New 2d Circuit Opinion in Freelancer Litigation Highlights Conflicts of Interest in Settling Mass Tort Claims
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.”).