I'm setting aside James Hardie and Australia for a few days. News on Friday provides a great springboard for some comments in the same general area of what's new in mass tort resolution thinking, and some points related to corporate actions to cope with/avoid/limit the corporate damage from mass tort claims.
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How does big tobacco admit it faces massive global tort warfare ahead ? By hiring David Bernick away from Kirkland & Ellis, as was announced Friday - see article at the bottom.
Why is hiring Mr. Bernick so telling ? Look at what he has done. K & E teams headed up by Mr. Bernick have often (but not always) won some of the most difficult battles in mass tort litigation, and have included various creative and massive efforts to buy time and/or survival for corporate defendants. For example, his team successfully defended Grace executives in a criminal trial involving asbestos regulations and "tremolite contamination" in mined products; that trial would have been easy to lose due to asbestos hysteria. The team also was winning the W. R. Grace asbestos bankruptcy trial by thoroughly discrediting the seamy side of asbestos claiming by the not sick, and so they capitalized by reaching a fantastic mid-trial settlement in the bankruptcy. Bernick and others also did a business-saving (albeit unconstitutional) deal in chapter 11 to free Asea Brown (ABB ) from its Combustion Engineering asbestos liabilities, and obtained that result despite the stench from ABB's $ 20 million payment to plaintiff's counsel. Mr. Bernick and others also undertook an ill-fated but brilliant effort on behalf of car companies to use the Federal-Mogul bankruptcy to convene one massive Daubert hearing in federal court regarding whether brake linings with asbestos actually cause cancers. Even though the latter effort did not succeed on the merits; it bought much needed time for car companies at a time when asbestos litigation was at one of its most frenzied points.
One cannot help but wonder the price. If Mr. Bernick can do for PM what he has done for other entities, the financial dividend for PM shareholders will be huge. Indeed, Mr. Bernick actually will add real value to the bottom line with actual creative thinking and hard work. That said, perpetuating smoking is anything but the work of angels.
What issues are out there to keep Mr. Bernick busy and challenged ? A recent example arises from the disastrous $294 million verdict entered last fall in one of the thousands of pending post-Engle tobacco cases that are being set for trials in Florida. If one took that verdict into bankruptcy court and handed it to the "liability estimators," they could generate a future liability range of numbers that probably would include numbers in the trillions of dollars. Those numbers also could be offered in bankruptcy court to support fraudulent conveyance claims involving various corporate moves by tobacco companies. Recall, for example, that Asarco was hit this past year with a $ 6 billion dollar bankruptcy court judgment based on fraudulent conveyance claims tied to corporate activities undertaken in anticipation of tort and environmental claims.
That said, the bankruptcy liability estimation process is not even close to scientific, as Mr. Bernick well knows. Indeed, the Grace bankruptcy included one of the strongest indictments issued to date regarding the lack science and due process in bankruptcy proceedings, That indictment is set out in the testimony of Professor Heckman, a University of Chicago economist and Nobel prize winner, as described in item 4 of this prior post.
Meanwhile, there is global cigarette litigation. In Nigeria, the tobacco companies are the subject of $ 45 billion government cost recovery claims, as described, for example, here and here. And, as noted on Saturday, there have even been tobacco claims in Japan, which are not noteworthy for any success but are note worthy for the statistics regarding the continuing smoking patterns in Asia.
Perhaps most significantly, the tobacco industry recently suffered a resounding loss as the Massachusetts Supreme Court endorsed in sweeping terms a medical monitoring class action case against tobacco companies. Due to Congressional hearings and the tobacco settlements, it's very plain that the cigarette manufacturing industry very closely follows science, and so its senior executives undoubtedly are aware of the indicators that their companies soon enough will face a wave of expensive medical monitoring and therapy claims arising from new scientific discoveries. Soon enough, it will be routine to provide effective screening examinations to find cancers when they are still microscopic. Incredible new devices and techniques will be used to create innovative therapies that will be developed to "cure" or manage the tumors, all at some significant amount of expense. See generally the many papers of Professor Gary Marchant, most of which are collected on his law school's website at the page which is here. Those developments will make it practical for plaintiff's lawyers to bring claims on behalf of persons in developing countries for which the opportunity for expensive life-saving treatment will create enough economic value to incentivize litigating cases that will have significant emotional appeal to any judge or jury.
My bet? Mr. Bernick's will architect and oversee an effective defense across the broad range of pending cases, all while planning for future efforts to obtain absurdly favorable settlements that promote continuing tobacco use by sharing revenues with governments and lawyers, not to mention, litigation funders, to produce securitized cash flows. The settlement also produced ancillary litigation over access to information from state attorney's general on why and how they settled. Certainly Mr. Bernick is well suited by experience to lead PM through the issues ahead.
Mr. Bernick will have plenty of new challenges because more and more commentators are speaking out on the myriad problems with the handling of mass tort claims. Indeed, new commentators are emerging. Commentators include Prof. Erichson on "The Trouble With All or Nothing Settlements" and others who last year spoke on whether more mass tort claims need to be litigated instead of settled. Prof. Burch wrote a post this past Friday on Prof. Redish's new book arguing that many mass tort class action procedures are unconstitutional (an issue I've been litigating and arguing since the late 1980s.) She also links to a summary of contra papers by Prof. Issacharoff, who also is a paid partisan and advocate in asbestos litigation, including (among others) the THAN bankruptcy (click by the first screen and then you should land at the page for In re T H Agriculture & Nutrition, L.L.C., Case No. 08-14692 (REG). The THAN case is the asbestos bankruptcy that produced a declaration from an asbestos plaintiff's lawyer regarding his understandings from chapter 11 plan negotiations regarding his firm's clients being paid an average of over 700k per claimant for future claims against the THAN trust.
Challenges also will arise due to commentary and new thoughts from overseas. Prof. Burch wrote this recent cogent post summarizing a new report from the UK on tort claiming. To tease you to go read more, here are two key excerpts from the post summary:
"Of additional import, the final report recommends that solicitors and barristers should be allowed to enter into contingency fee arrangements, which are currently prohibited. Before entering into such an arrangement, the report recommends that claimants receive independent advice. It also suggests capping the fees at 25%.
Finally, the report recommends making third-party funding available to personal injury claimants (including those involved in collective actions). It defines third party funding as "The funding of litigation by a party who has no pre-existing interest in the litigation, usually on the basis that (i) the funder will be paid out of the proceeds of any amounts recovered as a consequence of the litigation, often as a percentage of the recovery sum; and (ii) the funder is not entitled to payment should the claim fail." (Final Report at p. 17). Very interesting."
UK corporate and insurance company lawyers issued a January 19 report she links to; here's their bottom line:
"If Jackson LJ's recommendations are passed into law, it seems safe to predict that they will lead to an increase in the number of collective actions seeking damages for personal injury. In particular, group claims against the manufacturers of allegedly defective products, which are no longer routinely funded by legal aid as they were in the 1980s and 1990s, are likely to become more common. Claimants with an arguable claim of this type would generally be able to proceed under a contingency fee, CFA or third-party funding arrangement without the spectre of possibly having to pay, out of their own pockets, either their own lawyers' fees or the costs of their opponent.
Costs shifting would remain in place for most types of collective action, such as those involving claims for anti-competitive behaviour or consumers' claims for economic loss. In these cases, the loser-pays rule would remain a significant disincentive to claimants considering a group action and would protect defendants against frivolous or speculative lawsuits.
The big question now is whether these reforms will be implemented. Jackson LJ appears to hold the view that his recommendations, which he describes as "a coherent package of interlocking reforms", should not be viewed individually but as a comprehensive set of proposals. Some of these proposals could be introduced relatively easily by amendment to the Civil Procedure Rules, such as the introduction of a qualified one-way costs shifting regime, but for the most part primary legislation would be required in order to give effect to other recommendations, such as abolishing the recoverability of success fees from defendants. With the general election taking place this year, civil justice reform is unlikely to be high on the Government's agenda. The likely delay will provide a window of opportunity for those who have concerns about particular aspects of these recommendations to make them known before the reforms are finally implemented."
We surely are living in interesting times for mass tort claiming.
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Here is the article from the Chicago Tribune regarding Mr. Bernick; the text is pasted below.
Friday, January 22, 2010
Top litigator at Kirkland leaving for Philip Morris
David Bernick, a star litigator at Kirkland & Ellis, is leaving the firm to become general counsel at Phillip Morris International.
Bernick has been with Kirkland for 31 years and has been involved in nearly every type of complex litigation imaginable, from defending companies with asbestos liability to representing breast-implant manufacturers.
"I have spent my entire career at Kirkland & Ellis and I am proud to have contributed to the growth and success of one of the top law firms," said Bernick in a statement provided by the firm. "I will remain close to my many friends and colleagues at the firm, but I look forward to pursuing new challenges during the next phase of my career with Philip Morris International."
Kirkland's incoming chairman, Jeffrey Hammes, said: "David has been an integral part of our premier litigation practice, and his achievements during his 31 years at Kirkland are truly remarkable. We thank him for his varied and long-standing service to the Firm and we wish him success in his new role.
Bernick will join Philip Morris on March 1. As part of the move, he will relocate to Switzerland from New York.
Tip of the hat to Above the Law for breaking the news.
