Case Information
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-----------------------------------------------------------------------------x
IN RE: 14-MD-2543 (JMF)
14-MC-2543 (JMF) GENERAL MOTORS LLC IGNITION SWITCH LITIGATION OPINION AND ORDER
-----------------------------------------------------------------------------x JESSE M. FURMAN, United States District Judge:
[Regarding Common Benefit Assessments on State Cases and Unfiled Matters]
As this Court has previously explained, complex aggregate litigation often raises a classic
free-rider problem. A subset of plaintiffs’ lawyers do the lion’s share of the work, but that work
accrues to the benefit of all plaintiffs. If those other plaintiffs were not required to pay any costs
of that work, “high-quality legal work would be under-incentivized and, ultimately, under-
produced.”
In re Gen. Motors LLC Ignition Switch Litig.
, Nos. 14-MD-2543 (JMF), 14-MC-
2543 (JMF),
For almost half a decade, there were no disputes or controversies relating to the Fund. Late last year, however, the Court was confronted with a dispute between the court-appointed lead counsel for plaintiffs (“Lead Counsel”) and one plaintiff’s law firm over whether recoveries obtained by the law firm’s clients with cases pending in state courts or not filed in any court were subject to assessment. Relying on the fact that the Court had been called upon to play a role in the settlement of those claims, the Court ruled in Lead Counsel’s favor without having to resolve the questions at the heart of the dispute: whether, as a general matter, Order No. 42 requires an assessment for recoveries in cases filed by MDL lawyers in state court or unfiled claims and, if so, whether such assessments exceed the Court’s authority. Shortly thereafter, the Court was confronted with two new motions presenting those questions anew — from the plaintiffs’ law firms Bailey Cowan Heckaman PLLC (“BCH”) and The Potts Law Firm (“Potts” and, together with BCH, the “Firms”). Like the first law firm, the Firms represent some clients in the MDL and an even larger number of clients who are not in the MDL — either with cases pending in state courts or unfiled claims. Last year, they reached global settlements with New GM resolving all of these claims. Like the first law firm, they now seek a ruling that recoveries arising out of their state-court cases and unfiled claims are not subject to assessment — on the grounds that Order No. 42 does not require such assessments and that, to the extent that the Order does, it exceeds the Court’s jurisdiction and authority. ECF Nos. 7368, 7398.
For the reasons that follow, the Court agrees in part and disagrees in part. First , the Court holds that Order No. 42, by its terms, requires assessments for recoveries arising out of (1) the Firms’ unfiled claims and (2) any state-court cases in which work product generated within the MDL for the common benefit of all plaintiffs was “used,” but does not require assessments for recoveries in the Firms’ state-court cases generally. As the Court will explain, drawing this distinction between unfiled claims and state-court cases makes good sense. For one thing, imposing assessments with respect to state-court cases (absent use) risks intruding on the prerogatives of the state courts presiding over those cases; for unfiled claims, there is no such risk. And while there is a mechanism to solve the free-rider problem in state-court cases — namely, the state courts — there is no such mechanism for unfiled claims. Second , resolving a complicated question that has divided other courts (and on which the Supreme Court and Second Circuit have not yet ruled), the Court holds that it has both jurisdiction and inherent authority to do what Order No. 42 does: order New GM to hold back assessments in connection with its settlements with MDL counsel’s clients who have not filed claims in any court. Accordingly, and for the reasons stated below, the Firms’ motions are granted in part and denied in part.
BACKGROUND
In February 2014, New GM announced the recall of certain General Motors vehicles that had been manufactured with a defective ignition switch that moved too easily from the “run” position to the “accessory” and “off” positions, causing moving stalls and disabling critical safety systems. In the months that followed, New GM recalled millions of other vehicles, some for reasons relating to the ignition switch and some for other reasons. Not surprisingly, litigation followed, in both state and federal courts. The federal cases were ultimately consolidated in this Court by the Judicial Panel on Multidistrict Litigation. The Court later appointed Steve W. Berman, Elizabeth J. Cabraser, and Robert C. Hilliard as Lead Counsel and also appointed ten other attorneys to serve as a plaintiffs’ Executive Committee. ECF No. 249.
A. The Common Benefit Fund Order (Order No. 42)
On March 26, 2015, the Court issued Order No. 42 and established the Common Benefit Fund to help ensure that parties for whose benefit legal work is performed in this MDL share the costs and expenses associated with that work. See ECF No. 743 (“Order No. 42”), at 1. Pursuant to that Order, New GM is required to withhold three percent of any settlement or judgment in a “Common Benefit Action” and to deposit that amount into the Fund. See id. ¶¶ 4, 36-38; see also id. ¶ 32 (“All plaintiffs in Common Benefit Actions . . . who agree to settle, compromise, or dismiss a Common Benefit Action . . . or who recover a judgment for monetary damages or other monetary relief . . . are subject to an assessment . . . .”). Common Benefit Actions are defined to include, as relevant here:
(1) “all cases . . . pending [at the time Order No. 42 was issued], as well as . . . any cases later filed in, transferred to, or removed to this Court and included as part of the MDL”; (2) “all Related Actions in which plaintiffs and their counsel voluntarily execute the Participation Agreement,” an agreement attached as an exhibit to Order No. 42; (3) “all Coordinated Actions” in which the presiding court “enters an order endorsing [Order No. 42] and either (i) deeming plaintiffs and their counsel in the Coordinated Action to have signed the Participation Agreement . . . or (ii) requiring plaintiffs and their Counsel in the Coordinated Action to sign the Participation Agreement”; and (4) “all unfiled and tolled actions of clients of Participating Counsel that would be Related Actions if filed.”
Id. ¶ 11. “Related Actions,” in turn, are defined as “actions . . . that involve the same subject matter” as this MDL (not including shareholder derivative suits and securities class actions), whether filed in state or federal courts. Id. ¶ 1; see also ECF No. 315 (“Order No. 15”), at 1 & n.1. “Coordinated Actions” are Related Actions in which the presiding court adopted and entered MDL Order No. 15, the “Joint Coordination Order.” Order No. 42, ¶ 1. And “Participating Counsel” include, among others, all attorneys representing plaintiffs in Common Benefit Actions. ¶¶ 4, 15; see ECF No. 304 (“Order No. 13”), at 7.
Order No. 42 also specifies that certain “actions and matters” are not Common Benefit Actions, including, as relevant here:
(1) “Related Actions in which plaintiffs and their counsel have not . . . voluntarily signed” the Participation Agreement or “been ordered or deemed by the court where the Related Action is pending to have signed the Participation Agreement”; and (2) “Filed and unfiled actions that are not Related Actions.”
Order No. 42, ¶ 12. Paragraph 16 provides that “[c]ounsel who represent plaintiffs in both Common Benefit Actions and actions or matters that do not qualify as Common Benefit Actions may only . . . access and use Common Benefit Work Product for their Common Benefit Actions.” Id. ¶ 16 (emphases added). “If Common Benefit Work Product is used in non- Common Benefit claims or actions,” Paragraph 16 continues, “they shall be subject to the assessment and such other actions as deemed appropriate by the Court.” Id. ¶ 16; see also id. ¶ 42 (providing that the “use” of “Common Benefit Work in actions or matters which are not Common Benefit Actions . . . will result in an assessment against such matters, and such other action as deemed appropriate by the Court”). “Common Benefit Work” includes “all work authorized by the court-appointed MDL 2543 Leadership . . . and performed for the benefit of all plaintiffs in Common Benefit Actions.” ¶ 7.
B. Prior Litigation Regarding Order No. 42
For four and a half years, Order No. 42 and the Fund operated without incident or dispute. On September 27, 2019, however, Langdon & Emison, LLC (“L&E”), a law firm that represents some plaintiffs in the MDL, moved for a declaratory judgment stating that recoveries obtained by its clients who had not appeared in the MDL are not subject to assessments under Order No. 42. See ECF Nos. 7204, 7205. Lead Counsel opposed the motion. See ECF No. 7272. Like the parties to the present motions, L&E and Lead Counsel disagreed about “whether Order No. 42, by its terms, subjects” state-filed cases and unfiled matters to assessments and, to the extent it does, “whether the Court has jurisdiction and authority to subject such cases to assessment absent voluntary agreement or a concurrent state order.” In re Gen. Motors , 2019 WL 5865112, at *3 (internal quotation marks omitted). Briefing on the motion, however, revealed that “all of the state-court and unfiled cases settled by L&E” were “included in master settlement agreements, which [were] to be paid out of trusts approved by this Court (at L&E’s request) and administered by a Special Master who was appointed by this Court (also at L&E’s request) pursuant to Rule 53 of the Federal Rules of Civil Procedure.” Id. On that basis alone, the Court concluded that the settlements at issue were subject to assessment under Order No. 42 and that ordering such assessments was well within the Court’s authority. See id. at *3-4. The Court left the questions at the heart of L&E’s motion (and the present motions) — whether state- court and unfiled claims are generally subject to assessment under Order No. 42 and, if so, whether that exceeded the Court’s authority — to “another day.” Id. at *3.
C. BCH and Potts
BCH filed its first case in the MDL on March 30, 2015. See ECF No. 762. Between March 30, 2015, and February 2018, BCH filed and maintained in the MDL a total of fourteen complaints on behalf of hundreds of clients. See ECF No. 7440 (“Opp’n”), at 6 n.4 (listing cases). Potts filed its first case in the MDL on September 1, 2015. See ECF No. 1319. Since then, Potts has filed dozens of cases on behalf of hundreds of clients. See Opp’n 9. Each of the Firms also represents plaintiffs who have sued in state court and clients who have not filed any lawsuit at all. See ECF No. 7399-1 (“Potts Decl.”), ¶¶ 4-10; ECF No. 7369 (“BCH Mem.”), at 1. Both Firms have dozens of state-filed cases and unfiled matters that were never filed in, removed to, or transferred to the MDL. See Potts Decl. ¶¶ 6, 8-9; BCH Mem. 1. Nor did the state courts presiding over those state-filed cases adopt or enter the Joint Coordination Order. Potts Decl. ¶ 7; BCH Mem. 1, 4. And the Firms’ clients asserting claims outside of the MDL did not sign or agree to the Participation Agreement. Potts Decl. ¶¶ 6, 9; BCH Mem. 1, 4. Finally, unlike L&E, neither BCH nor Potts has settled their non-MDL cases in a manner that calls upon this Court to do anything, such as approve a trust or appoint a Special Master. See Potts Decl. ¶ 10; ECF No. 7507 (“Joint Reply”), at 2-3.
It is undisputed that BCH and Potts both accessed Common Benefit Work Product. Potts also asked Lead Counsel for, and Lead Counsel provided, “[i]mpeachment information on common [New GM] experts, including previous depositions,” in order to prepare for expert depositions in Mullin v. General Motors LLC , a case pending in California state court. Joint Reply 11. The Firms did not file any Common Benefit Work Product in any state-filed case at issue here, but, in a separate case, BCH once filed an expert report taken nearly verbatim from the same expert’s report in the MDL. See Opp’n 7-8. BCH nonetheless asserted that it “did not use common benefit work product” in that case. ECF No. 7440-3 (“Ex. B”), at 4. Only after Lead Counsel identified the issue, and BCH and Lead Counsel had “earnest discussions,” did BCH agree that an assessment should be paid in that case. Joint Reply 9-10; see Ex. B at 2-3. BCH also accessed MDL discovery materials at various times, and New GM sent various plaintiffs’ counsel, including BCH, notice of certain MDL depositions, deposition transcripts, and deposition summaries. See Opp’n 8; Joint Reply 10 & n.7.
Both BCH and Potts entered into global settlements with New GM that resolved, in one fell swoop, claims asserted by their clients both within the MDL and elsewhere. On June 23, 2017, Potts and New GM informed the Court that they had reached a global settlement in which hundreds of both MDL plaintiffs and others among Potts’s clients were eligible to participate. See ECF No. 4132, at 1 (noting that “203 plaintiffs with claims pending” in the MDL were eligible to participate in the aggregate settlement agreement, which “potentially resolves hundreds of state court claims as well”). On March 5, 2018, BCH and New GM announced a global settlement that resolved all of the claims asserted by BCH clients relating to personal injury and wrongful death claims arising after the bankruptcy of Old GM, “the vast majority of which” were pressed in this MDL. See ECF No. 5174, at 1. On December 17, 2018, BCH and New GM announced that they had also settled one hundred such claims arising before the bankruptcy — only sixty-two of which were asserted here. See ECF No. 6359, at 1. And on June 25, 2019, Potts and New GM informed the Court of another settlement agreement, in which nearly 130 plaintiffs, including twenty not in this MDL, were eligible to participate. ECF No. 6903, at 1.
On November 6, 2019, BCH moved for a declaratory judgment clarifying that settlements and judgments resolving its clients’ claims asserted in state court (all of which were filed in Missouri) and outside of court are not subject to assessment. See ECF No. 7368. On November 14, 2019, Potts filed a similar motion with respect to all of its state-filed cases and unfiled matters. See ECF No. 7398.
DISCUSSION
Two significant matters are not in dispute here. First, no one questions that the Court had
authority to establish the Common Benefit Fund in the first place. Indeed, it is well established
that, in complex aggregate litigation, “attorneys designated with responsibilities for actions
beyond those in which they are retained may be compensated for their work not only by their
own clients, but also by those other parties on whose behalf the work is performed and on whom
a benefit has been conferred.”
In re Worldcom, Inc. Sec. Litig.
, No. 02-CV-3288 (DLC), 2004
WL 2549682, at *2 (S.D.N.Y. Nov. 10, 2004);
see Victor v. Argent Classic Convertible
Arbitrage Fund L.P.
,
The sole dispute is whether the Firms are required to pay assessments — that is, make contributions to the Common Benefit Fund — with respect to the settlements of cases that they litigated in state court and the settlements of claims never filed in any court. The Firms argue that Order No. 42 does not require assessments with respect to such settlements. See BCH Mem. 3-5; Potts Mem. 2-6. And to the extent that Order No. 42 does require assessments with respect to such settlements, they contend that the Order exceeds the Court’s authority. BCH Mem. 5-9; Potts Mem. 6-9. The Court will address each argument in turn.
A. Application of Order No. 42 to the Settled Claims
The Firms’ first argument is that Order No. 42 does not require an assessment with
respect to their state cases and unfiled claims. As a general matter, the Court agrees as to their
state cases. For starters, Paragraph 16 of Order No. 42 recognizes that an action or matter is not
a “Common Benefit Action” merely because the claims at issue are related and plaintiff’s
counsel has also appeared in this MDL, as it expressly contemplates that counsel may “represent
plaintiffs in both Common Benefit Actions and actions or matters that do not qualify as Common
Benefit Actions.” Order No. 42, ¶ 16. And Paragraphs 11 and 12 draw a distinction between
Related Actions in which the plaintiffs and their counsel sign the Participation Agreement (or are
deemed by a presiding court to have signed it) and those in which they do not. Under Paragraph
11, the former qualify as Common Benefit Actions; under Paragraph 12, the latter do not. It
follows that the Firms’ cases filed in state court are not Related Actions because the plaintiffs in
those cases did not sign the Participation Agreement (and the courts presiding over those cases
and thus it is deemed abandoned.
See, e.g.
,
AIG Glob. Sec. Lending Corp. v. Banc of Am. Sec.
LLC
,
did not deem the plaintiffs to have signed it). As long as Common Benefit Work Product was not used in those cases, therefore, Order No. 42 does not call for an assessment with respect to them. See id. (“If Common Benefit Work Product is used in non-Common Benefit claims or actions, they shall be subject to the assessment . . . .”).
Conversely, the plain terms of Order No. 42 do require an assessment with respect to the settlements of the Firms’ unfiled claims. Indeed, Paragraph 11 of the Order explicitly defines “Common Benefit Actions” to include “all unfiled and tolled actions of clients of Participating Counsel that would be Related Actions if filed.” Id. ¶ 11. The Firms cannot — and do not — dispute that they are “Participating Counsel,” as they “represent[] plaintiffs in Common Benefit Actions” (i.e., their clients with cases filed in the MDL). Id. ¶ 15. And the unfiled claims would plainly “be Related Actions if filed” because, as all agree, they “involve the same subject matter” as the claims asserted in the MDL (i.e., personal injury and wrongful death claims relating to the ignition switch defect). ¶¶ 1, 11; see also Order No. 15, at 1. It follows that they are “Common Benefit Actions” as defined by Paragraph 11 of Order No. 42, and therefore that they are subject to assessment. Order No. 42, ¶¶ 4, 11, 32. Notably, even though Lead Counsel argues for an assessment on the unfiled claims for precisely the foregoing reasons, see Opp’n 13- 14, the Firms do not even address the argument or these provisions of Order No. 42, see Potts Mem. 3-6 (failing to mention the relevant provision in Paragraph 11); BCH Mem. 3-5 (same); Joint Reply (same).
Notably, there are good reasons in applying the common-benefit doctrine to distinguish
cases filed in state court from claims not filed in any court. If a case is pending in state court,
that
court can solve the free-rider problem by imposing an assessment on any recovery.
[3]
And
regardless of whether a federal court would have authority to do so as well — an issue upon
which the Court need not, and does not, opine — “[p]rinciples of comity and respect for the state
courts’ supervision of their own dockets and the attorneys before them” will often counsel
against doing so.
In re Zyprexa Prods. Liab. Litig.
,
The Firms’ counterarguments are unpersuasive. To the extent that they look to the
language of Order No. 42 at all, they rest on the fact that Paragraph 16 expressly contemplates
that Participating Counsel can have both “Common Benefit Actions and actions or matters that
do not qualify as Common Benefit Actions.” Order No. 42, ¶ 16;
see
BCH Mem. 4; Potts Mem.
4-5. But their point loses its force in light of the Court’s conclusion that cases filed in state court
are (absent other conditions being met) “actions or matters that do not qualify as Common
Benefit Actions.” That is, it does not follow that unfiled claims must
also
fall within that
category. Separately, Potts suggests that where a lawyer has hundreds of unfiled claims, it would
be absurd to tax all of them merely because she has “a single case in the MDL.” Potts Mem. 4-5.
But that argument is rooted in policy and first principles, not in the language of Order No. 42.
And in any event, it is not absurd. Potts’s hypothetical is, in fact, the extreme version of the free-
rider problem, and there would be good reason to impose assessments to prevent it. Finally, the
Firms contend that assessments should not be imposed on their unfiled claims because their
“clients deserved to know, certainly while settlements were being negotiated, whether their cases
were assessable.” Joint Reply 7. The Court certainly agrees with the premise,
see In re Gen.
Motors
,
That does not resolve how Order No. 42 applies to the Firms’ state-court and unfiled claims, however, because Lead Counsel separately argues that the state-filed cases at issue here are subject to assessment pursuant to Paragraph 16 of Order No. 42, which provides that “[i]f Common Benefit Work Product is used in non-Common Benefit claims or actions, they shall be subject to the assessment.” Order No. 42, ¶ 16; see Opp’n 14-16. That argument requires the Court to decide what constitutes “use” within the meaning of Paragraph 16. The ordinary meaning of the word “use” (which is not defined in Order No. 42) is “to put into action or service; avail oneself of .” M ERRIAM -W EBSTER ’ S C OLLEGIATE D ICTIONARY 1301 (10th ed. 1997); see also Use , B LACK ’ S L AW D ICTIONARY (11th ed. 2019) (defining “use” as “[t]o employ for the accomplishment of a purpose; to avail oneself of”) . In the context of Paragraph 16, that demands some active engagement with Common Benefit Work Product. Thus, it does not suffice to argue, as Lead Counsel does, that the Firms benefited from Common Benefit Work Product or that they saw it and could not thereafter “unsee” it. Opp’n 14-16. (Indeed, if merely seeing or benefitting from Common Benefit Work Product constituted “use,” Paragraph 16 would be rendered meaningless — because all cases brought by Participating Counsel would be subject to assessment.) Nor, in the Court’s view, is it enough to show that “wide-spanning general liability theories” crafted by Lead Counsel “permeate the Firms’ [state-court] dockets.” Opp’n 15. Although that comes closer to “use,” pointing to general similarities between the liability theories, without more, is too abstract.
In light of these principles, the Court concludes that Lead Counsel fails to show that BCH “used” Common Benefit Work Product in any of the state-filed cases at issue here. Although the evidence demonstrates that BCH accessed Common Benefit Work Product, see Opp’n 8, there is no evidence that such access was related to any state-filed case, as opposed to the cases filed by BCH in the MDL. Lead Counsel argues that certain MDL depositions were “cross-noticed” in Reeves v. General Motors, LLC , a case filed by BCH in Missouri state court. See Opp’n 8-9. But the evidence suggests only that notice of the depositions and transcripts and summaries were sent to BCH. Lead Counsel points to no evidence that BCH itself asked for those materials, attended depositions, or reviewed the transcripts or summaries in connection with its litigation of Reeves . Nor is there evidence that the depositions were deemed part of the discovery in that case. See Opp’n, Exs. G, H, J, K, L, M; see also ECF No. 7507-6 (collection of deposition notices). Were the Court to impose an assessment on the strength of this evidence alone, Lead Counsel could effectively impose assessments unilaterally. All that Lead Counsel would have to do is send deposition transcripts to Participating Counsel whose clients assert claims in state court. That result is inconsistent with the letter and spirit of Order No. 42.
By contrast, there is conclusive evidence that Potts used Common Benefit Work Product in at least one of the state-filed cases at issue here. In March 2017, Potts sent Lead Counsel several e-mails requesting certain New GM experts’ MDL deposition testimony in advance of depositions in Mullin v. General Motors LLC , a consolidated case brought by Potts in California state court. Opp’n, Exs. N, O; Joint Reply 11. Potts concedes that “[t]hese materials were provided for impeachment of expert depositions,” but tries to minimize the implications of that concession by asserting that “[i]mpeachment information on common defense experts, including previous depositions or trial testimony, is routinely shared among plaintiffs’ firms against common joint defendants.” Joint Reply 11. That may be so, but Order No. 42 requires assessments on cases in which Participating Counsel uses Common Benefit Work Product, and there is no carve-out for materials that are “routinely shared.” In the alternative, Potts argues that using Common Benefit Work Product “to prepare for impeachment” of an expert witness is “ de minimis .” Id. at 12. But even if Potts were correct that its usage of the Common Benefit Work Product was de minimis — the Court has its doubts — Paragraph 16 turns on any “use[],” however minor. It is difficult enough for Lead Counsel to police whether Participating Counsel privately used Common Benefit Work Product in non-Common Benefit claims or actions. Order No. 42 does not impose on Lead Counsel the additional burden of measuring the extent to which such material was used.
Potts protests that imposing assessments on the cases consolidated in
Mullin
would
“unjustly enrich” Lead Counsel. As the Court has explained repeatedly, however, the work
performed by Lead Counsel has undoubtedly been of tremendous value to those who asserted
related claims against New GM, regardless of forum.
See In re Gen. Motors
,
In sum, by its terms, Order No. 42 requires assessments on the settlements of the Firms’ unfiled claims and the settlements in Mullin v. General Motors LLC . On the present record, Lead Counsel fails to show that the settlements of the other cases at issue are subject to assessment under Order No. 42. But the Court is not inclined to leave it there. As discussed above, at various points, both BCH and Potts have asserted that they did not use Common Benefit Work Product in their state-filed cases and unfiled matters, and Lead Counsel has, through its own investigation, discovered otherwise. Perhaps that was due to a misunderstanding of Order No. 42 — even though, as discussed above, the terms of the Order are fairly clear (and even though, when confronted by Lead Counsel, the Firms’ initial reaction was to resist paying assessments). Or perhaps it was due to something less excusable. Either way, the Court concludes that the Firms should be required to take additional, affirmative steps to confirm that they did not use Common Benefit Work Product within the meaning of Paragraph 16 in any of their other state-court cases. Specifically, no later than thirty days after the date of this Opinion and Order , each Firm shall file a sworn affidavit identifying the related state-court cases still in dispute and, with respect to each, either confirming that it did not use Common Benefit Work Product or conceding that it did. The Court cautions the Firms: If either one represents in its affidavit that it did not use Common Benefit Work Product in a particular case and, at some later date, the Court finds otherwise, the Court will not only impose the assessment as to that case, but will also impose appropriate sanctions.
B. The Court’s Authority to Impose Assessments
That does not end the matter because the Firms independently argue that the Court lacks
jurisdiction to impose an assessment on unfiled cases. BCH Mem. 5-9; Potts Mem. 6-9. To be
clear, the Firms do not appear to dispute that, if they actually used Common Benefit Work
Product in a state-court or unfiled case, the Court has authority to subject any recovery in the
latter to an assessment. That is for good reason, as the courts that have addressed the issue
appear to be unanimous in upholding assessments in such circumstances.
See, e.g.
,
In re
Prempro Prods. Liab. Litig.
, No. 4:03-CV-1507 (BRW),
In re Genetically Modified Rice Litigation.
,
By contrast, in
In re Avandia Marketing, Sales Practices & Products Liability Litigation
,
On appeal, the Third Circuit affirmed. Notably, it did so not on the ground that the firm
had used MDL work product (an argument it did not even address), but on the ground that the
firm was bound by the district court’s order. “A district court that supervises a multidistrict
litigation,” the Court explained, “has — and is expected to exercise — the ability to craft a
plaintiffs’ leadership organization to assist with case management. Included in that ability is the
power to fashion some way of compensating the attorneys who provide class-wide services.”
Id.
at 141 (internal quotation marks and citation omitted). The district court, the Circuit continued,
“permitted the Steering Committee to, essentially, trade work product for a share in the recovery
in cases
not
before the MDL.” at 141. Because the district court incorporated the Steering
Committee’s agreement with the firm at issue into its own order, and the breach of an agreement
incorporated into a court order is a violation of the order itself, the district court “had jurisdiction
to determine whether [the law firm] breached [its] agreement and, if so, to remedy that breach.”
Id.
at 142 (citing
Kokkonen v. Guardian Life Ins. Co. of Am.,
The question is a confounding and close one, but in the Court’s view, the Third Circuit
has the better of the argument. For starters, it seems wrong to say that where, as here, a court’s
order directs a party or counsel before it to act that the court lacks
subject-matter jurisdiction
.
To be sure, a district court’s jurisdiction — whether in multidistrict litigation or otherwise — is
generally “limited to cases and controversies between persons who are properly parties to the
cases [before it], and any attempt without service of process to reach others who are unrelated is
beyond the court’s power.”
Showa Denko
,
There are other reasons to conclude that the question is not one of jurisdiction — or at
least not one of subject-matter jurisdiction. It is well established, for instance, that “no action of
the parties can confer subject-matter jurisdiction upon a federal court,” meaning that “the consent
of the parties is irrelevant” and “principles of estoppel do not apply.”
Ins. Corp. of Ir., Ltd. v.
Compagnie des Bauxites de Guinee
,
In fact, it is commonly accepted that a federal court has the power to regulate the conduct
of counsel appearing before it, even where such regulation affects non-parties to the case itself.
Take protective orders. Pursuant to such orders, counsel is usually prohibited, on pain of
sanctions, from using or disclosing information or documents publicly or in other litigation.
See,
e.g.
,
Wolters Kluwer Fin. Servs. Inc. v. Scivantage
, No. 07-CV-2352 (HB),
Thus, the relevant question is not one of jurisdiction — or at least subject-matter
jurisdiction. The Court is not exercising jurisdiction over cases or parties not before it; it is
exercising jurisdiction over the MDL. Pursuant to that jurisdiction, the Court has authority to
regulate the conduct of the MDL parties and MDL counsel, even where such regulation affects
the interests of others.
[13]
Instead, the relevant question is whether Order No. 42 is within the
scope of the Court’s authority. Admittedly, there is no statute or rule authorizing the Court to
create a common benefit fund.
Cf.
Fed. R. Civ. P. 23(h) (“In a certified class action, the court
may award reasonable attorney’s fees . . . .”). But it is well established that federal courts also
possess certain inherent powers, “governed not by rule or statute but by the control necessarily
vested in courts to manage their own affairs so as to achieve the orderly and expeditious
disposition of cases,”
Link v. Wabash R.R. Co.
,
percentage on top of the settlement amount, with all of the settlement amount going to the claimant (and her lawyer). Or imagine that the Court limited assessments to recoveries within the MDL, but — to combat free-riding — increased the size of the assessment where counsel represented a larger proportion of clients with related claims outside of the MDL. Structuring the assessments in either of these ways might or might not be a reasonable exercise of the Court’s authority. But in each case, there would be no question that the Court had “jurisdiction” to act — even though the assessments would be no less related to disputes between New GM and claimants outside of the MDL than the hold-backs with respect to unfiled claims mandated by Order No. 42 and even though, as a matter of economic reality, there would be little or no difference between those approaches and the approach of Order No. 42. Whether the Court has “jurisdiction” should not turn on the form the assessments take.
Order No. 42 falls within those limits. It is beyond dispute that the Court may “establish
fee structures designed to compensate committee members for their work on behalf of all
plaintiffs involved in consolidated litigation.”
Smiley v. Sincoff
,
For these reasons, “[i]t is well-settled that an MDL court’s authority to . . . order
contributions to compensate leadership counsel derives from its ‘managerial’ power over the
consolidated litigation, and, to some extent, from its inherent equitable power.”
In re Chinese-
Manufactured Drywall Prods. Liab. Litig.
, MDL No. 09-2047,
Perhaps unwittingly, BCH itself vividly demonstrates how the Firms’ non-MDL clients
benefited from Lead Counsel’s efforts even without “using” Common Benefit Work Product. To
justify the assertion that it was not “free riding,” BCH emphasizes that its state-court cases were
settled “in the very early phases of litigation” and that “minimal substantive legal work was
required. The only activity in the litigation involved a procedural fight [regarding personal
jurisdiction] that BCH briefed without Lead Counsel’s involvement whatsoever . . . .” BCH
Mem. 9 (citation omitted). Elsewhere, it proudly emphasizes that “[n]o discovery was requested,
propounded, or reviewed by BCH for these cases. Moreover, no depositions were conducted, no
experts were retained, and no additional activity occurred in the [Firm’s] state-court litigation.”
at 3. To cite that record as proof that the Firm’s non-MDL clients did not benefit from the
work of Lead Counsel, however, is naïve in the extreme.
Cf. Dep’t of Commerce v. New York
,
In any event, the assessments on the settlements in the Firms’ unfiled cases are
permissible for another reason: because, like the law firm in
Avandia
, the Firms entered into an
agreement with Lead Counsel, incorporated by reference into a court order, in which they
expressly authorized New GM to hold back a portion of recoveries in their “Common Benefit
Actions” in exchange for access to Common Benefit Work Product. Order No. 42 Ex. A
(“Participation Agreement”), ¶¶ 1, 4. Notably, the Participation Agreement expressly provides
that it is made between Lead Counsel and a firm “on behalf of, and with authorization from, the
plaintiff clients of the firm . . . who are plaintiffs in a Common Benefit Action as that term is
defined” in Order No. 42. Participation Agreement at 1;
see id.
¶ 9 (“This Agreement shall apply
to each and every client who is a plaintiff in a Common Benefit Action in which Participating
Law Firm has a right or claim to a fee recovery . . . .”);
see also
Order No. 42, ¶ 18 (providing
that “[t]he Participation Agreement, . . . incorporated herein, is an agreement among (1) the
MDL 2543 Leadership and (2) plaintiffs and their counsel in Common Benefit Actions as
defined in [Paragraph 11]”). And as noted above, Order No. 42 defines Common Benefit
Actions to include “all unfiled . . . actions of clients of Participating Counsel that would be
Related Actions if filed.” Order No. 42, ¶ 11. By its terms, therefore, the Participation
Agreement was binding on both the Firms and their clients with unfiled claims.
See also S.E.C.
v. McNulty
,
In short, although the Firms’ arguments are not without some force, the Court concludes that it had both jurisdiction and authority to mandate assessments on the settlements of their unfiled claims. It follows that the Court may, and will, enforce Order No. 42 as written.
CONCLUSION
For the foregoing reasons, the Firms’ motions are GRANTED in part and DENIED in part. In particular, the Court concludes that Order No. 42 applies to the Firms’ clients’ related unfiled claims and to state-court cases in which the Firms used Common Benefit Work Product, but it does not apply to state-court cases in which the Firms did not use Common Benefit Work Product. Further, the Court concludes that Order No. 42 is a permissible exercise of its inherent authority over this litigation and the parties and counsel appearing before it.
Additionally, the Firms are ORDERED to review their files relating to each of their related state-court matters, including those not at issue here, to determine whether they used Common Benefit Work Product within the meaning of Order No. 42. No later than three weeks from the date of this Opinion and Order , each Firm must file an affidavit that (1) identifies its related state-court cases and (2) with respect to each, either confirms that the Firm did not use Common Benefit Work Product or concedes that it did. If the Court later concludes that a Firm incorrectly represented in its affidavit that it did not use Common Benefit Work Product, the Court will impose the assessment, plus appropriate sanctions.
Finally, pursuant to Order No. 77, if Lead Counsel, the Firms, or New GM believe that sealed or redacted materials related to this motion should remain sealed or redacted, they shall file a letter brief regarding the propriety of doing so no later than one week from the date of this Opinion and Order . See ECF No. 1349, at 4.
The Clerk of Court is directed to terminate ECF Nos. 7368 and 7398.
SO ORDERED. Dated: August 7, 2020 __________________________________
New York, New York JESSE M. FURMAN United States District Judge
Notes
[1] On January 20, 2020, L&E moved for certification of the Court’s opinion pursuant to Rule 54(b) of the Federal Rules of Civil Procedure and to enter final judgment under Rule 58. ECF No. 7683. The Court denied L&E’s motion, noting that, when it resolved the present motions, it was “likely to confront issues that were fully briefed in connection with” L&E’s motion “but not resolved in the Order” — issues which might “provide an independent and adequate basis on which to impose a common benefit assessment on the settlements at issue in [L&E’s] motion.” In re Gen. Motors LLC Ignition Switch Litig. , No. 14-MD-2543 (JMF), 2020 WL 815590, at *1 (S.D.N.Y. Feb. 19, 2020). The Court concluded that certifying its opinion as a final judgment would therefore “undermine . . . the interest in judicial efficiency.”
[2] In its opening brief, BCH offered a third argument: that imposing assessments for the settlements of its state-court and unfiled claims violates the Texas Disciplinary Rules of Professional Conduct. See BCH Mem. 9-10. BCH does not press the point in its reply, however,
[3] Of course, that is likely true only if the issue is brought to the state court’s attention, which neither the plaintiff’s lawyer (who may well be seeking to free-ride on the common benefit work) nor the defendant has an incentive to do. Presumably, the lawyers doing common benefit work — here, Lead Counsel — could take steps to raise the issue in state court. Alternatively, a federal court could perhaps require the defendant — over whom it has jurisdiction — to do so.
[4] Imposing an assessment on the recovery in a state-court case could do more than intrude on the state court’s supervision of its own docket. Where the recovery is pursuant to a judgment entered in state court, it could subject the defendant to conflicting orders: the state-court judgment requiring payment of damages in full and the federal-court order mandating a hold- back of a portion of the damages for the common-benefit fund. Federal courts should hesitate before creating that sort of conflict with their state counterparts.
[5] The extreme version of the free-rider problem assumes a lawyer proceeding in bad faith.
But even in the absence of bad faith, there is a strong argument for taxing the unfiled claims of a
lawyer who gains access to common benefit work product by filing a single claim in the MDL.
After all, it is difficult to determine whether an attorney has used common benefit work product,
and access to common benefit work product may benefit a lawyer (and, by extension, her clients)
even if it is never put to concrete use, let alone filed, in another action.
See In re Gen. Motors
,
[6] In any event, given the small size of the assessment (three percent of any recovery) relative to the “typical contingent fee percentage for plaintiffs’ attorneys [i.e.,] thirty-three to forty percent,” it is “highly unlikely” that the assessment would exceed the fees owed by the Firms’ client in any given case. Jack Downing, Note, A Blatant Inequity: Contributions to the Common Benefit Fund in Multidistrict Litigation , 81 M O . L. R EV . 831, 846 (2016).
[7] In Shumate v. General Motors LLC , a Missouri state-court case not at issue here, BCH claimed that it had not used Common Benefit Work Product, but Lead Counsel’s own investigation revealed that it had. Specifically, BCH filed a general liability expert report that was nearly identical to the same expert’s report in the MDL, which relied, in turn, on MDL depositions and documents produced in the course of the MDL. Ex. B at 4; Opp’n 7; Joint Reply 9-10 (not disputing Lead Counsel’s representation). Despite that, BCH initially resisted paying the assessment. See Ex. B at 4; Opp’n 7; Joint Reply 9-10. That episode certainly undermines BCH’s credibility, but it does not alter the Court’s conclusion that, on this record, Lead Counsel fails to show that BCH actually “used” Common Benefit Work Product in any of the state-filed cases at issue here.
[8] In its affidavit, Potts should address one case in particular. Lead Counsel alleges that, on December 16, 2016, Potts informed Lead Counsel that it had reviewed the MDL deposition of a General Motors employee and concluded that it would not need to depose her because the MDL deposition was sufficient. See Opp’n 10; id. , Ex. Q. If true, then Potts “used” that witness’s MDL deposition; at a minimum, it forwent deposing a witness (and undertaking related expenses) because of the work performed in the MDL. Potts, however, does not address the point, and neither Potts nor Lead Counsel identifies the case. If it is a state-court case other than Mullin , then that case is also subject to assessment under Order No. 42.
[9] Strictly speaking, Genetically Modified Rice addressed only the question of assessments on state-court cases, not on unfiled claims, but its reasoning applies equally to the latter.
[10] Like in Genetically Modified Rice , the claimants at issue in Avandia had filed lawsuits in state courts. Nevertheless, the Third Circuit’s conclusion that the district court had jurisdiction and authority to impose assessments on their recoveries is instructive. If anything, its reasoning would apply with more force to unfiled claims because, as discussed above, imposing assessments on such claims does not risk intruding on the prerogatives of state courts.
[11] In that limited sense, the Court is not entirely persuaded by the Third Circuit’s rejection
of the argument in
Avandia
that it was “finding subject-matter jurisdiction by agreement of the
parties.”
[12] One might argue that counsel’s other clients are not affected because the combination of discovery and a protective order covering the documents produced leaves those clients in the same position. But Order No. 42 does not have a dramatic impact on the status quo either. Indeed, because the Firms’ clients’ claims are more valuable as a result of the Common Benefit Work Product to which the Firms have had access, the combination of Common Benefit Work Product and Order No. 42 approximates the status quo.
[13] Were the assessments imposed in a different manner, the point would be even clearer. Imagine, for example, that instead of requiring New GM to “hold back” a portion of any settlement outside of the MDL, the Court had required New GM to pay a surtax — i.e., a
[14] In that sense, the assessments on unfiled claims are akin to an option. They are the price that MDL counsel has to pay for the right to use Common Benefit Work in connection with a potential future lawsuit — and to have that leverage over New GM in their negotiations.
[15] In some, but not all, instances, the Participation Agreement appears to limit the universe of a firm’s clients who are bound by the agreement to those “listed on Exhibit 1.” E.g. , Participation Agreement ¶ 1. The record is silent with respect to whether the Firms listed any of their non-MDL clients on Exhibit 1. But the Firms do not dispute that they themselves are bound by the Agreement (if not by signature, then by their course of conduct and implicit consent), and they do not press — and thus have waived — any argument that their failure to list a client on Exhibit 1 to the Agreement means that a recovery by that client is not subject to assessment. Among other things, the Participation Agreement required the Firms to provide “a full and complete list” of their clients in a Common Benefit Action and to keep that list up-to-date. ¶¶ 6-7; see id. ¶ 9 (“Participating Law Firm affirms that all such clients are listed on Exhibit 1 and agrees to supplement Exhibit 1 for any such new clients.”).
[16] In any event, as noted above,
see supra
note 6, it is “highly unlikely” that the three-
percent assessment on any recovery in the Firms’ unfiled cases will exceed the attorney’s fees
owed by the client. Downing,
supra
, at 846. Arguably, therefore, Order No. 42 does “not affect
parties not before the MDL court” at all. To the extent that the assessment would exceed the
fees owed, of course, the Court could cure any jurisdictional or legal problem with Order No. 42
by capping the assessment at the level of the Firms’ fee.
Cf. Syngenta
,