: • Are the “final settlements” entered into by claimants with Feinberg enforceable? • Was Feinberg subject to Rule 1.8(g) in his “hybrid role” and if so, did he comply with the stringent disclosure requirements? Ethical Rules and Considerations in Mass Tort Settlements

  19. Trend ∙ Resulting Issue ∙ Aggregate Settlement Rule ∙ Rule Purpose ∙ Problems for Attorneys ∙ Key Elements ∙ Adequate Disclosure ∙ Waiver ∙ No Majority Rule ∙ Consequences ∙ BP Settlements Conclusion • Mass torts, generally, must use aggregate, non-class settlement • Rule 1.8(g) requires disclosure and consent from all clients • Compliance with rule may not be a practical, or efficientsettlement of claims • Orders, penalties, and sanctions can be severe for violation Ethical Rules and Considerations in Mass Tort Settlements

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