Article here. (h/t: Legal Theory Blog) Abstract:
In an aggregate settlement, usually of a mass tort claim, a defendant agrees to pay a specific dollar amount to be divided up by the lawyer among her multiple clients which may number in the hundreds and even thousands. Each client, therefore, is in competition with all of the lawyer’s other clients suing the same defendant for a share of the fixed sum. Rule 1.8(g) of the ABA Rules of Professional Conduct requires that each client give their informed consent to their allocation. To facilitate the settlement and the often quite substantial contingency fees to be earned, lawyers may mislead clients into believing that the amounts allocated to them were the result of individual bargains between their counsel and the defendant. Indeed, notorious examples of lawyers’ failures to abide by the rule abound in the literature.
At a recent conference to consider the ALI’s proposal to effectively amend Rule 1.8(g) and allow use of advance client waivers in non-class aggregative litigation (ALI, Principles of the Law of Aggregative Litigation, §3.17 (2010), the underlying assumption of most participants was that the problems being addressed were structural. The issue posed was whether, as proposed by the ALI, advance waivers allowing a supermajority of clients to bind the entire group, should get an ethical imprimatur.
While most of the commentators focused on efficiency, efficacy and autonomy, in this essay, I have set out on a different path. I reject the view that the defects in the ethical rule governing aggregate litigation are structural. For example, contrary to one panelist’s view, I do not agree that the all-or-nothing aggregate settlement -- which can empower hold-out clients to extract higher awards -- is the devil driving lawyers to violate Rule 1.8(g) with regard to securing aggregated clients’ informed consent to their allocated share. In my view, the issue posed is more fundamental. I contend that what drives lawyers to fail to comply with Rule 1.8(g) is the lucrative nature of this area of practice.
Given the lack of enforcement of ethics rules that purport to limit lawyers’ fees to “reasonable” amounts, contingency fees in many mass tort litigation have standardized at the 40% level. It strikes me as mind-boggling that commentators on non-class mass tort litigations ignore the 40% contingency fee that lawyers are increasingly charging in these litigations. If there are substantial economies of scale being realized by mass tort lawyers -- as I believe is the case -- they are being entirely claimed by the lawyers and not even partially being passed on to their clients except as mandated by a handful of judges. Moreover, while the use of Federal Rule 23 in mass tort litigation has been at least circumscribed by the U.S. Supreme Court, few, if any, commentators have noted that another reason why lawyers do not seek certification of certain mass tort litigations is that they can charge their clients fees that are 50% to 100% higher than what they would be awarded in class actions.
In my essay, I advance the view that lawyer adherence to ethical rules appears inversely related to the financial stakes for the lawyer. This is so, I argue, because fees of the magnitude obtained in non-class aggregate settlements simply overwhelm any proclivity of lawyers to adhere to ethical rules.
To put meat on the bones of my argument, I present a detailed examination of the aggregate settlement in the Phillips Petroleum explosion that occurred in October 1989 -- an aggregate settlement that ultimately resulted in the 1999 Texas Supreme Court decision in Burrow v. Arce, 997 S.W. 2d 229 (Tex.1999). The duplicitous actions by the attorneys for the 126 clients illustrate the powerful influence that a $65 million dollar fee offered in return for signed releases, had on a quintet of very wealthy lawyers and possibly the presiding judge. The implicit question posed -- whether their actions would have been any different if the ALI Principles were in force -- remains an open question.