Two significant, upcoming securities law cases in Australia  are relevant to corporations and their officers and directors coping with mass tort liabilities and risks, and issues related to corrections/changes to prior disclosures.  Both are cases that ASIC -  Australia's  SEC - will soon argue to the Supreme Court in Australia. 

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The NYT story is here.  One can assume that day-traders and  hedge funds will be busy shorting bank stocks and otherwise betting on the litigation impacts. 

The key excerpts are:

By NELSON D. SCHWARTZ

The federal agency that oversees the mortgage giants Fannie Mae and Freddie Mac is set to file suits against more than a dozen big banks, accusing them of misrepresenting the quality of mortgage securities they assembled and sold at the height of the housing bubble, and seeking billions of dollars in compensation.

The Federal Housing Finance Agency suits, which are expected to be filed in the coming days in federal court, are aimed at Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank, among others, according to three individuals briefed on the matter.

The suits stem from subpoenas the finance agency issued to banks a year ago. If the case is not filed Friday, they said, it will come Tuesday, shortly before a deadline expires for the housing agency to file claims.

The suits will argue the banks, which assembled the mortgages and marketed them as securities to investors, failed to perform the due diligence required under securities law and missed evidence that borrowers’ incomes were inflated or falsified. When many borrowers were unable to pay their mortgages, the securities backed by the mortgages quickly lost value.

Fannie and Freddie lost more than $30 billion, in part as a result of the deals, losses that were borne mostly by taxpayers.

In July, the agency filed suit against UBS, another major mortgage securitizer, seeking to recover at least $900 million, and the individuals with knowledge of the case said the new litigation would be similar in scope.

Private holders of mortgage securities are already trying to force the big banks to buy back tens of billions in soured mortgage-backed bonds, but this federal effort is a new chapter in a huge legal fight that has alarmed investors in bank shares. In this case, rather than demanding that the banks buy back the original loans, the finance agency is seeking reimbursement for losses on the securities held by Fannie and Freddie.

The impending litigation underscores how almost exactly three years after the collapse of Lehman Brothers and the beginning of a financial crisis caused in large part by subprime lending, the legal fallout is mounting.

Besides the angry investors, 50 state attorneys general are in the final stages of negotiating a settlement to address abuses by the largest mortgage servicers, including Bank of America, JPMorgan and Citigroup. The attorneys general, as well as federal officials, are pressing the banks to pay at least $20 billion in that case, with much of the money earmarked to reduce mortgages of homeowners facing foreclosure.

And last month, the insurance giant American International Group filed a $10 billion suit against Bank of America, accusing the bank and its Countrywide Financial and Merrill Lynch units of misrepresenting the quality of mortgages that backed the securities A.I.G. bought.

Bank of America, Goldman Sachs and JPMorgan all declined to comment. Frank Kelly, a spokesman for Deutsche Bank, said, “We can’t comment on a suit that we haven’t seen and hasn’t been filed yet.”

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Settling mass tort lawsuits is not easy. It's even harder if conflict of interest rules are followed. The conflict of interest rules are illustrated by a brand new 2d Circuit opinion rejecting a proposed class action settlement in copyright infringement litigation brought by various groups of freelance writers against major publishers. The topic becomes more timely by the day as NY's AG faces pressure to settle claims against the uber banks regarding some of their activities.  Gretchen Morgenson's August 21, 2011 NYT article details new pressures - this time from the Obama Administration.

The bottom line of the freelancer opinion is that it rejected a class action settlement based on inadequate representation of one subclass.  Bloggers are starting to look at and discuss the opinion in its  broader context, so I will not repeat their analysis. A very defense-side post is here, and Alison Frankel's insightful analysis is here. 

Three further points, though, deserve mention. One is that the opinion arises in a formal class action. Therefore, some would say the opinion only applies in a formal class action. But others would argue the opinion applies to any case involving mass torts because the fundamental issue of inadequate representation cuts across legal pigeonholes. So, one can easily envision settlement opponents citing this case for the proposition that a settlement cannot be crammed down on (that is, binding on) persons who were not adequately represented in the settlement negotiations. Someone in Mr. Schneiderman's position presumably would make that argument. 

The entire set of issues raises the point that old issues return and become new issues, and that's true of the issues arising regarding class actions, finality and conflicts of interest. Indeed, Judge Rakoff's class certification ruling against B of A causes one to think again of the days in which "issue predominance" was considered the key to class actions. See here for a brief but pointed history, once again tied to product liability claims. The finality issues also bring to mind the Second Circuit's Agent Orange opinion holding that new personal claims could not be deemed settled by the prior class action litigation (an article is here as the case went up), an opinion the Supreme Court did not change after a 4-4 tie when Justice Stevens recused himself, apparently because his son served in Vietnam. Here is IIT Kent's compilation of Supreme Court argument materials and the opinion from its Oyez site.  Here is a 2010 defense-side summary of 30 years of Agent Orange litigation. And, here is an interesting article comparing habeas proceedings to class actions in terms of finality.  

Another interesting part of the opinion involves whether the settlement could be deemed fair based on evidence submitted by mediators and others. The dissent points to the mediator  and his affidavits as providing a basis  to approve the settlement.  See the Dissent, at 10. On the other hand, could we really expect involved persons to testify that they reached an unfair settlement ? The majority was not persuaded that the evidence should control.  The relevant evidence included Kenneth Feinberg swearing to the opinion that all interests were adequately represented. According to the opinion, Mr. Feinberg stated in a sworn declaration that “[a]ll members of 14 the defined class   . . . were adequately represented during the lengthy course of the mediation” and that “[a]ll sides exhibited great skill and determination . . . resulting in a comprehensive settlement of a very complex matter which [he] believe[s] is the fairest resolution which could be obtained.”  The participation of mediator Feinberg in this case, while by no means ensuring fully adequate representation, does make it more likely that the parties reached the limits of compromise.  See generally D’Amato v. Deutsche Bank, 236 F.3d 78, 85 (2d Cir. 2001) (“This Court has noted that a court-appointed mediator’s involvement in pre-certification settlement negotiations helps to ensure that the proceedings were free of collusion and undue pressure.”).  

 

 

 

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Hard to believe. Banks do face pressures these days, and B of A is under particular pressure with its stock price down 53%.  But now B of A is responding to generalized blog comments by Henry Blodget (if that name rings a bell, think back to the dotcom bubble and recall that he was sanctioned with a lifetime ban from the securities industry). Stories are here and here, and Henry's take is here. Hopefully B of A's management team can do better.

At present, B of A credit default swaps are becoming expensive and some see a "downward spiral," as described here. Some compare CDS contracts to asbestos, saying both are toxic. There also are economics papers analyzing CDS and related risks of bankruptcy, including the impacts of mass tort risks. See also this paper on hedges, CDS and the financial fiasco. All this takes me back to the days when CDS rates for "asbestos companies" were a major topic. And, even after a chapter 11 filings, investors bet on how reorganization plan outcomes will vary depending on the amount of the estimated liability, as illustrated by this presentation, especially its page 16.

 

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Opinio Juris includes this interesting post on a high-level pro bono effort to focus on confronting the growing problem of piracy. One recommendation involves creating a specialized court to confront the pirates.

How bad is the problem? According to the article:

"After 200 years of quiescence, Piracy has re-emerged as a major problem for world shipping.  A recent report has documented that Piracy has resulted in more than $12 billion in losses in the past twelve months alone.  According to an August 11, 2011 article in the Guardian, Piracy is also significantly hampering food aid to drought-stricken Somalia, resulting in thousands of deaths.  Somali pirates have recently seized more than fifty vessels and taken over 1,000 crewmembers and passengers hostage. And the problem is getting worse."

The possible court is explained as follows: 

"The August 11, 2011 Working Group meeting began with a detailed briefing by Jennifer Landsidle (DOS) of recent developments at the United Nations, including relating to the UN Secretary-General’s June 15 Report on “The Modalities for the establishment of Specialized Somalia Anti-Piracy Courts.”  The proposed Specialized Court would be loosely modeled on the Scotish Court that prosecuted the two Libyan Pan Am 103 bombing defendants at Camp Zeist in The Netherlands.  It would apply Somali and International Law, and have its seat at the ICTR Courthouse in Aurusha, Tanzania."

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Class actions and mass filings raise the stakes for mass tort defendants. Back in the day, before "free fall" descents into chapter 11,  several "asbestos defendants" felt enormous pressures from mass trial proceedings. The names include Cimino, West Virginia's several "mass trials," and the New York Powerhouse Litigation, and at a time, the federal asbestos MDL. 

Today, financial firms face more and more of those pressures from massive financial fraud claims. AmLaw's Litigation Daily includes this new Victor Li story on - and links to - a pair of recent class certification rulings against financial houses. The rulings include Judge Rakoff's opinion explaining his class certification decision against Merrill. Here's a key excerpt from his ruling, at 18:

 "The common questions presented by this case -- essentially, whether the offering documents were false or misleading in one or more respects -- are clearly susceptible to common answers." 

Now the financial houses face major pressures, including media stories which create more stock price pressure. Can a financial house risk appealing and losing?  Can it risk trying a class action trial and losing? Can it risk class-wide discovery and resulting testimony that may be widely publicized? If a case is tried and lost, can it afford an appeal bond?

Financial houses also face the problem arising from the weakest member of the herd. That weakest member of the herd may lose a trial (think any mass tort) or may capitulate and settle (think tobacco litigation). More pressure follows, despite claims that the remaining members of the herd are stronger.

For a recent example of pressure, note this DealBook story on Goldman's stock falling 5% on news that its CEO hired a criminal defense attorney.   

 

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Suppose you are a crisis manager worried about your public company's falling stock price due to massive tort claims and/or regulatory changes. As you weigh options and public statements, consider this August 28, 2011 Financial Times article by Phil Davis. Mr. Davis' article  suggests that hedge funds are increasingly seeking out "event-driven" investing, such as taking short or long positions in companies facing mass tort claims or regulatory changes (or engaging in m & a events).

There are various unpleasant realities to "event-driven" investing. One is that crisis managers need to understand that some investors have absolutely no interest in the merits of a business or its defenses to litigation or regulation. Instead, they simply hope to use information better than others to make money as stock prices rise or fall based on perceptions (which may or may not have anything to do with reality). 

Here are some excerpts from the article - the entire article is worth reading:

"Event-driven is one of the least recognised hedge fund strategies and yet, over the long term, 25 per cent of hedge fund assets are allocated to it. Its diversification benefits from mainstream indices are the principal reason for its prevalence in hedge fund portfolios.

Carl Ludwigson, associate director at Paamco, which runs a $10bn multi-strategy fund, says: “We see a move towards more event-driven strategies because they can extract idiosyncratic risk and less market-driven returns.

The event-driven strategy embraces bankruptcies, recapitalisations, spin-offs, asset sales, leadership transitions, litigation and regulatory changes. There are potentially thousands of strands, all of which have little correlation with broad share or bond benchmarks. 

***

The number of investor surveys indicating that event-driven is at the top of many institutional investors’ shopping lists is a clear warning signal that overcrowding will continue. There are even exchange traded funds on the market that replicate the vanilla M&A arbitrage activities of event-driven funds."

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DealBook this morning drew attention to the finally-emerging numbers published by Bloomberg on the loans granted to Wall Street and others. Anyone paying attention has known for some time that the numbers are large, and now the size becomes even clearer. The numbers are even more interesting to read against the backdrop of Gretchen Morgenson's NYT story on the Obama Administration and the NY Fed pressuring Eric Schneiderman to settle with the ultra-banks,  and to stop investigating what happened. 

The entire Boomberg article deserves a read - here's the introduction:

 

"Wall Street Aristocracy Got $1.2 Trillion in Secret Fed Loans

By Bradley Keoun and Phil Kuntz - Aug 22, 2011 7:19 AM CT

Citigroup Inc. (C) and Bank of America Corp. (BAC) were the reigning champions of finance in 2006 as home prices peaked, leading the 10 biggest U.S. banks and brokerage firms to their best year ever with $104 billion of profits.

By 2008, the housing market’s collapse forced those companies to take more than six times as much, $669 billion, in emergency loans from the U.S. Federal Reserve. The loans dwarfed the $160 billion in public bailouts the top 10 got from the U.S. Treasury, yet until now the full amounts have remained secret.

Fed Chairman Ben S. Bernanke’s unprecedented effort to keep the economy from plunging into depression included lending banks and other companies as much as $1.2 trillion of public money, about the same amount U.S. homeowners currently owe on 6.5 million delinquent and foreclosed mortgages. The largest borrower, Morgan Stanley (MS), got as much as $107.3 billion, while Citigroup took $99.5 billion and Bank of America $91.4 billion, according to a Bloomberg News compilation of data obtained through Freedom of Information Act requests, months of litigation and an act of Congress.

“These are all whopping numbers,” said Robert Litan, a former Justice Department official who in the 1990s served on a commission probing the causes of the savings and loan crisis. “You’re talking about the aristocracy of American finance going down the tubes without the federal money.”

(View the Bloomberg interactive graphic to chart the Fed’s financial bailout.)"

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Multidistrict litigation panels manage mass claims. The legal community is used to seeing MDLs involving product liability claims related to drugs, implants, and toxins. But MDL proceedings are in fact underway as to financial institutions. An example is In re: Countrywide Financial Corp. Mortgage-Backed Securities Litigation, No. 2265.  A  new order of August 15, 2011 coordinates many but not all of the cases against Countrywide with respect to sales of mortgage-backed securities. The MDL does not include other types of claims, such as claims of fraud in selling shares of the bank's stock. 

An initial, primary consequence of MDL proceedings usually is coordinated or consolidated discovery. For both sides, the streamlining of discovery saves money and effort. For example, employees of the defendant(s) are deposed once or twice, and the testimony is designated as useable in all cases. Similarly, images of documents to be produced by the parties are usually deposited into an online depository accessible to many. 

Consolidated discovery raises the stakes for defendants because a few sentences of testimony can be a game changer for multiple cases. The game also can be changed by one or a few "bad" documents. Defendants also face more risks that the plaintiff's lawyers share investigation efforts and think creatively together.

For plaintiffs, an MDL takes away some individual lawyer or law firm control of how a case is conducted for discovery, and oftentimes, for settlement. The loss of control may be favorable or unfavorable. For a weak claim, joining an MDL can be helpful because the weight of all the cases may lead to discovery that improves a weak claim by revealing more examples of tortious conduct by a defendant. For settlement, MDL proceedings may produce a settlement that pays everyone at a blended rate instead of a premium payment to strong claims and a lesser payment (or no payment) to weak claims.    

For all sides, an MDL often leads to greater media focus, as exemplified by this NLJ story on Countrywide. Reporters with low budgets and tight schedules find it difficult to track many cases, dates, pleadings and hearings. MDL's reduce the burden of following proceedings, and hearings bring together lead lawyers often willing to offer insights into their positions as the parties jockey for control of the media spin and the resulting consequences for perception of the merits of the claims.  Messaging can become more important than reality. And, stock analysts follow media. 

 

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Public companies feel pressure through stock price, and mass tort litigation can put stock price under enormous pressure. Stock price pressures arise from ordinary investor concerns, and myriad other traders who could do not care about the company but seek to profit on the stock price uncertainty. Back in the day, these principles were most visible in massive chapter 11 filings by so-called "asbestos companies." Back in the day, hedge funds and others hired toxic tort lawyers to better understand the depth of the issues for certain companies (e.g Halliburton), and then they shorted and profited. 

Today, some financial service companies have been accused of massive, global torts with enormous financial and human impacts. Bank of America is one target for massive claims, and its stock price has fallen sharply. DealBook previously reported on insolvency, as covered in this prior post which builds on Dealbook. Now, Bloomberg reports the bank has taken huge reserves for liabilities ($ 30 billion) and wants to cut a massive settlement to resolve most if not all issues. According to Bloomberg:

 

"Chief Executive Officer Brian T. Moynihan, seeking to reverse a 44 percent stock slide this year, has booked about $30 billion in settlements and writedowns to clean up mortgage liabilities at the biggest U.S. bank since the start of 2010. One of the largest legal matters still pending is the multi- state probe into whether firms servicing mortgages used bogus documents to justify foreclosures.

 

“They need to resolve this because it’s looming out there as an unknown liability,” said Brian Chappelle, a partner at mortgage-finance consultancy Potomac Partners LLC in Washington and former executive at the 

 

 

Mortgage Bankers Association. ….

 

Bank of America executives, concerned that a delay in resolving the case is hurting the firm’s stock, are open to a deal that would resolve most of it, even if some mortgage investigations continue, said one of the people. The bank has been pushing for liability releases for loan activities besides servicing, such as securitization and lending."

 

 

Lessons to be applied here?  One lesson relates to conflicts of interest between claimants. Back in the day of massive asbestos settlements, the US Supreme Court rejected massive asbestos settlements because of divergent, conflicting interests of different claim holders, and a lack of separate, vociferous legal counsel representing the divergent interests. The seminal decision is Amchem, and the opinion highlighted conflicts between, for example, holders of the strongest claims and holders of the weakest claims. Also in conflict are claims held by current claimants (my loss has occurred now) and future claimants (I may have a loss in the future). On the latter, see this prior post and the great, linked article by Professor Todd Brown.

The same conflicts exist here, and the proceedings to date do not appear provide a cure for the conflicts. More process and procedure will be needed to obtain 100% peace. But the bank may find that price too high. It may accept 90% peace because it eliminates most of the danger that the risk might destroy the enterprise.  

Another lesson relates to settling, if that's to be done. The asbestos plaintiffs figured out the share price issue pretty well, and decided that one of their best options was to ask for less settlement cash and to instead take shares of stock in the settling company. By taking stock, they could participate in the upward share price "pop" expected to occur (and it usually did) after public announcement of the settlement. Also participating in the upside were insiders who bought stock based on knowledge of impending settlement deals. Application here?  Settling states here may or may not demand - and obtain -  a large amount of stock as a price of settlement.

More tomorrow. 

 

 

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A NYT story by Donald G. McNeil, Jr.  provides an update on a trust created by Pfizer to resolve alien tort claims arising from drug testing in Africa. This prior post provides the background from a post on Foley Hoag's CSR blog. The claims arose  from drug testing in Africa, and:

 

"Pfizer faced pressure as the result of a recent increase in the level of media attention to the case. The heightened scrutiny came about, at least in part, as the result of disclosures in certain diplomatic cables released by Wikileaks, which called into question the propriety of Pfizer's efforts to settle two related cases brought in Nigeria. Those cases were settled in July 2009 for a total of $75 million and attorneys fees.

Mr. McNeil's article explains, among other things:

 

"Four families received $175,000 each from a $35 million fund created under the settlement between Pfizer andNigeria’s northern Kano State, where the brief trial of the experimental drug, Trovan, took place. The four families had DNA evidence proving they were related to children who died during the trial.

In all, 11 children died in the trial: five after taking Trovan and six after taking an older antibiotic used for comparison in the clinical trial. Others suffered blindness, deafness and brain damage.

Although Pfizer said that only 200 children had been given Trovan or the older antibiotic, 547 families sued.

Despite having settled the case, the company still contends that meningitis, not its drugs, was responsible for the deaths and injuries, a Pfizer spokesman said Thursday. Epidemics sweep Africa’s arid “meningitis belt” on dust-filled winds during the dry season every year, and more than 12,000 Africans died of meningitis in 1996; in addition, the drugs in the trial were given only to children who were already very sick."

 

 

 

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A respected medical journal, Lancet, has joined those pressuring Canada to stop exporting asbestos fibers to the world.  The article is here. It's good to see scientists speak out, and the media listening, as illustrated by this article. Litigation can obtain payments for harm, but it often takes knowledge, media and public pressure to achieve real change. Hopefully media pays attention and learns to ask better questions on science and business issues.

 One can wonder if governments should be deemed amenable to lawsuits when they support sales of  potentially dangerous products ?  Will we see more global rules of law for these situations? Globalization is bringing many changes and many new issues.

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AmLaw includes today an article by Andrew Longstreth regarding the settlement strategies used by Merck for Vioxx, and by Glaxo  for Avandia and for Paxil. The article contrast the Vioxx strategy to the Glaxo strategy and offers some reasoning as as to why Glaxo apparently has chosen  to settle hundreds of cases after just one trial (a plaintiff''s verdict). The case that went to trial involved claims the drug allegedly caused heart defects in babies. Paxil also is claimed to  promote suicides in persons taking the drug.

In short, GSK appears to be settling most of the cases after the adverse trial result, a mediation, and extensive negotiations; go  here for more specif cs. In the case that went to trial, plaintiff's counsel argued that GSK failed to act on information indicating the defects.   The same article says that GSK countered with an argument based on statistically significant proof of a defect.

A few thoughts come to mind. One is that plaintiff's lawyers with potentially hundreds of cases to try seldom give up and go away after winning the first trial, unless the plaintiff's are paid well. Another is that science has by now pretty plainly established that changes in the chemistry of a mother also cause changes for the chemistry in a fetus, and that the changes can be profound,  With today's science,  effects of that sort can be perceived and proved without epidemiology based on statistics..

 

 

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Susan Beck's Amlaw article today  provides an update on post- Engle verdicts against tobacco companies, and a look at the due process issues the tobacco companies have pending in the 11th Circuit as they seek to avoid Engle. Ms. Beck's article thus provides an incisive look into the tobacco wars, and some of the consequences of past and current strategies. In short, the tobacco industry successfully opposed class actions as being dominated by individual issues, but was hit with jury findings that are being repeatedly applied  against it in individual trials. So,  the industry both won and lost, and now is trying to undo the findings based on due process arguments.

Perhaps the industry will succeed in its current due process argument and will obtain some respite. But if it does, the due process law established by the decision also may help current and future claimants seeking to avoid being bound by class actions and/or bankruptcy decisions.  No wonder the tobacco industry hired in David Bernick to sort out and manage the myriad issues raised by Engle and other broad claims, including Nigerian government cost recovery litigation against tobacco companies, as previously covered here,  

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Here is an unexpected but interesting non-asbestos example of conflict of interest issues arising from efforts to resolve "mass torts" for various persons around the world. The example arises from the airplane crash and airplane hijacking blamed on Libyan terrorists. The article describes a recently filed lawsuit in which two victims of the crash object to the terms of the settlement with Libya. In brief, the two plaintiffs argue that the lawyers who represented the crash victims, Crowell & Moring, operated under conflicts of interest and that the agreement improperly commingles the interests of the various different categories of claimants, including US and non US claimants. The article includes a link to the complaint itself. The complaint, however, does not attach a copy of a "joint prosecution" agreement apparently signed by the plaintiffs and many others.

Here are excerpts from the article by Roger Alford:

"The facts as alleged in the complaint of Davé v. Crowell & Moring are complex. In brief, Libya has been implicated in terrorist activities on numerous occasions, most notably the hijacking of Pan Am Flight 73 in Karachi, Pakistan on September 5, 1986 and the bombing of Pan Am Flight 103 over Lockerbie, Scotland on December 21, 1988. In 2005, victims of these terrorist attacks and their heirs--including American and non-American victims--retained the law firm of Crowell & Moring--known for representing victims of terrorism--to pursue litigation against Libya. The Davés were among those who signed the Crowell & Moring retainer agreement. As part of retaining Crowell & Moring, every client was also required to sign a joint prosecution agreement ("JPA"), a provision of which provided that the proceeds recovered by any signatory to the JPA shall be shared on a sliding scale based on type of injury with all signatories to the JPA, without distinction as to nationality. Only 23% of the victims who signed the JPA were American. A Liaison Group consisting of one American and four non-Americans was established as agents for the victims in their dealings with litigation counsel. The Liaison Group was represented by Latham & Watkins. In 2008, the United States government entered into a bilateral treaty with Libya for an award of compensation for all U.S. nationals harmed by Libyan terrorism, including the victims of the Pam Am Flight 73 hijacking, which included plaintiffs Gargi and Giatri Davé. The treaty provided for distribution of these funds through the Treasury Department's Foreign Claims Settlement Commission ("FCSC"). After the Davés successfully received notice of their entitlement to millions under the FCSC process, Crowell & Moring issued a demand letter to the Davés contending that under the retainer agreement and the JPA the funds secured by the United States government pursuant to the U.S.-Libya treaty on behalf of American victims are to be shared among all of the victims of Libyan terrorism, American and non-American alike. In other words, the vast majority of the funds secured by American nationals under the U.S.-Libya treaty are--approximately 90% according to Crowell & Moring--required to be paid to non-Americans pursuant to these private agreements."

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I'd love to take a few days to read and write about interesting thinking on mass torts and claims resolution issues. But that's not possible right now. I do, however, have time to urge readers to spend some time on the November and December posts at the Mass Tort Litigation Blog.

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Here is an AmLaw article about the apparently fairly real possibility of chapter 11 type legislation in Hong Kong. This is getting ahead of the game, but it does provide an opportunity to pause and think about what Hong Kong or other sovereigns might use as an approach to corporate failures caused by mass tort claims. After all, we've seen some serious mass tort issues arise from Hong Kong's nearby neighbors.

Let's hope other sovereigns do better than section 524(g) of teh US bankruptcy code. Otherwise, we may see a global spread of mass claiming by the least sick.

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Here is a different example of how mass tort litigation ends up becoming a media story. In this instance, the media consists of the latest story on Toyota's battles regarding alleged destruction of internal documents in order to avoid the information becoming evidence in rollover cases.

The short version is that after suing Toyota for wrongful discharge, a former inside lawyer has turned over to a federal judge four boxes of documents that are said to support his claim that documents were wrongfully destroyed by Toyota. The judge has ordered the documents to be secured, scanned and coded, and will give Toyota a chance to claim privilege regarding the documents. No doubt plaintiff's lawyers will then assert the crime-fraud exception applies to any otherwise privileged documents. The judge's ruling presumably will be widely reported.

How would you like to be the General Counsel dealing with this situation ? What would you want to know and then what would you decide to do when no one will give you the answers you need ? Much wisdom on the subject of crisis management has been spelled out before by business consultants. See, e.g,, Stop The Presses: The Crisis and Litigation PR Desk Reference. Written by Richard Levick and Larry Smith of Levick Strategic Communications, the book addresses crisis management in general, and its chapters 7 and 8 deal with strategies for dealing with blog stories and other issues that were more or less immaterial as little as 5 years ago. Also potentially relevant is its chapter 9 on the impacts of media related to prosecutorial activity.

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Here is a late September post presenting a condensed version of a law review article proposing "national juries" for mass tort litigation. The proposal is from Professor Laura Gaston Dooley, a professor at the Valparaiso University Law School. Looking quickly through her CV at the school website, it appears Prof. Dooley clerked for two years for federal judges and then joined academia. Her work also includes being a part of the "Members Consultative Group, Project on Aggregate Litigation. American Law Institute," which is a group identified here.

Set out below are some excerpts from the condensed version. The proposal makes some interesting points. I've not read the full law review article. The condensed version does not hone in on two topics that seem key to me: state-by state variations in the applicable legal rules, and the manner in which a jury would cope with the applicable and evolving science in a mass tort "toxic tort" case.

See below for the excerpts that most caught my eye.
___________________________________________________________________


"The reexamination problem reflects tension between competing values in complex litigation: Consolidated cases may lead to unconstitutional reexamination of overlapping issues, yet trying individual cases presents problems of efficiency loss and forum manipulation. We must therefore choose between the evil of bifurcation and the evil of inefficient relitigation of the same issue, with the concomitant risk of inconsistent results. A third option--treating a single litigation as a national unit--vests too much power in one local jury to unleash national consequences.

Is there a fourth option? Empanelling a national jury would mitigate reexamination problems while preserving the efficiency gains of aggregation. A national jury would also address the concern that a local citizenry should not decide issues of national importance. And, most importantly, it would vindicate the animating concern of the Seventh Amendment: citizen participation in civil dispute resolution.

Our willingness to work out the logistical details of the national jury proposal and to absorb its inevitable costs is a function of our commitment to citizen participation in large-scale litigation. One difficulty, of course, will be assembling a national jury pool representative of a country as large and diverse as the United States. Even in much smaller jury districts, underrepresentation of minorities on jury venires has sparked an enormous amount of scholarly literature and litigation.8 Congress would have to consider how to assemble a nationally representative venire. A starting point might be to draw candidates for the national jury pool from congressional districts, since those boundaries have already withstood constitutional and statutory scrutiny under election laws.9 The census process could also be used to draw districts.

The expansion of jury pools from local to national may also require us to rethink the size of the venire and the petit jury, as well as verdict format and voting mechanisms. Obtaining some semblance of the required representativeness will no doubt require larger juries than the current six or twelve members. Indeed, in order for a national jury to function, the discussion may well have to shift to how large a group can effectively deliberate without becoming unwieldy.

The grand jury model may prove useful. One can imagine a national jury as a cross between the grand jury and the special jury: Jurors could serve for specified lengths of time, perhaps in particular courts hosting multi-district complex litigation. The learning curve for such jurors would be high. Having decided, say, causation issues in one products liability case, the national jury would have an informational advantage in understanding procedure and applicable substantive law for other cases. And this gain can be realized without sacrificing the democratic makeup of the jury--a quality lost in elitist special juries.

The civil jury, though steeped in history, is not frozen in time. In an era of increasingly complex litigation, the civil jury must adapt structurally to modern disputes while preserving its rich history and constitutional function. Empanelling national juries in cases of national scope may well be the only way to preserve meaningful citizen participation in large-scale litigation."

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How much pre-filing inquiry is needed for a "mass tort" product laibility claim, and when must be it done ? A recent opinion in the Digitek MDL is related to those issues, but is limited to a narrow discovery issue. Digitek is a drug. The claims in essence are that a batch of the drug was mismanfucatured, resulting in sales of doses more potent than usual, with the more potent doses caapable of causing material physical harm.

The discovery requests at issue are defendants' requests for admissons. The requests seek admissions that medical and pharmacy records had not been obtained by plaintiff's counsel when 39 particular claims were filed. The defendants acknowledged the obvious reality that the discovery requests are aimed at generating evidence to support Rule 11 motions that defendants might seek to file in the future. That's important because some opinions have warned against Rule 11 motions spawning "satellite litigation."

A Magistrate Judge's opinion approves the discovery requests over plaintiff's objections. The opinion is a basic work a day paper with limited analysis, and a weak discussion of legal privilege issues (although the outcome seems correct. That said, there are precious few opinions out there on precisely these issues, so the opinion is worth reading and tucking away for persons commonly involved with mass tort litigation. The opinion is here.


________________________________________________________________

Hat tip to LAW360 for publishing an article on the opinion and including the opinion with the article.

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This August 6 post from the Device and Drug Law Blog provides a great summary of Twombly/Iqbal rulings over the last couple of years.

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The UK is famous for assessing costs if a case actually goes to judgment. A new look at that topic is underway and is slated to produce a final report by year end 2009. A preliminary draft report has been issued and will be the subject of meetings and comments over the summer. More specifically, a press release from the British Judiciary explains that " Lord Justice Jackson has published the preliminary report in his Review of Civil Litigation Costs.The report is a major piece of work, deriving from four months of fact-finding, research and receiving submissions, and it extends to over 650 pages with three annexes and 30 appendices. It is available" online here.


A June 1, 2009 article in Business Insurance by Sarah Vesey provides a terse summary of the report. She comments:

"In the report, Justice Jackson said several potential changes to the existing cost regime for group actions "merit consideration."

Among them are instituting a no-cost-shifting rule; allowing cost-shifting for only part of the proceedings, for example only after the stage where a class wins certification; implementing a common funds doctrine, such as that used in the United States in which successful lawyers are entitled to have their fees reimbursed from the fund awarded to the class; public interest litigation, whereby the court has power to order that no cost-shifting occur when a group representative brings an action on an issue of public interest; and using a lower-cost scale for collective actions.

Justice Jackson said his "tentative view" to do away with cost-shifting for collective actions merits serious consideration in the second phase of his review and would, among other things, promote access to justice and be fairer for defendants."

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Looking for a tight but informative summary of changes around the globe with respect to (1) aggregate or class action litigation, (2) contingent fees and litigation funding, and (3) exemplary or punitive damages? If so, you should read a new article, "Global Litigation Trends." The authors are Mark Behrens, Gregory Fowler and Silvia Kim, who are all Shook Hardy lawyers. The article was published at 17 Michigan State Journal of International Law 166 (2008-09). You can download it here from the TortsProf blog.


I particularly liked the article because it packs a material amount of information into 30 pages. The first two sections provide an overview of particular developments in aggregate litigation/class actions and some nation by nation citations to articles on aggregate litigation. Those highlights are followed in section III by an incredibly handy reference tool that provides a country by country synopsis of the aggregate litigation procedures increasingly available in countries ranging from Argentina to Taiwan, followed by a brief section IV addressing EU law aggregate litigation developments. Section V addresses developments in paying for litigation. First covered are changes around the world with respect to contingency fees (they are permitted more places than you might think - for example, Italy recently passed legislation to permit contingent fees), as well as uplift fees, success fees and multipliers. The section also touches briefly on the rise of litigation funding outside the US. Global developments in punitive damages are covered in section VI. The article provides cogent cites to demonstrate that new attitudes are developing outside the US with respect to non compensatory damages.


As the name of this blog reflects, it seems plain enough to me that tort litigation is indeed going global, albeit with regional and national twists, not to to mention the intricacies of comparing civil law countries to common law countries, as well as developments in Asia where some countries have this century essentially embarked anew in their approach to courts and law because past law was feudal or otherwise outmoded. I was curious though to read the the concluding remarks of Mark and his colleagues since they (like me) are not academics and represent the defense side in most cases. Here's what they had to say:



"A growing list of countries outside the United States, including Canada, Australia, most European, and several South American countries, now recognize some form of multiclaimant litigation-- whether class actions, groups actions, or representative actions by consumer or public organizations. The trend, however, has been to reject wholesale adoption of U.S.-style class actions. What has emerged instead is a distinctly "un-American" approach that generally disfavors opt-out procedures and often allows public bodies and private consumer organizations to bring collective actions in addition to (and sometimes in place of) individuals. Foreign countries also have "not so far been inclined to change other rules that have helped make class action lawsuits practical in the United States." In particular, there have not been widespread calls to do away with the loser-pays rule. Contingent fees and punitive damages remain generally prohibited, but changes are occurring in this area and past prohibitions are softening. The stepstaken so far in these two areas, in particular, have been incremental and modest--but a wall is built one brick at a time. If collective actions become more prevalent, and the foreign plaintiffs' bar better funded and coordinated as a result, it would not be surprising to hear calls for broader and speedier reform."

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Update: This post updates a Feb. 20 post. The new news is a Law.com article regarding a new Madoff-related lawsuit in Florida naming a feeder fund (Tremont) and KPMG as defendants for alleged failures in due diligence and monitoring of investments placed with Madoff. The same article includes links to yet another article on clawback suits by the Madoff trustee.

According to the Law.com article, the Florida lawsuit includes the following allegations:

"The lawsuit contends a number of red flags should have made Tremont wary of investing with Madoff.

The plaintiffs contend they depended upon the information supplied by Tremont in making their investment decisions and received false reports indicating the value of their investments was steadily rising.

Plaintiffs also said they were led to believe Tremont diversified its investments instead of putting all the money in one basket. The complaint contends Tremont promised clients it would monitor the investments and change the strategy if necessary. The lawsuit contends Tremont would have found the fraud with proper oversight.

Instead of finding problems, however, the complaint said Tremont's Rye Investment Management boasted its funds have "historically displayed steady and consistent performance, especially during market downturns," implying a conservative investment scheme.
The lawsuit also states several plaintiffs reached out to Rye managers about how the funds were doing. A supervisor told one plaintiff that his accounts had not lost value despite market weaknesses last fall. A supervisor told another investor around the same time that the fund had not suffered losses because it was shielded from the subprime crisis.

The plaintiffs also maintain KPMG did not adequately do its job as auditor despite saying it performed its audits to national standards.

"KPMG's audits failed to reveal the fact that the assets reported on each of the Rye funds' financial statements did not actually exist," the plaintiffs stated.

They sued for fraud, securities violations, negligence, negligent misrepresentation, breach of fiduciary duty, breach of contract and professional malpractice, and are seeking a jury trial.

"This is a case about the greed of investment professionals and their auditors taking priority over the most basic adherence to their contract, tort and fiduciary duties," the complaint contends."


________________________________________________________________
The DOJ's efforts against Stanford and UBS AG are much in the news these days, with a good UBS summary article here and images of DOJ litigation papers available here (look for links in the box on the right hand side.)



The question that occurs to me is: what kind of fall out and follow up lawsuits will emerge? We are seeing in the Madoff situation lots of efforts to pin financial losses and blame on advisers who connected investors to Madoff's enterprise, and thoughts from lawyers at Sonnenschein and elsewhere regarding potential clawback claims by trustees and/or others. One would think the same result will follow here. Some interesting law likely will evolve as to whether or how much one professional has a duty to investigate another before making a recommendation or referral. There are existing claims and case law. See for example a law firm (Brown McCarroll) website article addressing liability of call centers, and an American Bar Association page with links to articles on claims against lawyers for allegedly negligent referrals. This all should make for some fascinating legal wrangling, with global tort choice of law issues.

The situations also may be a boon for multilingual lawyers.

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Not a good week for James Hardie. This week the news is that it will not fund an expected shortfall of cash in its asbestos trust, and its officers and the company lost on charges of misleading investors regarding the adequacy of its funding of its asbestos trust.

The World Today - Thursday, 23 April , 2009 12:10:00 states the following:

Reporter: Sue Lannin
PETER CAVE: In a landmark ruling a court has found that former James Hardie executives broke the Corporations Act when they claimed that a trust set up to compensate victims of asbestos-related diseases had adequate funding. The New South Wales Supreme Court has ruled that 10 company officials including the former chief executive engaged in both misleading and deceptive conduct. But not all of the civil charges brought by the corporate regulator, the Australian Securities and Investments Commission, were proven. And in a separate twist the company says it faces a shortfall in its compensation because of the global financial crisis. Finance reporter Sue Lannin was in the court. She joins me now. Sue exactly what did the judge find?

SUE LANNIN: Well Peter the judge found that former executives and directors of James Hardie did breach sections of the company law basically by making false and misleading statements. Now that's in relation to the setting up of a fund in 2001 to compensate victims of asbestos-related diseases. In statements to the stock market and in press releases, the judge, in a press release, the judge said that the claim that that fund had adequate funding was false and misleading.Now some of those defendants include the former chief executive Peter Macdonald, former company secretary Peter Shafron and former chairwoman Meredith Hellicar. The main issue is that they've made false statements to the market or they did not disclose information to the market that there wasn't enough money in the trust fund. And also the judge found that Peter Macdonald the former chief executive made false statements to investors as part of a roadshow in Europe in 2002. As some background, James Hardie moved its corporate headquarters to the Netherlands in 2001. It set up a compensation fund. Another compensation fund had to be set up in a landmark agreement in 2004.Now some of those charges were proven, as we said, but some haven't. In relation to the roadshow, the judge found that Macdonald did make some false statements but some of the statements were not found to be false, or ASIC failed to prove its case.

PETER CAVE: Was there any reaction when the various parties emerged from the court?

SUE LANNIN: Well this has been a partial win for ASIC. I mean it's failed in previous prosecutions of high-profile cases. But even though it was a mixed victory the parties for asbestos victims who were there say it is a win. Karen Banton, the widow of asbestos campaigner Bernie Banton, said she felt vindicated. And Tanya Segelov, a lawyer for asbestos victims said it was a victory.

TANYA SEGELOV: I think it is significant. This is the first time any person connected with James Hardie has been held to have engaged in unlawful conduct. And while ASIC didn't succeed on all its claims, we have a finding that former directors, former executives, the former company and the current company were engaged in misleading and deceptive conduct and were in breach of the Corporations Act.

PETER CAVE: Tanya Segelov there. When will the penalties be handed down?

SUE LANNIN: Well that's still a date to be set by the judge but it will be later this year and certainly lawyers for the defendants will be arguing their case. Now there's also a, the judge said that, made a judgement that the board in 2001 did approve a press release that contained false and misleading statements in regards to the adequacy of the compensation fund so the judge is still to rule on that.He also, as I said, has to rule on what the penalties will be. Now the former company officials and directors face fines of up to $200,000 and they could also be disqualified from running a company. But several of those former directors are still running companies, including Meredith Hellicar, the former chairwoman. She's currently a director of AMP.

PETER CAVE: Thank you Sue Lannin, just back from the court.

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'Mass accident" cases produce tough issues on applicable law and teh forum for litigation. The 11th Circuit recently issued a per curiam ruling affirming a district court order invoking forum non conveniens principles to cause 69 of 70 air crash lawsuits to be tried in Italy instead of the United States with respect to a plane crash in Milan, Italy. The district court order directed Cessna to submit to jurisdiction in Italy. The case is King v. Cessna Aircraft Co., No. 08-11033. The opinion is here.

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As class action statutes proliferate around the world, a key issue for corporations is whether they can block class actions through contract terms. The April 6, 2009 National Law Journal includes a good summary article by plaintiff's lawyer Linda Mullenix regarding the enforceability of class action waivers. She reviews specifically the recent decisions in Homa v. American Express, 2009 WL 440912 (3rd Cir. Feb. 24, 2009), and In re American Express Merchants' Litigation, 554 F.3d 300 (2nd Cir 2009). The Merchants' decision is especially interesting because of the court confronting and rejecting an attempt to apply the law of one state (Utah) remote to the transactions. Utah law apparently was chosen by Amex because of a state statute upholding the validity of class action waivers. The court declined to let Utah law control.

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The battle over pleural plaques claiming is continuing to evolve in the UK

With respect to the Scottish legislation allowing renewed pleural plaques claiming, an April 21, 2009 Business Insurance article by Sarah Veysey reports that four insurers have now filed the promised lawsuit challenging the pleural plaques legislation in Scotland. The article states: "the four insurers challenging the law represent more than half of the U.K. employers' liability market. They are Aviva P.L.C.; AXA Insurance, the U.K. arm of AXA S.A., RSA Insurance Group P.L.C.; and Zurich Financial Services Group." Much the same information is found on the website for the Association of British Insurers.


Meanwhile, the Brtish government still has not announced its position on pleural plaques. An April 8 article said that London is supposed to provide its answer on plaques "after Easter." The article states in pertinent part:

"Prime Minister (Gordon Brown) has issued a statement that a decision on pleural plaques will be made when Parliament resumes after the Easter recess.

During Prime Minister's Questions Brown was asked (by Jarrow MP Stephen Hepburn) what he planned to do to end the compensation injustice for pleural plaques sufferers. Brown replied: "Asbestosis is a terrible disease, and all those who suffer from it deserve the best of help from the public authorities. It is right that we look again at this as a result of legal actions that have been taken about the obligations of insurance companies. "The Justice Secretary will make a statement on this when we return after Easter."

I previously submitted to the government in London a detailed opposition the the pleural plaques claiming. You can see it here.

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When is a multinational at risk for "aiding and abetting" human rights violations?

The answer is evolving. One case on the issue is Khulumani v. Barclay National Bank Ltd., 504 F.3d 254 (2d Cir. 2007). Recent developments are described in an interesting law.com article online as of today and written by Professor Georgene Vairo of Loyola Law School in Los Angeles; the article is available here

Much of the article focuses on an April 8, 2009 opinion by Judge Scheindlin that analyzes the issues in depth on a motion to dismiss in a case known as In re South African Apartheid Litigation. The opinion dismissed some claims but sustained others. The opinion by Judge Scheindlin is here, and seems well worth reading. Of note, the opinion allows American Pipe tolling of statutes of limitation in favor of the plaintiffs. That's a powerful incentive to the filing of class actions. It's also a weapon against governments - I may have been the first to apply it against the U.S. government, which we did successfully when representing businesses seeking to recoup taxes paid under an unconstitutional "Harbor Maintenance" tax. See Stone Container Corp. v. U.S., 229 F.3d 1345 (Fed. Cir. 2000).

The following excerpt from Professor Vairo's article provides a summary of some but not all of the "aiding and abetting" and conspiracy issues evaluated by Judge Scheindlin:

"On the other hand, she refused to dismiss claims that Ford Motor Co., General Motors Corp., International Business Machines Corp. and other companies aided and abetted torture and other atrocities committed by the regime, such as arbitrary denationalization by a state actor and cruel, inhumane and degrading treatment because such torts are well established in the community of nations.

Scheindlin's opinion is important because she takes a careful look at the standards for imposing liability, noting that the 2d Circuit had not left her with precise standards on a number of issues. Having established that aiding and abetting may violate the ATS does not answer the question of the type of mens rea required by nonstate actors. She rejected the defendants' argument that specific intent be required, holding instead that international law "requires that an aider and abettor know that its actions will substantially assist the perpetrator in the commission of a crime or tort in violation of the law of nations."She noted that the 2d Circuit had not addressed the question of whether conspiratorial liability was a tort cognizable under the ATS, but found that there was no consensus among nations and therefore refused to recognize conspiracy as a tort. According to Scheindlin, the defendants' political-question and international-comity arguments were largely eviscerated by her rulings on each of the classes of claims raised in the case. She noted the U.S. State Department's opposition to the litigation, as well as that of the current government of South Africa. She dismissed the State Department's arguments because they were vague, on the one hand, and irrelevant to the remaining claims. The political-question doctrine argument would have merit had the case impacted U.S. foreign policy, but she failed to see how litigating the remaining claims would have any impact on it at all."

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Defense lawyers, defendants and insurers all are smiling today because the Illinois Supreme Court today issued a ruling that favors defendants in asbestos litigation. Specifically, the court made plain today that the so-called Lipke rule no longer applies if it ever did. The opinion is available from the Illinois Supreme Court's website or here. Within the world of asbestos litigation, much will be said about this opinion over the next few days.

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This post follows up on a prior post that described the Manville asbestos trust halting its prior practice of licensing its claims data to third parties for uses such as estimating future claim counts, seeing evidence of claiming trends, and weeding out fraudulent claims.

After the original post, I heard two sets of comments through emails, phone calls and personal conversations. First, I heard multiple comments that fall into the general category of complaints that the Manville data cutbacks are exacerbating an already difficult claims management situation arising from the absence of verifiable public data on asbestos claim payments.

Second, I heard from professionals at Navigant regarding a database of asbestos claims it is licensing to users, and its ongoing efforts to expand the scope of the database. Navigant is the name of a consulting firm that today is home for scores of professionals with massive asbestos experience. Navigant's data and professionals have roots in extensive work for insurers and insureds on asbestos claims as the claim morphed in the late 1970s and early 1980s. I'm happy to give its database a bit of a plug here because I know from personal experience that Navigant's professionals do lots of great work on asbestos claims. Indeed, back in the 1980s, I worked with several of their professionals (then at Peterson & Co.) on the dinosaur known as "asbestos-in-buildings" claims. (That species of asbestos claims long ago became extinct in the tort system due to lack of merit, but - incredibly - those claims still live on in the alternative universe of asbestos trusts. Why that is so is a story for another day. )

Marketing material for the Navigant database is available here. The gist is that the database includes a variety of useful data, with two subsets that are especially valuable. One subset consists of all mesothelioma lawsuits filed in the United States beginning in 2005. The data can be organized by state and in time sequence. These are powerful tools to evaluate the scope of recent mesothelioma claims, which today are the claims driving the majority of the costs for asbestos defendants and/or insurers. The database also identifies the entities named as defendants in each case, and to the extent available from the complaint, the nature of the plaintiff's trade and alleged dates of asbestos exposure. This information also is highly useful for assessing the relative role of a particular defendant as compared to others, and for assessing insurance issues tied to exposure date allegations.

Navigant's Brad Drew and others are responsible for the database, and tell me they are working on trying to expand the database through cooperative efforts among defendants and others. Hopefully they succeed in the far less than simple task of herding together decision-makers and information from the key players among the thousands of asbestos defendants. (Once upon a time back in the late 1980s and early 1990s, the plaintiffs were at a disadvantage because the relatively limited set of defendants and insurers actually worked pretty well together to share claims data and war stories. That stopped being true as more and more of the original original defendants fell into bankruptcy and the number of defendants exponentially expanded as plaintiff's lawyers and experts started selling the notion that even the tiniest "exposure" constitutes a "cause" of disease.)

The Navigant database also includes hundreds of thousands of old asbestos claims assembled over the many years that Navigant has been processing claims for insurers and defendants. This data also can be very valuable for estimating claims, perceiving trends and proving up facts regarding the "elephantine mass' of asbestos claims. Old claims also may be used to find fraudulent multiple claims by one person.

It's great that Navigant is making this data available. That said, it seems incongruous that there is no free, national database of objective data regarding asbestos litigation.

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The oral argument transcript is availble here.

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Updated: An April 6 blog entry by Alison Frankel includes a letter from Cozen O'Conner responding to Mr. Ostrager.

Today's oral argument date in the Supreme Court for the Travelers/Manville case has drawn some massive hyperbole in a blog article. The article quotes Travelers' counsel, Barry Ostrager, as saying that the case is very important, but that one of his opponents, Chubb Insurance Company, has received the worst legal advice "ever" in arguing its position. It's true the case may have a massive impact on the use of bankruptcy court as a means to resolve "mass tort" litigation. As for the quality of the legal advice provided to Chubb by Jack Cohn, consider that an estimable group of bankruptcy and constitutional law professors disagree with Mr. Ostrager, and explained why in an excellent amicus brief that is available here for no cost through the SCOTUS wiki and the ABA's efforts to put SCOTUS briefs online.

The Travelers issue boils down to whether a bankruptcy court can issue a national (global?) injunction that bars any and all future claims against an insurer of the debtor after the insurer has paid money to settle coverage claims brought by the debtor. In my view, the correct answer is: no, for a variety of reasons. The main reason? Such a sweeping injunctive order is improper for a variety of reasons. The principal flaw is that government action that improperly takes away property rights (legal claims against the insurer) of third parties, and takes the claims away without providing a meaningful prior hearing or payment of just compensation, thereby violating the 5th amendment rights of the persons whose claims are extinguished.

I argued many of the same issues last year in the Federal-Mogul asbestos bankruptcy. The bankruptcy court judge, Judith Fitzgerald, has heard many of the asbestos bankruptcies pursuant to an appoint met order by the Third Circuit. She did not reach all the issues but did apply the "derivative" standard that is at issue in the Travelers/Manville case. There, in a September 30. 2008 opinion, Judge Fitzgerald blocked an effort to expand bankruptcy court jurisdiction. See In re Federal-Mogul Global, Inc, 2008 Bankr. LEXIS 3517. I've frequently disagreed with Judge Fitzgerald, but she ruled correctly in this instance and her ruling also supports Chubb/Jack Cohn. And, for what it's worth, I also agree with Chubb and Jack Cohn.


As always, please bear in mind my standard disclosure: I have in the past and do now represent non-insurer parties opposed to certain terms of asbestos bankruptcies, and also have represented and do represent entities that are defendants in or financially tied to asbestos litigation through indemnity obligations or shared insurance. Further specifics are available on my bio at my law firm's website (http://www.butlerrubin.com/) or feel free to email me at work if you need further information. .

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Reminder: Monday, March 30, 2009, is the date for oral argument in the Supreme Court on the Travelers/Manville case. The appeal presents important issues regarding the extent of bankruptcy court power and jurisdiction in a Chapter 11 case arising from asbestos litigation. The outcome may well apply to all mass tort bankruptcies.

All the briefs are collected at this page of the Scotus wiki built as a companion to the respected Scotusblog. Expert commentary also is provided.

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About the time I finished the post below on global choice of law issues, I received an email from the American Bar Association's Mass Tort Committee inviting new ideas, and new members of course are always welcome. The group is a good one, and includes a subgroup focused in international mass tort issues. So, if you are looking for a forum to get further involved in global tort litigation, go the committee's website or follow up with the committee chairs, who are shown on the email text pasted below.

The following is the full text of the email mentioned above ______________________________________________________________
Dear Committee Members:
Strategic planning allows any group, including the Mass Torts Committee, to focus on what matters to its members and what benefits them. This is a relatively young committee and it is time to revisit what the Committee delivers to its members in terms of useful information in their practices and in terms of opportunities to participate and network.
One of the initiatives under consideration is revisiting the subcommittee structure. As you know, we have subcommittees that are directed to committee products and process (newsletters, website, programming, hot topics, young lawyers and membership). We also have subcommittees directed to specific substantive areas (international, class actions, pharmaceutical & medical device and toxic torts). Some of the substantive areas mirror the topics covered by other Section of Litigation committees and other organizations that we all belong to in one combination or another. One consideration here is revisiting subcommittee structure to put in place (along with the substantive area subcommittees) a focus on handling of mass tort litigation as a matter of process - not organized along substantive areas of law. That could include such things as case management, evidence and procedure, experts, etc.
We would like to get your feedback on that concept and your thoughts as to what particular topic areas might be appropriate for such additional subcommittees, so please e-mail your thoughts to either or both of us.
Thank you,
John Manard
manardj@phelps.com
Byron Mason
byron.mason@bakerd.com
Mass Torts Litigation Committee Co-Chairs

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A prior post on this blog described some of the global choice of law issues arising from the Madoff fiasco. One set of issues will revolve around which nation's law should be applied to decide claims regarding whether investment advisers had a duty to investigate Madoff's operations, and how much investigation is required.

The facts and claims continue to expand, and choice of law will become ever more complex, subject of course to choice of law clauses and whether they can or will be enforced. Thus, even as Mr. Madoff was pleading guilty this week, the WSJ was running articles this week describing ongoing investigations into money transfers between various Madoff entities in London and New York. Meanwhile, more claims have been filed with cross-border parties.
For example. a Lawcom article describes a suit filed in the State of Washington, and goes on to say:

"[The plaintiff] Dennis, an American living in Switzerland, alleges that FutureSelect invested his money with the Rye Fund, part of a group of hedge funds owned by Rye, New York-based Tremont Group Holdings Inc., and that the Rye Fund in turn place the money with Madoff. The derivative lawsuit was filed on behalf of Dennis by Steve Berman, an attorney with the law firm Hagens Berman Sobol Shapiro in Seattle."

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Monday, March 30, 2009, is the date for oral argument in the Supreme Court on the Travelers/Manville case. The appeal presents important issues regarding the extent of bankruptcy court power and jurisdiction in a Chapter 11 case arising from asbestos litigation. The outcome may well apply to all mass tort bankruptcies.


All the briefs are collected at this page of the Scotus wiki built as a companion to the respected Scotusblog. Expert commentary also is provided.

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The cost of mistakes is daunting, and in my view, "tort reform" is not going to solve the problem of coping with large verdicts when major injuries are inflicted on relatively young persons. An illustration arises from a recent Cook County verdict of $ 29 million, a verdict entered after the plaintiff turned down a settlement offer of $ 16.5 million. The verdict was against Metra, the Chicago's areas mass-transit provider for the suburbs. I've been using Metra to commute for 15 years, and from personal experience would say it surely is not a slip-shod operation .

The claim is one of over 30 arising from a bad derailment. The verdict amount is eye-popping, but when the facts are considered, I can't sit here and say that the number is wrong for the injuries suffered by a 28 year old woman/mother. And, I also could not sit here and say that the compensation paid for "pain and suffering" injuries should be limited to $500,000 or some other similar "tort reform" type of number. No one should have to suffer what she has suffered, and it seems unrealistic to suggest that society should force a few individuals to take on the sole burden of a massive loss they did not cause and could not prevent. Indeed, even Metra offered $ 16.5 million, which is itself an eye-popping amount, regardless of the verdict.

The verdict and case are described in more detail in a March 2, 2009, article from the Chicago Daily Law Bulletin. The article is here, but will soon disappear behind a wall, so the full text is pasted below as a fair use.



Jury awards $29M to woman injured in Metra derailment
By Pat Milhizer Law Bulletin staff writer

A Cook County jury has awarded more than $29.5 million to a woman who was seriously injured in a Metra accident nearly four years ago.
Renea Poppel, 28, was a passenger on a double-decker, five-car Rock Island Metra train on Sept. 17, 2005, that was traveling from Joliet to downtown Chicago with 185 passengers on board.
That morning, the train came to a track crossover that had a maximum allowable speed of 10 mph.
But the train entered the section traveling at 69 mph, causing it to derail. The car that Poppel was riding in hit a support beam on a bridge, and the car was pushed 14 feet into the air before it crashed down on the tracks.
Two people died, but Poppel survived. At the time, Poppel was 13 weeks pregnant.
She suffered a traumatic brain injury, a broken pelvis, broken neck and other injuries and was in a coma.
Her unborn child survived the wreck, and was delivered via a Caesarean section in January 2006. Poppel already had a son at the time of the accident, and the girl is now a normal and healthy 3-year-old, said one of Poppel's attorneys, Daniel M. Kotin of Corboy & Demetrio P.C.
The brain injury prevents Poppel from walking without assistance, and she's confined to a wheelchair. She also suffers from blurry vision and slurred speech.
At the time of the accident, Poppel was a recent college graduate who was working as an admissions counselor at an online university.
She testified on the day before closing arguments for about 10 to 15 minutes, Kotin said. On Friday, the jury awarded $17.5 million for her injuries and $12 million for caretaking expenses.
''If anybody were to have sat through that trial and heard all the evidence and met Renea ... they would agree that this verdict represents justice,'' Kotin said.
Kotin and his colleagues presented eight doctors as witnesses.
''With injuries as catastrophic as these ... we felt it was important for the jury to meet everybody, and hear all the evidence firsthand from the individual doctors, rather than simply summarizing the story,'' Kotin said.
Metra offered a $16.5 million settlement shortly before trial, Kotin said.
Poppel also was represented by Thomas A. Demetrio and William T. Gibbs of Corboy & Demetrio P.C.
The Corboy firm was appointed lead counsel for plaintiffs in the accident. It previously has settled two wrongful-death cases, for $6 million and $5 million each. The firm has 33 pending injury cases from the accident.
Metra was represented by John W. Patton Jr. of Patton and Ryan Ltd. He couldn't be reached for comment Monday morning.
Cook County Circuit Judge Thomas L. Hogan presided. Bank of America, N.A. and Geraldine Edmonds, etc. v. Northeast Illinois Regional Commuter Railroad Corp., d/b/a Metra, No. 200 L 010320 E.

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A prior post on this blog described the UK government issuing a Consultation paper requesting views and information on, among other things, whether it should support legisaltion to cause compensation to be payable persons diagnosed as having pleural plaques attributed to asbestos inhalation. The UK government had said it would provide its position during November 2008, but did not do so. On February 11, 2009, however, Gordon Brown publicly said the Government will "soon" announce its view.


I submitted to the UK government a detailed outline of reasons why my opinion is that payments should not be made for pleural plaques. The paper is available here.

Below is the Q and A that prompted the comments by Gordon Brown.

_______________________________________________
http://www.theyworkforyou.com/debates/?id=2009-02-11a.1360.3


House of Commons debates
Wednesday, 11 February 2009
Oral Answers to Questions -- Prime Minister



Michael Clapham (Barnsley West & Penistone, Labour) The Prime Minister will be aware that it is almost 18 months since the Law Lords made a decision denying compensation to people suffering from pleural plaques as a result of negligent exposure to asbestos. Does he agree with me that we can restore justice and fairness only if that Law Lords' decision is overturned?



Gordon Brown (Prime Minister; Kirkcaldy & Cowdenbeath, Labour) I met my hon. Friend last week and we talked about this very issue. It is very important that we get a resolution following the court judgment on pleural plaques. The Secretary of State for Justice has been looking at this matter and talking to his colleagues right across Government about the implications of what can be done, and I can assure my hon. Friend that an announcement will be made very soon.

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Some corporations that made or sold various allegedly "toxic" or harmful products are today looking for and pursuing all kinds of paths to try to exit the "tort system." One such entity is Crown Cork & Seal, which has been part of an ongoing saga in Pennsylvania that arises from a special statute limiting liability for an entity in its position. A recent lower court opinion is a victory for the corporation, but an appeal seems inevitable. The proceedings are described in a law.com article here. The opinion is online here.

One wonders whether or how much extra-territorial effect would be given to this statute by, for example, a court in a nation overseas that may have been place where the corporation's products were sold.

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A Mondaq article from the Deacons law firm provides an interesting example of how entrepreneurial claiming is changing the face of litigation. The article is a brief but illuminating account of current, ongoing competition between multiple securities class action claims brought by different law firms, with some of the litigation financed by professional litigation funders. As a result of the litigation funders, the class claims are not identical, adding a new wrinkle to the mix as to coordination of litigation.

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"Sponsored research" continues to be controversial. The topic will be squarely addressed next spring in a Friday March 20, 2009 session of the Defense Research Institute's annual seminar on toxic tort litigation. The full DRI seminar agenda is here, and the session is as described as follows:


Meddling with Science--Is Scientific Research
Manipulated for Purposes of Litigation or Regulation?


Plaintiffs' lawyers claim that corporations protect their profits
by suppressing or influencing scientific and medical research and
information. Defense lawyers fight what they call "junk science"
offered by plaintiffs' experts and environmental activists. Do
scientists who participate as experts in litigation tamper with
or improperly influence scientific investigation to bolster the
prosecution or defense of claims in litigation? Do corporations
underwrite research simply to cast doubt on the claims of
environmental advocates and the plaintiffs' bar, or are they
interested in legitimate research that may rebut unwarranted
claims? Two scientists at the center of this contentious dialogue
will engage in a lively debate.

Speakers are:

David Michaels, Ph.D., MPH, George Washington University
School of Public Health and Health Services, Washington, D.C.

Dennis J. Paustenbach, Ph.D., CIH, DABT, ChemRisk Inc.,
San Francisco, California

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A continuing topic of this blog is exploration of the ways that advances in science will change tort litigation tactics and may change tort law rules. The topic will be squarely addressed next spring in a Friday March 20, 2009 session of the Defense Research Institute's annual seminar on toxic tort litigation. The speaker is the well-known and always interesting Dennis Paustenbach. The full DRI seminar agenda is here, and the session is as described as follows:

Toxicogenetics and Toxicogenomics--Science
Fiction or the Future of Toxic Torts?

The genetic revolution is here and has the potential to transform
toxic tort law as we know it. From biomarkers
to DNA microarrays to individualized genetic testing, there
are technical and scientific advances being made that have
the potential to alter the way in which toxic tort causation
is established. Dr. Paustenbach will dispel the myths and
explain the realities about genomics and toxic torts.


Dennis J. Paustenbach, Ph.D., CIH, DABT, ChemRisk Inc.,
San Francisco, California

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What to do with sponsored research - take it at face value, disregard it completely, or use it subject to considering whether to reduce its weight due to the sponsorship (assuming the sponsorship is disclosed). The debate today ranges across a wide spectrum of information sources and decision-makers.

Of note yesterday, an NYT article by Reed Abelson reports that the Cleveland Clinic announced plans to make disclosure of all payments from drug companies and other sources. According to the article:

"It appears to be the first such step by a major medical center to disclose the industry relationships of individual doctors. And it comes as the nation's doctors and hospitals are under mounting pressure to address potential financial conflicts of interest that can occur when they work closely with companies to develop and research new drugs and devices.
The Cleveland Clinic's Web postings are the most recent part of a conflict-of-interest effort at the clinic after some of its leading doctors came under fire several years ago when the news media disclosed some of their financial links."

On the topic more generally, one good source for general reading is a cogent New York Times article by Adam Liptak regarding the Exxon Valdez case and its footnote 17 regarding the Court's refusal to rely on research sponsored by Exxon. Titled From One Footnote, a Debate Over the Tangles of Law, Science and Money," the article also details a like ruling by Judge Weinstein in a drug class action.

The sponsored research topic also is being aired through symposia, such as Cornell sponsoring a symposium on Empirical Legal Studies (agenda here). There also is a good blog devoted to Empirical Legal Studies.

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Much of the strict liability theory taught in law school in 1980-1983, and still today, invoked a rationale of risk-spreading, and assumed that manufacturers could and would purchase CGL insurance to spread the risk of loss. Risk-spreading of course makes sense, and most individuals will acknowledge that there it is difficult to articulate a moral and rationale basis for insisting that some limited number of unfortunate individuals should alone bear the physical, financial and emotional harms caused by defective products (at least when there is real harm and a real defect).

That said, tort theory needs to reflect the reality that the actual availability of CGL insurance does not always exist, and seems to continue to shrink. Non-availability of coverage dates back to the so-called "pollution exclusions" inserted in the 1970s and 1980s, and then the "asbestos exclusions" that became common in the mid-1980s.

Two recent articles highlight the further shrinkage of CGL coverage. The first is an article by David Lenckus in the December 1, 2008 issue of Business Insurance. Its gist is that CGL insurance is now being significantly limited by some insurers by using terms that preclude coverage for later-acquired operations, at least when the operations are not exactly the same as the current operations. Terms of this sort may well may life tougher for the M & A world.

The second is a blog article from PorterWright regarding insurers starting to issue exclusions that preclude coverage for harms arising from nano particles. Exclusions are being issued because some studies indicate that the risks associated with nano particles may equal or exceed the risks associated with the various types of asbestos fibers.

Article 1


Curb on CGL coverage creeping into market


By DAVE LENCKUS
Dec. 01, 2008

Restrictive commercial general liability insurance policies that are moving into the admitted market worry some experts that more policyholders with tough risks--particularly construction contractors--could unexpectedly find themselves with limited CGL coverage.

Experts also are concerned about the coverage the policies provide, because some critical coverage terms are linked to an insurance industry database that is modified periodically and is not directly accessible by risk managers.

Unlike traditional CGL policies, which provide broad coverage for claims arising from a policyholder's operations--except for excluded risks--the restrictive policies contain an endorsement with a "classification limitation" of operations that underwriters will cover.

Those endorsements are contained in the declaration pages of policies, which otherwise follow the traditional CGL policy language developed by the Insurance Services Office Inc. of Jersey City, N.J. However, ISO did not develop the classification endorsement, a spokeswoman said.

Under the policies, if a policyholder adds operations without notifying its underwriter, or if the policyholder's current operations do not fit squarely within the classification limitations, then related losses would not be covered, experts said.

Policyholders also could not expect insurers to provide a defense against those claims, noted Joe Underwood, a senior consultant with Albert Risk Management Consultants in Needham, Mass.

Such policies are common in the surplus lines market but have now begun to creep into admitted coverage, potentially leaving some buyers with less coverage than they thought they had, experts say.

Nonadmitted insurers have been writing the restrictive CGL coverage for construction risks for a few years, said Bruce MacDonald, also a senior consultant with Albert Risk Management.

And John DiBiasi, president, excess and surplus lines for XL America Inc. in Exton, Pa., said XL America writes the restrictive coverage for many other tough risks, including real estate ventures.

But policyholder attorney Kevin Connolly, a partner with Anderson Kill & Olick P.C. in New York, said he first saw policies from more than one insurer with the endorsements in the past few months and that the policies have not "carried the stamp of a nonadmitted carrier."

An XL America standard lines market subsidiary, Greenwich Insurance Co. in Stamford, Conn., writes CGL policies with the restrictive coverage, according to documents that Business Insurance obtained. Greenwich is admitted in all 50 states.

An XL America spokeswoman did not know how long Greenwich had been writing the coverage.

But several brokers at major brokerages said they had seen the restrictive coverage only in the surplus lines market.

Major change

The classification endorsement "turns the CGL policy upside down," Mr. Connolly asserted.

A CGL policy "should be covering everything you do, unless there's fraud in the policy application," said John Lubatti, an Atlanta-based senior vp in the casualty practice at Willis HRH, a unit of Willis Group Holdings Ltd.

XL America's Mr. DiBiasi disagreed. The classification limitations include all of the typical operations in which a policyholder would be involved, he said. But the limitations protect an insurer from being drawn into covering operations it never wanted to insure, he said.

Mr. Connolly said the endorsement is so unusual that policyholders were unaware of it until after he had conducted routine policy reviews at the outset of construction projects.

"That's 100% true," Mr. MacDonald said. "That's the principal part of the concern of this type of endorsement." He said he has encountered the endorsement when construction project owners have retained him to review contractors' coverage that would name the owners as additional insureds. Contractors often did not realize their coverage was restricted, he said.

Buyers of surplus lines coverage typically have their "antennae up" for unusual endorsements, but risk managers do not expect such coverage limitations from admitted market insurers, Willis HRH's Mr. Lubatti said.

XL America's Mr. DiBiasi asserted that buyers should either carefully read all of their policies or hold their brokers accountable for explaining their coverage.

Experts say another problem with the restrictive policies is that they do not give policyholders the flexibility to adjust their insurance to cover all operations.

With traditional CGL policies, an insurer typically conducts a premium audit and then requires a policyholder that adds operations during its policy period to pay additional premium to cover those operations, risk experts say.

Under the more restrictive policies, however, a policyholder with operations not covered by its policy is not given that opportunity, Mr. DiBiasi and other experts explained.

Mr. DiBiasi said the premium audit process should not force insurers to cover any risk.

But understanding what operations are and are not covered is somewhat challenging for policyholders, experts said. The policies do not clearly spell out which operations are covered in the "classification limitation," they said.

Instead, the policies refer policyholders to an ISO database for additional information, but that database is not open to policyholders. Policyholders could ask their brokers for that information, because brokers have access to the database, experts noted.

Still, experts raised concerns about insurers linking policyholder coverage to a database in which definitions of covered operations could be modified between a policy's inception date and the time a claim is filed. A modification could leave a policyholder with no coverage for operations that originally were covered, they said.

"We have to trust the insurance company to do the right thing when a claim comes in," said Mr. Connolly, the policyholder attorney.

XL America's Mr. DiBiasi said, "The policy stands as it was issued and will be handled for claims on the basis as it was issued even years after the fact."

He added that "ISO changes apply only to policies going forward and only if a specific company adopts the change."

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Popular wisdom has it that that the types of tort litigation we have in the US are abhorred by the rest of the world. The reality, however, is that the world is changing, as is evidenced by today's news including an article from the Mainiachi Daily News regarding the filing of two new asbestos claims in Korea. The full text is set out below.

_________________________________________________________________


Bereaved families of 2 South Koreans sue firms over asbestos deaths
SEOUL -- The bereaved families of two South Korean residents who died from mesothelioma after living near a factory producing asbestos have filed a damages suit against three parties including Nichias Corp., it has emerged.
In the suit filed at the Busan district court, plaintiffs demanded companies including Tokyo-based Nichias Corp. pay 200 million won (about 14 million yen) each in compensation.
It is the first time that local residents near an asbestos factory have filed a damages suit in South Korea. Local environmentalist groups and former residents near the factory have also joined hands in seeking relief measures.
The plant -- an asbestos spinning factory -- was run by Jeil Asbestos (present-day Jeil E&S), which was jointly established by Nippon Asbestos (forerunner of Nichias) and a South Korean company near Busan city hall in 1971. The plant continued to operate until 1992.
One of the male victims was living 900 meters away from the factory for seven years in the 1980s and subsequently died in 2006 from mesothelioma at age 44. The other victim was living 2.1 kilometers away from the factory for four years during the 1970s and died in 2002 from mesothelioma at age 62.
On Nov. 13 this year, their bereaved families sued Nippon Asbestos and Jeil E&S, as well as the South Korean government for "failing to take measures to improve the factory."
According to the complaint, the plaintiffs claim that Nichias established the joint venture while knowing the toxicity of asbestos but concealed it from the public.
"Nichias moved (its operations) to Busan after regulations against asbestos particulates were strengthened in Japan and it became difficult to produce asbestos in the country. The company now also operates plants in Indonesia and other Third World countries. We want to prevent the spread of pollution exports through the suit," said a representative of a Busan-based environmental group supporting the plaintiffs.
A representative of Nichias said, "We have not received the complaint and have not confirmed the suit. Those involved in the joint venture have already retired and we do not know the details."
In a related development in December last year, the Daegu district court in South Korea ordered Jeil E&S to pay 158 million won in compensation to a female former employee of its Busan factory who died from mesothelioma. The court case has subsequently prompted a series of damages suits against the company by its former employees.
Click here for the original Japanese story
(Mainichi Japan) November 18, 2008

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A prior post here noted that Canadian scientists recently criticized the Canadian government for continuing to support global sales of chrysotile asbestos fibers. The industry historically was very valuable for Canada in terms of jobs, taxes and revenues - the mining itself is graphically shown in a wonderful McCord Museum set of online photos of miners and the mines that show abysmal safety practices.


According to a front page Globe and Mail article on October 31, 2008, Canada took a formal position of silence this past week at proceedings under the Rotterdam convention to decide whether chrysotile asbestos fibers should be added to a list of the world's most dangerous substances and thereby banned to a large degree. In past years, Canada actively spoke against adding chrysotile to the list. The net result was the same because the convention calls for consensus, which was not achieved since nations such as Pakistan and India oppose the ban. Those nations are among many in which asbestos-cement board remains a popular building product despite hazards that may arise if good work practices are not used when the material is cut or destroyed. Cement board is a strong building material used for many roofs and walls in countries that lack trees and/or the infrastrcuture needed for lumber for use for building materials, and is flexible enough that scrpas of it were molded into a giant penguin shown here because of concerns about the asbestos in it.

This outcome is major disappointment to groups such as the International Ban Asbestos Secretariat that has worked for over a decade to obtain a global ban on asbestos fiber sales.

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The Canadian Medical Association has come out with an editorial, described here, that calls on Canada to join with other countries to further regulate "asbestsos" exports. The topic is of interest in Canada because its been a major exporter of asbestos for decades, and so the fibers produce jobs, corporate profits and tax revenue. The issue is in part caused by disputes about how safe or unsafe are the various types of asbestos fibers and their various end uses. The topic is relevant here because a recurrent issue in tort litigation no doubt will be whether and how health standards and practices in one country should effect what happens in another country or be applied in different countries.

The same issues also arise for politicans, as illustrated by the article. In the US, the issue has arisen during the US presidential election through Senator Obama has called for further and/or additional enforcement of terms intended to protect workers and "the environment" against processess that are not deemed as safe as practices in the US. Some have called it that a good idea, and others call it "protectionism." Some would say that it is short-sighted if the US and other "developed" economies do not push or "nudge" others to move towards less risky practices. Otherwise, it seems that industry is receiving a subsidy in the form of allowing it to undertake operations known not to be "safe." That said, others argue that the US should "let the free market" work and not "interfere."

Lots of room for debate in this area, and it will be interesting to see what happens.

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A new en banc 5th Circuit opinion from a strongly divided court grants the extraordinary remedy of mandamus to overturn perceived forum shopping related to a "rocket docket" in the Eastern District of Texas. Much is being made of this opinion in many contexts, including patent law and product liability cases.

Opinions on venues and "rocket dockets" are taking on even more importance as litigants seek fast outcomes and ROI. That said, the Illinois Supreme Court has been issuing rulings since 1983 trying to stop perceived forum shopping in Illinois with respect to Madison and St. Clair counties (and other venues) but those counties remain extraordinarily active venues.

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For some time now, I've been writing about potential changes in product liability law due to rapid changes in communication and science. In a February, 2007 article for Corporate Counsel, I addressed various changes, including the widespread availability of scientific information and its impact on information-related tort claims. The article included my prediction that "sophisticated intermediary" types of defenses would change in light of all the available information. I'll pat myself on the back and note that I was right - in a drug case in 2007, the West Virginia Supreme Court cast aside the "learned intermediary defense due to the wide availability of information to consumers. See Johnson and Johnson v. Karl, 220 W.Va. 463, 647 S.E.2d 899 (2007). The Court there said many things, including the following:

"When the learned intermediary doctrine was developed, direct-to-consumer advertising of prescription drugs was utterly unknown . . . Since the 1997 proliferation of drug advertising, only four high courts have adopted the learned intermediary doctrine . . . None of those courts gave thorough consideration to the changes that have occurred in the prescription drug industry with respect to direct-to-consumer advertising. We however, find such changes to be a significant factor in deciding this issue . . "

So, with that as background, I particularly enjoyed reading an excellent new article by Sarah (Sally) Olson of Wildman regarding the Johnson case and other additional specific examples of the Internet's effect on tort claiming. The article is titled: Net's Impact on Strict Product Laibility Law. The effects she describes include increased numbers of public consumer complaints of defects, consumer input into design, whether a company needs to monitor blogs, whether a company run blog or website will produce its own liability if a company is not accurate in what it says publicly, and various other points. Ms. Olson's article is well worth reading in full and considering how it might apply in your context.

After that, think also about reading a 2008 book titled: Stop The Presses: The Crisis and Litigation PR Desk Reference. Written by Richard Levick and Larry Smith of Levick Strategic Communications, the book's chapters 7 and * deal with blog strategies and lots of other "crisis" issues that did not exist 5 years ago in any material way. Then I'd suggest reading their chapter 9 on the impacts of media as related to increased prosecutorial activity. That's a topic I've also covered in a more limited context in a 2006 Corporate Counsel article focused on "toxic torts" and criminal prosecutions.

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Business Insurance Europe is reporting 6 months of delay in implementing legislation for class actions in Italy. The delay moves the effective date from July 1, 2008 to January 1, 2009. The article presents the delays as needed to accommodate changes needed to satisfy concerns on all sides of the issues, but provides very few, if any specifics.   

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For those interested in "mass tort" issues, well worth reading is today's National Law Journal article regarding the recent wave of manufacturing defect product liability claims arising from drugs manufactured in China. The interesting points discussed include whether or how federal preemption principles will apply, and some aspects of claiming against Chinese entities.

Not mentioned in the article are other interesting issues. For example, down the line, these suits could produce some interesting discovery into and facts regarding the manufacturing processes in China, and the efforts of US companies and the FDA to ensure that products are made well. It will be interesting to see how their practices compare to safety practices used in other industries. Consider, for example, McDonald's and its decades of "Happy Meal" toys made in China, but distributed without incident in the US and around the globe. The great success of the McDonald's system includes the system's foresight in many years ago implementing design and manufacturing standards well above minimum standards, and having put trained observers into factories, along with using significant testing of products before they leave the manufacturing plant.

________________________________________________________________

http://www.law.com/jsp/nlj/PubArticleNLJ.jsp?id=1202423109561



Suits roll in over recalled drugs
China may factor in heparin actions.
Amanda Bronstad / Staff reporterJuly 21, 2008

Heparin medication is used to thin blood during surgeries.CMS Photo / Newscom
Baum Hedlund's Roger DrakePlaintiffs' attorneys have filed dozens of lawsuits in recent months involving two recalled drugs, generic blood thinner heparin and prescription medication Digitek, that could signal a clean break from past actions that were far less successful against drugs Vioxx and Paxil.In short, it's a different legal ballgame, attorneys say.In contrast to past pharmaceutical tort litigation, plaintiffs' lawyers aren't alleging that a company's "failure to warn" about possible risks of a drug caused injuries and deaths. In recent years, those arguments have been challenged in court, where several judges have sided with manufacturers in upholding federal pre-emption, or the concept that U.S. Food and Drug Administration (FDA) regulations override state liability claims.Lawyers anticipate that the new defective-product claims could duck the federal pre-emption argument altogether, increasing the chances of success for more plaintiffs.Also, plaintiffs' attorneys may have another edge: The heparin suits are the first to be brought against a pharmaceutical manufacturer with ties to China, which has been linked in other litigation to dangerous products such as toys, pet food and toothpaste."This is going to be the tip of the potential iceberg in terms of Chinese manufacturing and drugs," said William M. Audet of Audet & Partners in San Francisco, a plaintiffs' lawyer who has brought several drug cases and anticipates filing up to 60 lawsuits involving heparin and Digitek.But the recent drug lawsuits aren't all easy to swallow.Theodore Mayer, a partner at New York's Hughes Hubbard & Reed who defends pharmaceutical companies, said that plaintiffs' attorneys are likely to face challenges of causation. "Part of the challenge here is to distinguish between the cases that are actually caused by this contamination and the cases where the patient is just one of many, many patients in hospitals on heparin whose outcome may or may not be good for reasons that have nothing to do with the heparin," he said. Up to 700 casesMore than 40 lawsuits have been filed against the manufacturers of heparin, which is used to thin blood during surgeries. In the past six months, about a dozen manufacturers, primarily Baxter International Inc., as well as their distributors and suppliers, have recalled much of the nation's supply of heparin after a contaminant was discovered in the drug. The contaminant was tied to a supplier in China.In recent weeks, the lawsuits against Baxter, filed on behalf of those who claim that their loved ones died following a rapid drop in blood pressure, or that they suffered allergic reactions to the contaminated drug, have been consolidated in federal court in Ohio. According to the FDA, 124 deaths have been associated with the contaminated heparin.David Zoll, a partner at Toledo, Ohio-based Zoll, Kranz & Borgess, and liaison counsel in the heparin cases, said he expects 300 to 700 claims to eventually be brought involving heparin. "We think there are important ramifications on pre-emption that are raised by this case," he said. "The doctrine of pre-emption holds that we can rely on the FDA to keep us safe from dangerous drugs; the FDA will make sure the manufacturer does its job. This case shows that was not the case."Meanwhile, the U.S. division of generic pharmaceutical manufacturer Actavis Group hf. recently announced a nationwide recall of Digitek, a prescription drug used to treat congestive heart failure and abnormal heart rhythms, after several of the bottles contained more than the dosage as labeled.More than 40 lawsuits have been filed in federal and state court in Alabama, California, Louisiana, New Jersey, Ohio and West Virginia on behalf of patients who were injured or died.Tony O'Dell of Berthold Tiano & O'Dell in Charleston, W.Va., a lead plaintiffs' lawyer in the cases involving Digitek, said Actavis "ran the pill back through the process twice and ended up having twice the amount of active ingredient."He said his firm alone is evaluating about 100 potential lawsuits.The suits have few similarities to other drug cases in which he has been involved, O'Dell said. In those cases, the allegations against the drug were focused on "the way it was being marketed or being used or the fact that they had tested enough and had reactions," he said. Digitek has "been around for a long time. And it's a drug that has very good therapeutic reasons for its use. But it's a drug [for which] this company had very poor quality assurance in place."Matthew Moriarty, a partner at Cleveland-based Tucker Ellis & West, who represents Actavis and the other defendants in the case, declined comment.In the cases involving both drugs, plaintiffs' lawyers argue that a product defect, not a "failure to warn" about possible risks, caused injuries and deaths. Although heparin and Digitek were approved by the FDA, those drugs were never intended to be sold as they were -- allegedly with contaminated ingredients or in incorrect dosage amounts.The claims mark a shift in drug liability cases. "Most pharmaceutical litigation is based on a failure to warn," said Roger Drake, an attorney in the Los Angeles office of Baum, Hedlund, Aristei & Goldman who serves on the multidistrict litigation plaintiff's steering committee in the heparin cases. "This is a manufacturing defect, a different type of cause of action not subject to pre-emption problems that some of the failure-to- warn cases have," he said. "Because of that, it's unique in that respect from some of the pharmaceutical litigation out there."Although most lawyers agree that federal pre-emption could be a more difficult argument to prove in manufacturing defect cases, the legal defense remains a potentially major factor in all pharmaceutical products liability cases. Federal pre-emption has been successful in a substantial number of cases against pharmaceutical manufacturers. Even the FDA issued a preamble two years ago supporting federal pre-emption in cases involving the labeling of approved drugs.Earlier this year, the U.S. Supreme Court ruled that products liability claims against a medical device manufacturer were pre-empted by the Medical Device Amendments to the federal Food, Drug and Cosmetic Act. Riegel v. Medtronic, 128 S. Ct. 999 (2008). While the ruling is limited in scope -- addressing whether claims challenging the approved design and label of a catheter that burst during surgery were subject to a specific pre-emption clause -- some lawyers have interpreted the decision as having broader implications that could influence products liability claims involving drugs.Mark Robinson of Newport Beach, Calif.'s Robinson, Calcagnie & Robinson, and a member of the steering committee in the consolidated heparin cases, said the pre-emption issues in failure-to-warn cases and in cases accusing companies of design defects have little or no relevance in cases involving manufacturing defects, which allege entirely different claims."We're not claiming they designed it that way. This Chinese subsidiary, or Chinese supplier, changed the ingredients from the actual ingredient that makes the blood thin to an ingredient that looks like the same ingredient," he said. "But in reality, it's a lot cheaper version, and it doesn't thin your blood. In effect, that's a manufacturing defect."The suits involving heparin also are the first involving a pharmaceutical drug with ties to China. With the recent prevalence of defective-product cases involving China, plaintiffs' attorneys filing heparin lawsuits could have a stronger case than those concerning other drugs.Jeffrey Killino, a partner at Philadelphia's Woloshin & Killino who filed a heparin suit against Covidien Ltd., a supplier of medical devices and drugs, primarily handles cases involving defective tires and toys made in China. He said he anticipates jurors to be more receptive to the heparin cases than they were to previous pharmaceutical lawsuits. "Juries are outraged about what happened in China," he said."These pharmaceutical lawyers will get in a courtroom on a Chinese product case and be happy campers," Killino said. Zoll, liaison counsel of the heparin suits, said there is a potential for more liability suits against pharmaceutical drug manufacturers with links to China because the growth of companies in that country is "huge.""Will there be another case coming out of China? Absolutely," he said.Mayer, the defense attorney, hesitated to suggest that more suits would be filed outlining a similar set of facts that surround the heparin recalls. But, he said, the heparin suits could attract more pharmaceutical litigation, in general, involving Chinese suppliers."There's a lot of copycat effect in litigation," he said. "Once you see one of these lawsuits where people make an allegation that the Chinese supplier didn't do what it was supposed to, people may look harder at other such situations whether or not there is any basis for it."Baxter's lawyer, Leslie Smith, a partner at Chicago's Kirkland & Ellis, referred calls to a company spokeswoman, Erin Gardiner. In an e-mailed statement, Gardiner said that products liability suits generally involve allegations of a design defect, manufacturing defect or failure to warn. In this case, the heparin contaminant was the result of "deliberate and sophisticated tampering" that evaded internal tests of the drug."Because of the insidious nature of the heparin contamination that surprised heparin manufacturers around the world, we do not think the traditional product liability claims are valid," she said in the statement.Gardiner also said that, unlike other pharmaceuticals that have been on the market for years, the heparin at issue was in use for less than six months. Not all the heparin on the market was contaminated, either.Finally, she said, "we believe that only a very small number of people who received the heparin suffered significant injury caused by the contaminant, while the vast majority suffered no adverse event or only a transient reaction."A call to Michael Moeller, a partner at Kansas City, Mo.-based Shook, Hardy & Bacon, who represents Covidien, was returned by spokesman David Young, who declined to comment on the litigation.

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Global tort litigation issues continue to evolve. Last fall, the UK's highest court decided that it would not permit recovery of money as compensation for persons found to have "pleural plaques." Pleural plaques are generally deemed benign markers of past inhalation of asbestos fibers. Now, on July 9, the British government issued a request for comments on whether to use legislation to overturn the decision precluding damages.


Specifically, the "consultation" process calls for interested persons to submit views on whether persons with "pleural plaques" should be allowed a chance to recover damages for the physical change in the lungs or anxiety. The consultation paper, number 14/08, is viewable here.

So, what's at stake? In dollars, it's some number of billions; current estimates probably will prove to be too low, just like most other estimates of asbestos costs. In lives, the issue may or may not have significance. Pleural plaques generally are thought not to impair life function in any way, but they generally are considered a marker for past asbestos inhalation. Some may argue that finding those people now will help them later avoid premature deaths by leading them to annual health screenings with a focus on their particular risks.

Back to dollars. The consultation likely will become a fight between insurers and insureds as to which entities pay how much. Insurers and reinsurers will have issues between them. The process also will include battles between solvent entities and entities that claim to be insolvent or are pursuing "schemes of arrangement." Schemes of arrangement? They are end of corporate life financial engineering tools. Insurers like to say that the schemes free up capital to return to the marketplace and stimulate business. Insureds like to say that schemes improperly allow insurers to avoid IBNR claims, which are claims that are foreseeble based on past events, but that have not yet been filed because, for example, the future claimant does not yet know that a mesothelioma tumor already has formed and is growing, at a microscopic level.

Note also that government agencies will have a financial stake. Legislation may help them avoid paying the massive health care costs that may accrue when a mesothelioma is found "early."

The issues also may be described more broadly. This could be a chance to find a fair compensation and medical treatment plan that avoids the many flaws in the current American systems, and to think carefully about how one defines who is "sick" or when they are "injured." This could be a chance to limit attorneys' fees to modest amounts. This could be a chance to take a long term view. This could be a chance to look for new answers.

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There is much room here for innovative thinking on all sides of the many issues. 

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The April 10 Economist included a brief article noting the issues regarding elected state court judges, and its text is set out below as a fair use. According to the article, some or all of the judges are elected in 39 of the United States.This topic has been debated for years, but little has changed except that more and more money is being spent on judicial elections. The article has specifics on the latter.


I would add three observations to the debate; the first one comes from the judge I clerked for, Howard C. Ryan, who was an elected state court judge. His point was a pragmatic one, which is that reformers need to be flexible in their proposed solutions and cannot expect to hit a "home run" on the first try. For example, the "reform" solution that works for the hundreds or thousands of judges in Cook County, Illinois probably will not work for a "downstate" Illinois county with only a handful of judges and perhaps only dozens of lawyers. Why? Because some reform proposals aimed at Cook County called for panels of X lawyers, with X being a small number in Cook County but an unattainable number in some farming counties with modest numbers of lawyers and judges. (During my clerkship way back in 1983, the issue was somewhat "hot" in Illinois and so Judge Ryan, as a "downstate" judge, explained to us some of the very real differences between Cook County courts and the courts in the rest of the state. In my opinion, he's absolutely correct that one size does not fit all. The Judge, by the way, also was open-minded. Indeed, to further the analysis, he asked me to research and present him with a memo summarizing how various nations around the world create their judiciary.)


Second, there is in my view much merit to ensuring that many of our appellate judges have spent meaningful time as trial judges. Trial courts are dynamic places with things said and unsaid because of the exigencies of the moment and many other factors. When an appellate court gathers to decide cases, it is I think important that there are some judges in the room who have a feel for the what is really "harmless error," and the pressures of long trial days. This is not to suggest creating a black letter rule requiring trial court experience - I join with those who say that it would be a grave mistake to exclude all academics, nor do we want to exclude the lawyers who never worked as judges but spent years trying cases, and so know the nature of trials.


Third, there is the question of why the topic has produced so little substantive debate (as opposed to sound bites and posturing), and so little meaningful change. On this topic, I commend to all Robert Reich's newest book: Supercapitalism. It's an insightful look at where we as a nation are today in terms of the political process. It's also refreshing to read a book with lots of facts, footnotes to the sources, and an absence of spin.

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Some recent attorneys' fees awards illustrate that specialized mass tort litigation is becoming ever more entrepreneurial and rewarding when claims succeed in areas such as product liability litigation. Much of the history of teh financing of contingent fee claims is very well explained by Professor Stephen C. Yeazell of UCLA in his 2001 article, "Re-Financing Civil Litigation," 51 DePaul Law Review 183 (2001). I highly recommend the article to anyone interested in understanding the economics of mass tort litigation. The article was part of a DePaul Law School symposium organized through a $ 1 million gift from Robert Clifford, one of Chicago's most-respected plaintiff's lawyers. One might also consider Prof. Yeazell's related online lecture apparently published as an honor by UCLA for distinguished work by its professors.

The recent examples? "Fen-phen" litigation produced a most recent award of $ 412 million fee award for several plaintiff's firms. The Point of Law authors note that all of the awards work out to about $1,000 per hour based on hours reported to have been billed. The Mass Tort Litigation blog authors also noted the award and provide cites for some of the key rulings in that litigation.

The Florida phase of the tobacco litigation recently produced a $ 218 million fee award for plaintiff's counsel. The award is described as providing a 5x multiplier for the risks undertaken by plaintiff's counsel, Stanley and Susan Rosenblatt. According to the news article, the trial judge who awarded the fees took pains to praise the efforts of plaintiff's counsel, saying:

''I think this is one shining example of an effort that was undertaken with diligence and for an amount of time that would have destroyed most people,'' Miller said, according to a hearing transcript. The Rosenblatts' performance is ``an example of the kind of lawyering that is done here in South Florida.''

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The Dickie Scruggs saga has been much hyped. Indeed, one could say it is over-hyped because although there are some lawyers who appear to have bent or broken the rules, there are many more who act ethically and do a great job for their clients.

In any event, the best summary I've seen of the Dickie Scruggs saga is by Roger Parloff of Fortune. An upcoming issue of Fortune will have a condensed article, but an extended online version is available here. In addition, Mr. Parloff's blog has further information.

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Recent news has been full of stories about rapid general inflation around the world, especially increased food costs leading to protests (and worse) around the globe. Today's news also include an article from the NYT that details soaring co-payment expenses in the US. For a tort lawyer, these articles bring to mind an ongoing tort litigation issue: the propensity to file tort claims.

The tort litigation world includes much argument and posturing regarding propensity to claim. The debate about claiming is made somewhat useless when the two sides cite extreme examples of fraud, which can be either inarguably fraudulent claiming or inarguably fraudulent corporate conduct. What it would be good to see is a meaningful article looking at the propensity to claim as a function of micro economic events, such as manufacturing plant closings, or as a function of the elimination or reduction of medical benefits by a company, especially for retirees. One also wonders of there is meaningful correlation between claiming and macro numbers for inflation of unemployment. Please speak up if you know of any research on these points - I've not seen any.

Until there is research, I'll rely on my personal observation that it seems plain that prospective plaintiffs are often-created when a business closes a plant, completely terminates its retiree medical insurance plans, or insurance benefits are materially reduced. Indeed, when manufacturing plants close, some plaintiff's firms sometimes target the former plant workers as potential plaintiffs, and medical screenings may follow if the plant included use of "toxins." Simply put, otherwise proud and independent retirees who have significant medical issues sometimes say "off the record" that tort litigation is the only means they know of to try to create cash flow sufficient to cover medical expenses. Thus, corporations and governments sometimes may actually be "the cause" behind increased tort claiming. Thinking globally, one would think that global tort claiming will increase as economic changes are harder and harder on the middle class and on those persons already at the bottom of the economic ladder.

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