Berry, Andrew T.

English

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Comments on Aggregation: Some UnintendedConsequences of Aggregative Disposition ProceduresAndrew T Berry*Conventionally, it is thought that class actions and other proceduralaggregative mechanisms benefit those possessing small individualeconomic claims which, collectively, demand that attention must be paid.'But because, as Professor Hensler's study discloses, aggregated claimsgenerally are settled,2 it may be tangentially useful for a work-a-day lawyer(navigating without the compass of a specific client's legitimate interests)to note that events occur which were not necessarily contemplated by thedrafters of Federal Rule of Civil Procedure 23. As Professor Erichson hascorrectly observed, "Litigation aggregates itself. Formal proceduralmechanisms do not always do it, but aggregation happens anyway."3When such aggregation happens, no defendant fairly can complain ifrepresentatives of individuals suffering relatively minor, common, butunarguably real losses make a collectivized claim. That's what Rule 23 isall about:Whatever the intention of the 1966 class action amendments, the effectof Federal Rule 23(b)(3) was to facilitate the aggregation of relativelysmall claims that were not otherwise individually economically viableto pursue into a group claim. As a result, the availability of class actionlitigation dramatically increased.Chairman, McCarter & English, L.L.P. A.B. Princeton University; L.L.B., HarvardUniversity. The views expressed herein are not necessarily those of the Firm nor of any ofits clients.I H. NEWBERG, NEWBERG ON CLASS ACTIONS § 1.06, at 1-16 (3d ed. 1992) ("The last-noted objective [to Rule 23], i.e., the spreading of litigation costs, has also beencharacterized as a recognition that the class action serves to afford individual claimants withsmall claims access to judicial relief that otherwise would be economically unavailable bymeans of individual litigation."); ARTHUR MILLER, DEATH OF A SALESMAN 56 (GeraldWeales ed., Viking Press 1967) (1949).2 See Deborah R. Hensler, The Role of Multi-Districting in Mass Tort Litigation: AnEmpirical Investigation, 31 SETON HALL L. REv. 883 (2001).3 Howard M. Erichson, Informal Aggregation: Procedural and Ethical Implications ofCoordination Among Counsel in Related Lawsuits, 50 DUKE L.J. 381, 469 (2000).4 Linda Silberman, The Vicissitudes of the American Class Action-With aComparative Eye, 7 TUL. J. INT'L & COMP. L. 201, 205 (1999).920CONSEQUENCES OF AGGREGATIONI. I'M A DEFENDANT BUT I CAN USE ITIn fact and in practice, claims aggregation also has the unintendedconsequence of benefiting corporations accused (justifiably or not) ofcommitting mass torts or other widespread wrongs. Efficient marketanalysis of corporations tends to focus on "forward earnings" rather than"trailing earnings." That is, the market capitalization (the number ofoutstanding shares times per share price) of a given mass tort/class actiondefendant will reflect the future more strongly than the past. Guided by therequirements of accounting conventions and the federal securities laws,5defendants facing liabilities arising out of aggregated claims frequentlyhave a significant interest in (apparently) quantifying projected mass tortlosses and creating a financial reserve for those losses which is chargedagainst current ("trailing") earnings, thus "getting the problem behind us."6,7Putting to one side the efficacy of so-called "global settlements," amass tort defendant which accurately assesses its future liabilities by usingan aggregated legal proceeding to "capture" a large number of claimantsmakes Wall Street happy. Certainty has value in the capital markets'analysis of a company; apparent certainty is almost as good. A companywhich plausibly consigns mass tort liabilities to the past by, for example,settling a comprehensive class action or announcing a "global settlement"(no matter how expensive) may be rewarded by an increase in its marketcapitalization.8 That increase, in turn, makes the defendant better able toinitiate and conclude advantageous business transactions and combinationswhere per-share price can be a critical factor in, for example, who acquiresand who gets acquired.All of this economic analysis merely illustrates a first-order pointabout aggregative dispositions: the aggregated mega-cases settle not justbecause of their huge economic threat to a defendant; they settle (at areasonable price) because binding all (or most) claimants in one place atthe time to one settlement process permits a defendant to take its hit,5 FINANCIAL ACCOUNTING STANDARDS BOARD, STATEMENT OF FINANCIAL ACCOUNTINGSTANDARD No. 5, ACCOUNTING FOR CONTINGENCIES; SECURITIES AND EXCHANGECOMMISSION, STAFF ACCOUNTING BULLETIN 92; 17 C.F.R. § 210.5-02 (2001).6 Richard B. Schmitt, Judge Backs AHP Plan for Diet-Drug Settlement, WALL ST. J.,Aug. 29, 2000, available at 2000 WL-WSJ 3041720.AHP took a reserve of $4.75 billion for the class Fen-Phen settlement trust, but a $7.5billion fourth-quarter charge for opt-outs. Id.8 On October 7, 1999, defendant American Home Products announced a "nationalsettlement program" to pay off plaintiffs which was estimated to cost $4.8 billion. OnOctober 8, 1999, the day after the settlement was announced, its stock rose 11.19 percent.See Sam Jaffe, Street Wise, BUSINESSWEEK ONLINE: DAILY BRIEFING (Oct. 11, 1999), athttp://www.businessweek.com:/bwdaily/dnflash/oct 1999/sw91011.htm (last visited Oct. 11,2001).SE TON HALL LA W REVIEWdeclare victory, and move on. It seems rather unlikely that the Rule 23drafters were concerned about such a result.II. FUNCTION FOLLOWS FORMThe availability of aggregation techniques is exemplified by state orfederal class actions designed to encourage small-damage claims assertingtraditional tort or contract causes of action that would be uneconomic topursue individually. 9 Currently, however, one sees some evidence thatjudicial decisions framing the shape of Rule 23 (form) are causing it to beused for untraditional causes of action (function) asserted solely to meet itsrequirements. From the famous Rules Committee comment of 196610through the decisions in Ortiz and Amchem," traditional personal injurytort claims (even if settled) are not amenable to class action treatment,because the individualized nature of the personal injury is thought topredominate, foreclosing reliance on Rule 23.2 But class action treatmentmay be available where the relief requested is injunctive. 3Accordingly, one increasingly sees quasi-personal injury claims beingframed in terms of "medical monitoring" class action allegations. Thisphenomenon is perhaps less attributable to a genuine medical need formonitoring than it is to a requirement for aggregation. And aggregation, inthis context, allows evidence of personal injuries as "proof' of the need formedical monitoring of the class of exposed plaintiffs, even though a classseeking traditional tort recovery for the same injuries would not becertified. In order to avoid the class certification problems arising from"individualized" personal injury issues, the class representatives typicallyplead that they do not suffer from any such injury. The classrepresentatives then may plead a litany of the defendant's bad acts whichhave created excess health risks. This is followed by a request for"injunctive relief' requiring a defendant to give specific notice of thealleged adverse health effects, and the establishment of funds to pay formedical research and monitoring of the allegedly exposed class members.149 See generally NEWBERG ON CLASS ACTIONS §1.06; see also Judith Resnik, MoneyMatters: Judicial Market Interventions Creating Subsidies and Awarding Fees and Costs inIndividual and Aggregate Litigation, 148 U. PA. L. REv. 2119, 2147 (2000) (noting "Rule23(b)(3) was specifically designed to correct a market impediment to access and rightsenforcement for certain kinds of small claims, but not for ones sounding in tort").10 FED. R. Civ. P. 23 advisory committee's note.11 Ortiz v. Fibreboard Corp., 527 U.S. 815 (1999); Amchem Prods., Inc. v. Windsor,521 U.S. 591 (1997).12 Ortiz, 527 U.S. at 815; Amchem, 521 U.S. at 591; Castano v. Am. Tobacco Co., 84F.3d 734 (5th Cir. 1996).13 FED. R. Civ. P. 23(b)(2).14 See, e.g., Gibbs v. E.I. DuPont de Nemours & Co., 876 F. Supp. 475 (W.D.N.Y.[Vol. 31:920CONSEQUENCES OF AGGREGATIONFinally, and perhaps most importantly in explaining why these cases arebrought, the proposed medical monitoring fund and future class benefitsform a basis for the award of potentially substantial class counsel fees.Perhaps the drafters of Rule 23 would find this entire processsomewhat curious: the requirements of the Rule (actual personal injuryclaims not permitted) creating or at least encouraging a new substantivecause of action (risk of future personal injury claims permitted.)III. "I'M FROM THE FEDERAL GOVERNMENTAND I'M HERE To HELP You."The third and final observation on the unintended consequences ofaggregation relates to the federal government's attempts to extract somerecovery out of class action settlements of personal injury/medicalmonitoring claims. 5Pursuant to the Medical Care Recovery Act, the United States canseek reimbursement for medical treatment expenses paid on behalf ofindividuals arising from injuries attributable to a third-party tortfeasor.16Similarly, the Medicare Secondary Payer Act, permits the government toseek recovery from a "primary" healthcare plan when Medicare has paidmedical expenses as a "secondary" payer. 7Relatively recently, the creation of large mass tort aggregatedsettlements has stimulated the federal government's activity under bothActs. For example, in the breast implant 8 and diet drugs19 globalsettlements, the United States has sought recovery from, or in addition tothe settlement funds. No one seriously has suggested that the governmentwould, for example, spend its resources initiating recovery from an allegedtortfeasor manufacturer for medical expenses of one allegedly injuredperson. It is almost as unlikely that the government would do so even ifthere were many such persons scattered about the country. But an entirelydifferent situation is presented when there is an aggregative "global"settlement involving funds or trusts. Now, the government simply can try1995); Friends for All Children, Inc. v. Lockheed Aircraft Corp., 746 F.2d 816 (D. Cal.1984).15 The liability claims of the United States filed against the tobacco companies may notbe subject to the same analysis because those claims can be seen as the executive branch'sattempt to use the judicial branch to regulate comprehensively an industry not so regulatedby the legislative branch.16 42 U.S.C. § 2651 (1994).7 42 U.S.C. § 1395y(b) (1994).18 See In re Dow Coming Corp., 250 B.R. 298 (Bankr. E.D. Mich. 2000).19 See In re Diet Drugs Prods. Liab. Litig., 2001 WL 283163 (E.D. Pa. Mar. 21, 2001).2001]SE TON HALL LA W REVIEWto intervene or otherwise make its interests known in one place, at onetime, for a potential large return.2°The government's claims in these aggregated settlement cases are atbest disruptive. In the diet drug case, at a point when the tort claimants andthe defendant American Home Products Corporation sought distribution ofthe settlement proceeds, the government filed a "statement of interest"under 28 U.S.C. § 517. It contended that it was, on a priority basis, entitledto recovery of its claims before the settlement fund was distributed.Moreover, it threatened the Settlement Trust with the imposition of doubledamages under the Medicare Secondary Payer Act.21Judge Bechtle, who had actively managed the diet drug MDL case andapproved the global settlement, rejected the government's claims in thecontext of an assumed preliminary injunction standard. He concluded thatthe government had not shown the necessary likelihood of success on themerits and permitted distribution of the settlement proceeds as "areasonable and proper exercise of the duties of the Trustees.,22The point is not that the government's claims apparently have (todate) not materially succeeded against any global settlement; 23 it is that thegovernment never would have asserted the claims unless an aggregatedfunded solution of a mass tort litigation had occurred.CONCLUSIONProfessor Hensler makes a nearly-unassailable case that aggregatedclaims are almost always resolved by settlement. That conclusion iswholly unsurprising when one considers the risk/reward calculus on bothsides of the caption: class counsel get paid, but not if the class is uncertifiedor unsuccessful on the merits; defendants get manageable certainty whenthe danger of a catastrophic mega-judgment on class claims is replaced bya quantified lesser liability.In the face of those circumstances, the effects of new derivativeclaims, including class medical monitoring and federal government20 Potential recovery under the Medicare Secondary Payer Act depends, in part, on theexistence of a "self-insured plan" as a primary payer. The government asserted(unsuccessfully) in In re Diet Drugs, that the Settlement Trust or the entity funding the Trustwas a self-insured plan. Id. at *10-11.21 Id. at *2.22 Id. at *14. The Court did, however, direct the Trust to set aside $7,000,000 as areserve to cover the unlikely event that the government might later succeed in its claims. Id.23 On September 23, 2001 the MDL judge in the breast implant litigation dismissed thegovernment's reimbursement claims in all respects. In re Silicone Gel Breast ImplantProds. Liab. Litig. (MDL 926), CV 00-N-0837-S (N.D. Ala. Sept. 23, 2001).[Vol. 31: 9202001] CONSEQUENCES OF AGGREGATION 925reimbursement, may seem insignificant. But for the present, Epimetheushas not persuaded Pandora to return them to her box, and we have not fullyfelt the effect of their existence.

Comments on Aggregation: Some Unintended Consequences of Aggregative Disposition Procedures

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Comments on Aggregation: Some Unintended Consequences of Aggregative Disposition Procedures

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