Bad facts make bad law, and it can cost you in MDL fees

It has been said that bad facts make bad law. The real question is: bad for who? In the recent Ninth Circuit decision Law Offices of Ben C Martin v. Babbitt & Johnson PA, et al., the facts are really bad for the petitioner and not so much for the respondent. But either way, this is an important case as it sets forth the standards an MDL (multidistrict litigation) judge may use in determining when to impose common benefit fees and costs on a participating law firm.

Just a little background here. In mass torts, it is common for the Court to appoint leadership counsel, including lead counsel, liaison counsel, and other members of the Plaintiff Steering Committee (PSC). Court-appointed leadership is charged with conducting discovery and trials on behalf of all the plaintiffs in the coordinated proceeding. This is very important in cases where there are potentially thousands of individual plaintiffs and plaintiff law firms. All parties and the Court need coordination and direction that can only be gained by delegating responsibility to the PSC.

If you have not been involved in mass tort cases, you have likely read about “lead” counsel trying a “bellwether” case or obtaining a “global” settlement. The question, you might ask, and I certainly did, is how does the PSC get compensated for all of the time and effort they put in? The short answer is the imposition of a common benefit fee. This is typically a percentage of the total settlement fund that the court has agreed is an appropriate amount for leadership to be compensated for their “common” work. Common benefit fees can range from 5% to 10%, or more, just depending upon the nature, complexity, time and investment to reach the end result. The courts will almost always perform what is known as a “lodestar crosscheck” to verify that the percent requested is proportionate to the total amount of hours multiplied by hourly rates billed by the firms collectively. The question often arises, as it did in the Ben C Martin v. Babbitt & Johnson PA case, is do firms have to pay the assessment if their case is not in the jurisdiction administering the fee (i.e. do state court cases need to pay a federal court assessment?) There is no doubt that court-appointed leadership in both MDLs and JCCPs perform extremely valuable work on behalf of all plaintiffs and firms involved in the litigation. Fairness suggests that where a certain number of firms are spending thousands of hours of attorney time and expending millions of dollars for costs that they should be entitled to receive a small percentage of the entire fee recovered for their work. It is important to note that this fee should never increase the total contingency fee a client is required to pay but it does reduce the attorneys’ fees a firm can recover on their contractual contingency fee. For example, in the Porter Ranch litigation I served in the role as liaison counsel for the entire case. The matter settled for a total of $1.8 billion with a 5% common benefit assessment for fees. If an attorney had a 40% contingency fee with their client, the fee to them would need to be reduced by 5% to 35% so that the client’s contingency fee would not exceed 40%. Needless to say a firm that was not involved in leadership might be unhappy to reduce their contingency fee to 35% but, on the other hand, it was leadership that brought about the result in the first instance.

Back to BCM. Bad facts make bad law. It is really unclear why the attorneys at the law offices of Ben C. Martin did not want to pay a common benefit assessment, but the facts of this case include the following. BCM was a member of the PSC, signed a participation order in the MDL agreeing to pay into a common benefit fund and most shockingly, as reported by the Ninth Circuit, BCM made an application to the common benefit fund and was paid fees for the work performed by them. With that backdrop in mind, the BCM firm settled cases outside the MDL and argued that they should not have to pay an assessment on those cases. The 9th Circuit disagreed: “BCM entered into a participation agreement, which was incorporated in the district court’s order establishing a common benefit fund, whereby BCM agreed to assessments against its non-MDL cases in exchange for access to common benefit work. Moreover, BCM reaped the benefit of this agreement by repeatedly accessing common benefit work product and using it in its non-MDL cases. Therefore, after knowingly and voluntarily entering into the participation agreement, BCM cannot now complain that the district court lacked authority to enforce its orders incorporating that agreement.” So here’s the point: if you are not interested in paying common benefit fees for your cases, you should remain separate from, and not participate in, any of the benefits conferred upon you or your client through the joint discovery efforts of lead counsel and do everything on your own. Most importantly, do not agree to any participation agreement which would so obligate you to pay into a common benefit fund. This strategy is not entirely recommended, as you will be missing out on valuable information and benefits.