477 F.Supp.3d 170
S.D.N.Y.2020Background
- MDL consolidated federal personal-injury/wrongful-death litigation against General Motors over defective ignition switches; the Court appointed Lead Counsel and created a Common Benefit Fund (Order No. 42) requiring New GM to withhold 3% of recoveries in "Common Benefit Actions."
- Order No. 42 defines Common Benefit Actions to include (inter alia) related filed cases that sign a Participation Agreement and "all unfiled and tolled actions of clients of Participating Counsel that would be Related Actions if filed." It also provides that if Common Benefit Work Product is "used" in non-Common Benefit actions, those matters are assessable.
- Law firms Bailey Cowan Heckaman (BCH) and The Potts Law Firm (Potts) represented clients both in the MDL and in state court or with unfiled claims; both reached global settlements with New GM and moved for declarations that state-court and unfiled recoveries are not subject to assessments.
- Lead Counsel argued the Fund reaches (a) unfiled claims of Participating Counsel and (b) state-court matters in which Common Benefit Work Product was "used." The Court previously addressed a related L&E motion on narrower facts.
- The Court held Order No. 42 requires assessments on (1) Participating Counsel’s unfiled claims and (2) state-court cases where Common Benefit Work Product was used, but not on state-court cases generally where no such use occurred; it also held the Court has authority to require New GM to withhold funds for unfiled claims and ordered the Firms to file affidavits identifying use.
Issues
| Issue | Plaintiff's Argument (Firms) | Defendant's Argument (Lead Counsel/MDL) | Held |
|---|---|---|---|
| Does Order No. 42 require assessments on state-court recoveries generally? | Order No. 42 does not reach state-court cases whose plaintiffs did not sign the Participation Agreement. | Order No. 42 permits assessments when MDL work product is used in state cases. | State-court cases are not generally assessable unless Common Benefit Work Product was "used." |
| Does Order No. 42 require assessments on unfiled claims of Participating Counsel? | Unfiled claims are outside federal court jurisdiction; the MDL cannot force holdbacks from settlements of unfiled claims. | Order No. 42 expressly includes unfiled claims of Participating Counsel as Common Benefit Actions and is enforceable. | Order No. 42 applies to unfiled claims of Participating Counsel; assessments are required. |
| What constitutes "use" of Common Benefit Work Product for assessability? | Mere exposure to or indirect benefit from MDL materials should not trigger "use"; vague similarities are insufficient. | "Use" includes active employment of MDL work product (e.g., using MDL depositions for impeachment or litigation strategy). | "Use" requires active engagement with MDL materials; mere receipt or general benefit is insufficient. Applying that test, Potts used MDL materials in one state case (Mullin) and BCH did not show use on the record. |
| Does the federal court have authority/jurisdiction to compel holdbacks on unfiled/state recoveries? | Court lacks jurisdiction to order holdbacks for claims or plaintiffs not before it; Genetically Modified Rice supports that limitation. | The MDL court's managerial and inherent equitable powers permit it to structure compensation and enforce Participation Agreements; it can regulate counsel before it and order defendant (a party before the court) to withhold funds. | The court has authority under its managerial and inherent powers to enforce Order No. 42 and to require holdbacks for unfiled claims and state recoveries where MDL work product was used. |
Key Cases Cited
- Boeing Co. v. Van Gemert, 444 U.S. 472 (court may create fund and assess fees to prevent unjust enrichment)
- Link v. Wabash R.R. Co., 370 U.S. 626 (courts’ inherent power to manage proceedings and bind parties to acts of counsel)
- Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375 (incorporation of agreements into court orders and ancillary enforcement)
- Dietz v. Bouldin, 136 S. Ct. 1885 (limits on inherent powers; reasonableness and statutory consistency)
- In re Genetically Modified Rice Litig., 764 F.3d 864 (8th Cir.) (MDL court lacks power to require contributions from state-court cases not before it)
- In re Avandia Marketing, Sales Practices & Prods. Liab. Litig., [citation="617 F. App'x 136"] (3d Cir.) (upholding MDL order enforcing participation agreement/assessments on non-MDL recoveries)
- Eli Lilly & Co. v. Gottstein, 617 F.3d 186 (2d Cir.) (limits on enjoining the entire universe of potential violators; injunctive authority over third parties)
- Smiley v. Sincoff, 958 F.2d 498 (2d Cir.) (MDL courts may establish fee structures to compensate leadership counsel)
- Showa Denko K.K. v. [title shortened], 953 F.2d 162 (4th Cir.) (caution against federal orders interfering with state-court proceedings)
- Victor v. Argent Classic Convertible Arbitrage Fund L.P., 623 F.3d 82 (2d Cir.) (recognizing compensation to counsel for common-benefit work)
- Zyprexa Prods. Liab. Litig., 594 F.3d 113 (2d Cir.) (discussing importance of compensation for MDL leadership work)
- In re Linerboard Antitrust Litig., 292 F. Supp. 2d 644 (E.D. Pa.) (authority to assure compensation for leadership counsel)