MEMORANDUM & ORDER ON COMMON BENEFIT FUND AND CONTINUING APPLICABILITY OF ORDERS OF COURT AND SPECIAL MASTERS
Table of Contents
I. Introduction.261
II. Facts.262
A. Litigation History .262
B. Access to Discovery and Deposition Materials.264
C. Copies of Materials Housed in Mount Pleasant Depository.264
D. Date From Which PSC II May Seek Fees .264
III. Law of Common Benefit Compensation.265
IV. Application of Law to Facts: Federal Cases.266
V. Application of Law to Facts: State Cases.267
VI. Equity; Avoidance of Conflict of Interest .269
VII.Potential FOR Dubious Filings in Quasi-Class Action . Ol O <M
A. Problem Generally. C5 CO
B. Potential for Sanctions and Cost Sharing By Counsel O l> <M
VIII.AppliCation of All Orders to Pending Cases.273
A. Law .273
B. Application of Law to Facts: Fees.274
C. Application of Law to Facts: Fact Sheets and Orders of Special Masters.275
IX.CONCLUSION. .275
I. Introduction
In November 2005, many thousands of cases in this multi-district litigation (“MDL”) were settled under the direction of an original Plaintiffs’ Steering Committee (“PSC I”).
See In re Zyprexa Prods. Liab. Litig.,
No. 04-MD-01596,
A new Plaintiffs’ Steering Committee (“PSC II”) was then established to deal
Three objections to the motion are made: 1) defendant contends that requiring Lilly to administer the fund would place an unfair burden on it; 2) a number of attorneys representing state and federal plaintiffs challenge the transferee court’s jurisdiction to require fees to be paid out of state court recoveries; and 3) the same attorneys argue that the common benefits conferred by PSC II are too uncertain at this point to merit the creation of a common benefit fund. For the reasons set out below, the motion is granted in part. See Parts II-VI, infra.
This memorandum also deals with the danger of unlimited dubious filings in a non-class action conglomerate settlement. See Part VII, infra. The parties are reminded that orders of the court, magistrate judge and special masters issued while PSC I was active apply to PSC II and all cases pending in this MDL.
The court, magistrate judge and special masters will continue to administer this litigation as a quasi-class action.
See In re Zyprexa Prods. Liab. Litig.,
Cooperation with state courts will continue to be stressed.
See
Part V,
infra; see also In re Zyprexa Product Liab. Litig.,
No. 04-MD-01596,
II. Facts
A. Litigation History
In April 2004, pretrial proceedings were consolidated in actions against defendant Lilly for injuries alleged to have been caused by on-label and off-label usage of the prescription drug Zyprexa.
See
Letter from Multidistrict Litigation Panel to Clerk of the Eastern District of New York, No. 04-MD-01596 (Apr. 14, 2004). After discovery and negotiations overseen by a court-appointed special discovery master and four special settlement masters, in
A complex claims processing and payment procedure is in the final stages of execution.
See In re Zyprexa Prods. Liab. Litig.,
An attorneys’ fees structure has been ordered, capping fees at 20% of recovery in smaller, lump-sum claims, and at 35% of recovery in all other claims.
See In re Zyprexa Prods. Liab. Litig.,
A national system for resolving Medicare and Medicaid liens has been approved.
See In re Zyprexa Prods. Liab. Litig.,
To pay for PSC I’s work, a 1% set-aside from the gross settlement amount, plus interest on the escrow fund, was designated for use in a common benefit fund. This fund will be used to reimburse members of PSC I and other attorneys for the time and funds expended by them for the common benefit of all settling plaintiffs in the conduct of the litigation and the implementation of the settlement.
See
Order for Set Aside for the Common Benefit Fund for Members of the Former Plaintiffs’ Steering Committee,
In re Zyprexa Prods. Liab. Litig.,
No. 04-MD-01596,
PSC II was formally appointed on August 16, 2006, though some of its members assumed discovery responsibilities as early as the Spring of 2006 as discovery resumed after termination of a stay.
See In re Zyprexa Prods. Liab. Litig.,
No. 04-MDL-01596, Amended Case Management Order No. 19 (E.D.N.Y. Aug. 16, 2006). PSC II seeks to ensure compensation for its work on the behalf of plaintiffs whose claims have not yet been settled.
See
Aff. of Melvyn I. Weiss in Support of PSC’s Motion for an Order Establishing a Common Benefit Fund, ¶ 1 (Oct. 5, 2006)
Since the time of the first settlement, which resolved most of the cases then pending in the MDL, thousands of additional cases have been transferred to this cоurt under the MDL order. PSC II has undertaken and performed significant discovery work in connection with these cases, as well as the many cases pending in state courts: millions of pages of documents recently produced by Lilly have been reviewed, and witnesses have been deposed. Fact discovery in the pending cases is scheduled to be completed by December 29, 2006.
See In re Zyprexa Prods. Liab. Litig.,
No. 04-MD-01596,
B.Access to Discovery and Deposition Materials
All materials obtained by PSC I and PSC II in pretrial discovery have been ordered to be made available to all plaintiffs, state and federal.
See In re Zyprexa,
C. Copies of Materials Housed in Mount Pleasant Depository
Some plaintiffs’ attorneys have sought to make physical copies for their own use of all the discovery materials maintained by PSC II. See 11/1 Tr. Given the “touch of a button” nature of today’s advanced technology — where in federal courthouses filings are submitted electronically rather than in paper form' — wholesale unnecessary physical duplication of discovery materials should be avoided. The creation of web-based access to discovery materials would appear to facilitate cost-effective access to a single set of the documents while providing protection against their accidentally falling into hands not entitled to them. PSC II is authorized to provide electronic copies of all discovery materials to plaintiffs’ attorneys who agree to adhere to the terms of the protective order and the case management orders that have been issued by this court, the magistrate judge, and the special masters. If an attorney seeking the material is willing to be bound by all orders applicable in this MDL and to pay for the cost of consolidation of materials onto one or more discs for that attorney’s use, the court sees no reason to deny such a request.
D. Date From Which PSC II May Seek Fees
Following the announcement that defendant and PSC I had agreed uрon the basis for a settlement of some 8,000 cases in this litigation, the court stayed discovery until July 31, 2005.
See In re Zyprexa Prods. Liab. Litig.,
Any discovery after March 1, 2006 has presumably been for the benefit of cases that were not part of the original settlement, since the settled cases did not require further discovery. The discovery that has taken place from March 1, 2006 forward will be presumptively attributed to PSC II. See Part IV infra. Some work may have been done for The common benefit of the settled cases for a short period after March 1, 2006; attorneys who performed such work may seek compensation from the funds set aside for compensation of PSC I. Work done by members of PSC II and other attorneys after March 1, 2006 for the benefit of plaintiffs in unsettled cases shall be paid from the PSC II common benefit fund. Any dispute about whether PSC I’s common benefit fund or PSC II’s common benefit fund should be used to pay a particular attorney for certain work shall be resolved by the special master for discovery.
III. Law of Common Benefit Compensation
“A necessary corollary to court appointment of lead and liaison counsel and appropriate management committees is the power to assure that these attorneys receive reasonable compensation for their work.”
In re Linerboard Antitrust Litig.,
A transferee court in a federal mul-tidistrict litigation has the power to determine the compensation for appointed lead counsel and to impose its fee calculation on all federal plaintiffs, even if their cases are 1) before other federal courts rather than the transferee court, or 2) not yet in a federal court, but ultimately are in such a court.
See Walitalo v. Chrysler Corp.,
IV. Application of Law to Facts: Federal Cases
In this quasi-class action, the court established steering committees for plaintiffs (PSC I and PSC II) in order to allow for coordinated action during the pretrial and settlement phases of the litigation.
See
Manual for Complex Litigation, § 22.62 (4th ed. 2004) (“The judge [in a complex litigation] will often need to appoint lead counsel or a committee of counsel to coordinate discovery and other pretrial preparation.”). The two PSCs’ responsibilities include initiating, coordinating, and conducting all pretrial discovery on behalf of plaintiffs; acting as a spokesperson for plaintiffs during pretrial proceedings; negotiating and entering into stipulations with defendant; developing and pursuing settlement options with defendant; creating a method for reimbursement for costs and fees for services; and dealing with liens on a national basis.
See In re Zyprexa Prods. Liab. Litig.,
No. 04-MD-01596,
The large scope and high quality of the work being performed by PSC II for the common benefit of all plaintiffs entitle it to compensation beyond the court-limited fees earned by PSC attorneys for the representation of their individual clients. “The interests to be served [by lead counsel in a consolidated litigation] are too important to be left to volunteers (or draftees) who are unpaid in the sense that they get nothing additional.”
In re Air Crash Disaster,
An objection has been posed to the establishment of a PSC II common benefit fund on the ground of prematurity. PSC II, as already noted, was established by the court on August 16, 2006, and it is argued that it has not yet made sufficient efforts on behalf of all plaintiffs to warrant common benefit compensation. The objection is factually inaccurate. The members of PSC II have conducted a significant amount of discovery.
The objectors also misstate the nature of the set-aside for a common benefit fund that PSC II is seeking. Should any amount be recovered by federal plaintiffs from defendant by settlement or judgment, a percentage of those plaintiffs’ attorneys’ fees will be held back in an escrow account.
See Smiley,
The common benefit fund set-aside is a holdback, not a levy.
Cf. In re Zyprexa Prods. Liab. Litig.,
No. 04-MD-01596,
The discovery that has taken place in this case since the court’s lifting of a temporary stay of discovery put in place in June 2005 has been essentially for the benefit of the current plaintiffs, rather than the group of plaintiffs whose claims have already been settled. See Part II.D, supra, for discussion of any overlapping work for the benefit of the settled and non-settled cases.
The question of what percentage of attorneys’ fees should be withheld from any amount received by plaintiffs from defendants, whether by judgment or settlement, has not been briefed. PSC II is requested to suggest an appropriate percentage as soon as possible, after consultation with all interested attorneys and the special masters. The percentage should be determined quickly so thаt it is known to all plaintiffs whose cases may settle or otherwise be resolved in the near future. The federal percentage may provide guidance to any state courts and state plaintiffs who wish to achieve an equitable and fair parity between state and federal attorneys. See Part Y, infra.
The parties, in consultation with the special masters, should promptly consider and make recommendations on how the common benefit fund is to be administered. There is no need to burden defendant Lilly with this chore; Lilly has no responsibility to provide for, or administer, the fund.
V. Application of Law to Facts: State Cases
PSC II seeks to hold back for use in the common benefit fund a percentage of attorneys’ fee recoveries in state cases where the state plaintiffs attorney also represents federal plaintiffs. The question of a federal court’s power to impose a compensatiоn scheme on state plaintiffs has apparently not been decided by the Court of Appeals for the Second Circuit. The only Court of Appeals to have squarely addressed the issue held that “a transferee court’s jurisdiction in multi-district litigation is limited to cases and controversies between persons who are properly parties to the cases transferred, and any
There is no need now to reach the issue of whether a federal MDL court has the power to compel attorneys who represent both state and federal plaintiffs to set aside a portion of their fee recoveries in state cases for use in a common benefit fund. Principles of comity and respect for the state courts’ supervision of their own dockets and the attorneys before them lead to the conclusion that such compulsion would be inappropriate at this time.
It must as a matter of equity, however, be recognized that much of the work performed, and to be performed, by PSC II on behalf of plaintiffs in the multi-district federal litigation will benefit state plaintiffs. This result is desirable. It will reduce the burden placed on the state-federal court structure by this mass litigation, and reduce unnecessary duplicitous work.
See, e.g., MacAlister v. Guterma,
PSC II is directed to carry on the work of PSC I in coordinating its work with that of state courts. The special masters will continue to assist in this cooperative effort.
The benefits conferred on state plaintiffs as a result of PSC I’s work in federal court were substantial. PSC II’s contributions to state plaintiffs will include maintenance of a depository for all documents produced by defendant in discovery, allowing free access to these documents to state plaintiffs. Whenever PSC II notices a deposition of a present or former employee of the defendant, defendant will cross-notice the deposition in every Zyprexa-related state court litigation. Attorneys for state cases have been, and shall be, permitted to participate fully in depositions. See Weiss Aff. ¶¶ 6, 9; Case Management Order No. 15, In re Zyprexa Prods. Liab. Litig., No. 04-MD-01596, at 5 (E.D.N.Y. May 15, 2006) (directing MDL counsel to use best efforts to coordinate the scheduling of depositions with state court counsel, and providing for cross-noticing of depositions in federal and state court).
The leading attorneys handling state Zy-prexa cases also represent federal MDL plaintiffs. See 11/1 Tr. at 7. Those attorneys are free to use relevant knowledge gained in the federal litigation for the benefit of their state clients. The court has consistently refused to erect any artificial barrier, or “Chinese wall,” between the federal and state cases that would limit state attorneys’ ability to profit from federal discovery. Id. at 31-32.
The issue of assessing state cases with the costs of a discovery process that benefits all cases, state and federal, should, in the first instance, be left to state court
VI. Equity; Avoidance of Conflict of Interest
It would be equitable to require state plaintiffs’ attorneys to pay their proportionate share of the time and costs incurred by PSC II in its work for the common benefit of all plaintiffs, state and federal. See Part V, supra. Cf. 28 U.S.C. § 1407(a) (district court’s ultimate goal in multidistrict litigation is to “promote the just and efficient conduct of such actions”).
Such an arrangement would avoid the troubling potential for attorney conflict of interests that otherwise would exist: Attornеys face distorted incentives to file cases in state courts without respect for the best interests of their clients because the attorneys can use PSC II’s work without paying for it out of their fees when in state court, but would have to pay their fair share if they were in federal court. In state court, they may also claim they can escape this court’s limitation on their own direct fees, resulting in a smaller recovery for their state clients but an increase in their own fees.
See In re Zyprexa,
VII. Potential for Dubious Filings in Quasi-Class Action
A. Problem Generally
Following settlement of over 8,000 cases with the aid of the special masters and PSC I, PSC II has engaged in extensive discovery including depositions to prepare for trial or possible settlement of the remaining thousands of cases. See Part II, supra. Intense settlement negotiations for all ongoing cases — state and federal— is continuing with the assistance of the settlement masters.
When a total settlement of a conglomerate mass quasi-class action is in the offing, some attorneys may seek out dubious cases for filings in order to take advantage of the prospective settlement, projecting possible leverage for increased fees resulting from threatened delays in achieving a final global disposition.
In order to understand the deleterious nature of any overhanging cloud of possibly inferior claims affecting the possibility of a final, total settlement, it is well to reflect for a moment on the recent history of mass litigation generally.
The Supreme Court, in a number of asbestos cases — at least as interpreted by some of the intermediate federal appeals courts and the bar — made utilization of class actions to finally dispose of a mass litigation more problematic.
See Ortiz v. Fibreboard Corp.,
As a result of the dubious benefits available from class actions in resolving mass disputes, particularly in pharmaceutical cases, more defendants have now begun to
A good faith attempt to resolve an entire dispute by defendant and plaintiffs’ bar, which will provide fair compensation to plaintiffs and allow a pharmaceutical company to put a major litigation behind it, and to get on with its main work of producing pharmaceuticals, becomes more difficult when there is no clear way to end finally the whole litigation. It is the unresolved tail of future cases that presents the problem.
New want to see new examples of lack of final closure such as that in the almost never-ending asbestos cases, and the essentially unfounded breast implantation cases — that led to so many unnecessary bankruptcies — repeаted in a case like the present one.
See, e.g., In re Breast Implant Cases,
While this court expressed skepticism at the outset of the litigation with respect to the merits of some of the current Zyprexa claims, see Tr. of Status Conf., 27-31 (E.D.N.Y. June 15, 2004), it makes no finding now about the merits of any future cases following a global settlement. The change in Zyprexa’s label in September 2003, as ordered by the federal Food and Drug Administration, makes less viable, on statute of limitations and other grounds, such future cases.
The transferee court will address motions for summary judgment as well as the trials now scheduled to determine the merits of individual non-settled cases. Should plaintiffs win judgments after trial or after summary judgment, they will be entitled to fees and disbursements. Should plaintiffs lose on the merits, they will be liable for fees and disbursements.
B. Potential for Sanctions and Cost Sharing by Counsel
Since Zyprexa is primarily designed for schizophrenics, and the disease claimed is diabetes with its sometimes terrible consequences, many of the plaintiffs may not be in a position to pay fees and disbursements awarded against them. Since this is a mass action, where the court has substantial equitable powers, a question may be raised as to whether a party may seek reimbursement for fees and disbursements in the first instance from attorneys who may have instituted unfounded claims or defenses.
See Chambers v. NASCO, Inc.,
The inherent power of the court to impose sanctions should be limited to cases where “neither the statute nor the Rules are up to the task.”
Chambers,
Courts have sanctioned attorneys under § 1927 for the filing and prosecution of a lawsuit that they have determined to be meritless.
See Overnite Transp. Co. v. Chicago Industrial Tire Co.
Another basis for a court’s sanction of attorneys before it is provided by Rule 11 of the Federal Rules of Civil Procedure. Rule 11 permits a federal court, after a reasonable inquiry, to impose sanctions against an attorney or party who signs a pleading, motion, or other paper that is not well grounded in fact or warranted by existing law. Fed.R.Civ.P. 11(a). In the event that this Rule is violated, the court,
Under Rule 11, courts assess whether an attorney’s conduct was objectively reasonable at the time he or she signed the pleading, motion or other paper.
See Oliveri,
In general, Rule 11 does not contemplate an award of attorney fees to the opposing party by the court acting
sua sponte. See Nuwesra,
The court has discretion in fashioning an appropriate sanction for a Rule 11 violation. Critical to the exercise of this discretion is the purpose of the sanctioning mechanism of Rule 11: it is not a reimbursement, but instead a sanction.
See Eastway,
In circumstances where the litigant causes unnecessary delay or needless increase to the cost of litigation, the typical sanction is the payment of the other side’s reasonable attorney’s fees which were in
The issue of sanctions need not be decided at this time. The court assumes that there will be no effort to spoil a fair settlement through new unfounded claims.
VIII. Application of All Orders to Pending Cases
A. Law
Many of the cases pending in this court have been transferred here via the MDL procedure from federal courts around the country to which the cases will be remanded once they are ready to be tried, should they not be first settled or dismissed. Many cases have been removed from state court, and some of those are subject to a pending motion to remand.
The orders of the transferee court are binding on all cases pending before it, and those which may be transferred to it as tag-along matters, notwithstanding that those cases may ultimately be adjudicated in the federal and state courts in which they originated. See 28 U.S.C. § 1407(b) (“the judge ... to whom such [MDL] actions are assigned .... may exercise the powers of a district judge in any district”); 14C Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 3738 (3d ed. 1998) (“After the removal of an action from state court, the federal district court acquires full and exclusive subject matter jurisdiction over the litigation. The case will proceed as if it had been brought in thе federal court originally.”); see also Tr. of Hr’g, 106, 112-14 (E.D.N.Y. Nov. 20, 2006).
Orders issued by a federal transferee court remain binding if the case is sent back to the transferor court,
see
Manual for Complex Litigation § 20.133, as well as where the federal case is remanded to state court subject to subsequent state rulings.
See
Moore’s Fed. Practice, § 107.43 (3d ed. 2003) (“Typically, the state court will give effect to all pleadings filed in federal court and to all rulings made by the federal court while the case was in federal court.”);
see, e.g., Ruhrgas AG v. Marathon Oil Co.,
With respect to the specific situation of a ease remanded to state court based on the federal court’s finding that it lacked jurisdiction to adjudicate, “[a] final determination of lack of subject matter jurisdiction of a case in a federal court, of course, precludes further adjudication of it. But such a determination does not automatically wipe out all proceedings had in the district court at a time when the district court operated under the misapprehension that it had jurisdiction.”
Willy v. Coastal Corp.,
In exceptional cases, the federal or state court to which an MDL case is trans
A federal transferee court’s determination of collateral procedural issues (such as limitations placed on attorneys’ fees), which do not implicate the merits of the case, should remain binding and are ordinarily not subject to further review when the case is remanded to a federal transferor court.
See Walitalo,
The federal rulings also apply to a case remanded to state cоurt upon a finding that the federal court lacked subject matter jurisdiction over the case.
See Willy,
B. Application of Law to Facts: Fees
“[I]t is clear than an award of attorney’s fees is a collateral matter over which a court normally retains jurisdiction even after being divested of jurisdiction on the merits.”
Moore v. Permanente Med. Group., Inc.,
The common benefit fund fee set-aside imposed by this order shall apply to all cases pending — or to be pending — in this MDL, regardless of whether any of those cases are eventually remanded to state court or transferred to another federal court.
See Walitalo,
C. Application of Laic to Facts: Fact Sheets and Orders of Special Masters
For the reasons indicated in Part VIII.B, supra, orders requiring plaintiffs’ attorneys to file “fact sheets” to assist in discovery and settlement remain in effect. It is the court’s understanding that all plaintiffs in the MDL — including those whose cases are subject to a pending remand motion- — -are complying with case management orders, including the fact sheet requirement. See Tr. of Hr’g, 106, 112-14 (E.D.N.Y. Nov. 20, 2006). If they have not yet complied, they should do so promptly.
Every case currently before this court must comply with all of the court’s, magistrate judge’s, and special masters’ orders, even if a motion to remand is pending.
IX. Conclusion
The motion by PSC II to establish a common benefit fund is granted insofar as it extends to attorneys’ fees recovered in cases pending now or in the future in federal court. PSC II shall, after consultation with the special masters for settlement, and state and federal case attorneys, suggest details of funding and administration for the common benefit fund.
The motion is denied with respect to set-asides for attorneys’ fees in state cases.
Attorneys with motions to remand pending shall file with the court fee agreements in each case in which a remand motion has been made to ensure that this court’s fee orders are being executed.
SO ORDERED.