Multidistrict litigation is unusual in one sense. It is a step between a class action lawsuit and victims filing individually. In other words, it lies in the middle between everyone working together and all plaintiffs being on their own. The cases work together for purposes of discovery in order to introduce efficiencies to each of the cases. It would make litigation impossible if thousands of plaintiffs each had to go through their own document requests and depositions. While each case in an MDL is decided on its own, there are some common elements between all of the cases. When it comes to the decision making process, there is something called a plaintiff’s steering committee (PSC) that works together to make key decisions and speak on behalf of all of the plaintiffs and their attorneys.

common benefit fees-MDL

How do costs get paid in an MDL?

What do the Plaintiff Steering Committee Attorneys do in an MDL?

The PSC performs vital tasks on behalf of all of the plaintiffs, even though each of their cases proceeds separately in court. The PSC’s responsibilities are very important in the area of discovery. It is the PSC who conducts discovery on behalf of all of the plaintiffs.

Discovery is a very detailed and expensive part of the litigation. The PSC must come up with the document requests to make of the defendant and then must organize and store all of the documents that they receive. When it comes to mass torts, you are possibly dealing with millions of pages of documents, and cataloging and storing them is difficult. There is an entire process that must happen before each of the cases are ready for trial. This may include depositions and drafting and arguing motions before the court. You can see how the costs of all of the work that must be done before the trial add up quickly. There may be millions of dollars of expenses that accrue before one case even goes before the jury. Oftentimes, discovery can occupy dozens of attorneys and support staff for years before one witness is even called. In mass torts, the figure can be even higher.

The PSC Attorneys Are Paid from Settlement Funds or  Jury Award

The common benefit fund means that the plaintiffs who funded all of these initial expenses and investments are paid back for everything that they laid out in the case. The goal is to make the people who put out a large amount of money whole and to ensure that everyone ends up contributing their share to the common expenses for the case. These outlays can be considerable, especially in large multidistrict litigations with thousands of  individual lawsuits. When every plaintiff benefits from the work that someone else advanced the money for, they should pay for it. The pool of discovery is available to every plaintiff to use for their own MDL case.

This applies to multi-district litigation and to class action lawsuits. In a class-action lawsuit, the issue of fees is much easier to handle. The court simply approves or denies the motion of the attorneys in the case to receive a certain percentage of the settlement for their effort and expenses. However, when multidistrict litigation is at issue, there is no one pool to deduct the PSC’S expenses from because each case has its own verdict. In other words, there are different challenges when looking at common benefits in multidistrict litigation.

The Common Benefit Doctrine Is a Principle of Fairness

The common benefit doctrine emerged from one solitary United States Supreme Court case in 1881. You can think of it as legal doctrine that was made up by judges as opposed to being a part of written law. Courts will occasionally craft their own legal rules when they think that it is necessary to avoid injustice. The Supreme Court case was called Trustees v. Greenough. A bondholder brought a lawsuit on behalf of himself and all of the other bondholders against a fund that was alleged to be selling its assets as cut-rate prices. The large bondholder was eventually successful, and all of the bondholders received a benefit from his efforts.

Paid back for everything that he sunk into the litigation?

However, the issue arose in court of whether the person who filed the lawsuit should be paid back for everything that he sunk into the litigation. For the 1870s, his costs and legal fees cost him a small fortune and he wanted to be paid back for what he advanced for the litigation. The bondholder was awarded $60,000 in the case to compensate him for his time and expenses, but that issue was soon taken to court. The Supreme Court came down on the side of the bondholder.

In its decision, the Supreme Court discussed all of the effort and money that the man invested in this case. The Court also cited how everyone benefited from what the bondholder did. In essence, the other people who received the benefits of the man’s labor and investment would gain an unfair advantage over him. Where this is different from the traditional legal doctrine in the U.S. is that usually, each party pays for its own legal costs. Here, it is not the defendant who is paying for the plaintiffs’ costs, but each plaintiff is paying for one of the other plaintiff’s costs.

Theory behind the common benefit doctrine is one of fairness

The theory behind the common benefit doctrine is one of fairness. Courts want to make the person who invested the money in expenses to be compensated for the money that they put out on behalf of everyone. In other words, it would be unfair for one person or group of people to invest extensively for a benefit enjoyed by a number of people when others do not end up contributing.

You may have heard of something called the “free rider problem.” This is what happens when someone benefits from services that someone else has paid for to which they do not contribute. They use the public good but do not pay for it. Ultimately, this problem would keep people from investing in something if they know others can piggyback on it without paying their fair share.

Free riders

There is an injustice that is done if one person risks their money and effort and they are not paid back when there is a recovery. This would mean that their share of a settlement or award ends up being less because it is adjusted for their out-of-pocket expenses. If someone would pay out money for the sake of litigation and not be paid back, the rest of the claimants would essentially become free riders.

How Does a Common Benefit Fund Work?

Now that you know what a common benefit fund is and the theory behind it, you will want to know some information about how the fund works and how it may be applied to your own case. The first thing to understand is who pays the common benefit fund fee.

The important distinction between an MDL and a class-action is in who pays. In a class-action, the attorney’s fee is deducted from the overall settlement amount. In other words, it comes out of the pocket of each plaintiff in the case because the amount of their recovery is reduced by the amount of the attorney’s fees. In an MDL case, the common benefit fee is assessed on the attorney for each of the claimants. Specifically, the amount that each plaintiff receives remains the same notwithstanding the common benefit fund. Traditionally, an attorney who is working on contingency will receive roughly one-third to forty percent of a settlement or verdict. Here, they will end up receiving less than one-third because theoretically, they have not done the same amount of work that they otherwise would have.

Discovery can consume thousands of hours

For an attorney, the PSC is doing a lot of the work that the claimant’s attorney would have done if the case were completely individual. Discovery is actually a major part of an attorney’s work and can consume thousands of hours on a major case. If the attorney was not paying for the common benefit out of their own contingency money, they would otherwise be getting something for nothing. Here, courts will be involving themselves in the fee arrangement between each client and their attorney. The court may end up adjusting the fee as they see fit when administering common benefit funds. However, this should not impact the client in the case and the amount that ends up in their pocket.

The Three Ways of Calculating Common Benefit Fund Fees

Courts can use a variety of different methods to conduct what is owed in common benefit fees. There are three primary methods that a court can use. Here is a little more information about each of the ways of calculating the common benefit assessment.

The Lodestar Method

The Lodestar Method – This would involve tallying up all of the hours that the PSC attorneys spent working on the case. Then, it would be multiplied by an average hourly rate. This would come up with the total amount they are owed. Then, the attorneys for each of the plaintiffs would be assessed their share of this amount. In addition, the fees and expenses advanced by the attorneys during the litigation may also be added to the amount that the lawyers would be paid.

The average hourly amount is not as cut-and-dry as it seems. This is because it is not that particular lawyer’s hourly rate, but the rate of an average experienced attorney in the region. That rate may then be adjusted based on a number of factors.However, it takes a lot of work for the court to oversee this particular method. In addition, many cases where the lodestar method has been used have resulted in protracted court proceedings. The PSC lawyers understandably want to be paid as much as possible for all of the work that they put in while all of the rest of the attorneys want to minimize the amount that comes out of their share of their client’s verdict or settlement.

The Percentage Method

The Percentage Method – In their search for a “cleaner” and less difficult method to administer, some courts have opted for a method that simply gives the attorneys a percentage amount of the total award recovered. One of the benefits of this approach is that it does not encourage inefficiency in that the lodestar method encourages attorneys to spend as many hours as possible on the case because it will increase the amount that they are paid,

The customary percentage that attorneys have been paid in common benefit funds is between 4-6%. The PSC attorneys should have a sound justification if they are asking the court to award them more than that as judges have become used to fee awards in this range and will very quickly question it if the attorneys are looking for more. Even if the attorneys are asking for a common benefit fund award within this range, the attorneys must still be prepared to defend it because, as you will see below, even this award may be challenged.The Hybrid Method – Some courts may use one or more elements from both of the above approaches to calculate common benefit fund fees. Alternatively, the court may use the lodestar method, but also use the percentage method as a check on their work to make sure that the PSC attorneys are not recovering too much or too little.

Courts Lay Out the Framework Early

In general, most courts will at least set the parameters for the common benefit fund towards the beginning of the litigation in order to manage the expectations of the parties and to make sure that the PSC attorneys know what to expect. While the court will not determine the specific award, they will generally inform all of the parties what method will be used to calculate the fees and what costs incurred by the PSC may be paid back out of settlement funds. This will generally happen before the PSC attorneys begin to rack up large bills in cases.

Having some predictability early is important for everyone. Many PSC attorneys simply cannot afford to lay out the amount of money that they do without being compensated so they turn to litigation financiers to obtain money to help them get through the litigation. Knowing the parameters of common benefit fund fees will help them get financing should they need it.

Common Benefit Fees Are Often Disputed

As you can imagine, the assessment of the common benefit fee and how all of the costs are apportioned may end up causing disputes among the various plaintiffs. This is a case where not everyone’s interests are aligned. The attorneys for the PSC want to be paid for their efforts while the attorneys for the individual plaintiffs do not want to have to pay too much to another attorney out of the recovery they feel that they earned.

Many disputes about common benefit funds end up in front of the presiding judge for a ruling. It is the court that has the ultimate authority to apportion the fees, and the judge will end up deciding exactly how much the PSC’s lawyers get and what each individual attorney will need to pay to the fund. Oftentimes, these disputes can be drawn out and take time to resolve. In many cases, someone ends up unhappy and initiating the legal action. Sometimes, both the PSC attorneys and the plaintiffs’ lawyers think they are getting the short end of the stick. When money is involved, the dispute between the parties can get messy.

The Coloplast Common Benefit Fee Dispute

This is exactly what happened in the Coloplast litigation when the matter of the common benefit fund assessment went in front of the judge to decide.

Coloplast made mesh to treat pelvic organ prolapse in women. As you remember, transvaginal mesh ended up being one of the more dangerous and ill-fated medical devices of all-time and has sparked billions of dollars in claims by women who have been injured by the defective implant. The makers of these devices have had to pay small fortunes in settlements because their products have been proven to be defective.

The litigation over this product went on for years

The litigation over this product went on for years. In some cases, there are still pelvic mesh product liability trials occurring. Here, the PSC’s lawyers asked for the court to order a flat fee of five percent of all of the settlement and jury verdicts in Coloplast cases. Note that this is 5% of the overall award as to 5% of the attorney’s fees. This works out to a little more than 10% of the attorney’s fee if they are on a contingency rate of 40%, as many attorneys are in a mass torts case. Obviously, this was a court that was using the percentage method to compute the common benefit fees while also using the lodestar methods to check its work. Three of the plaintiffs’ attorneys objected to the request, believing that it was excessive. At a certain point, the court elected to wade into the dispute and consider the matters raised in the filings.

Three attorneys objected out of the 104,000 court cases

In the end, transvaginal mesh lawsuits against different makers of the product were consolidated into one MDL. The judge in the case set the stage for the decision by detailing the efforts of the PSC’s lawyers in a sprawling litigation. The judge described the countless depositions and the massive scope of discovery that was made available to all of the plaintiffs and their attorneys. The court also further noted that only three attorneys objected out of the 104,000 court cases that were a part of the MDL. Finally, the court also detailed how each of the plaintiffs received a record that they were able to use to build viable legal theories.

Based on the above, the judge granted the PSC’s lawyers request to be granted five percent of the total recoveries in the case. This is not the end of the story. In looking at the court’s decision, one can get a flavor for how the court approaches these types of issues.

Here, the court looked first at the scope and complexity of the litigation. In this case, the court noted that the PSC attorneys spent over 900,000 hours working on the case. This led to over $7 billion in recoveries at the time that the decision was issued.

In deciding whether 5% was the proper award for the PSC attorneys, the court used a four-part analysis. The steps were as follows:

  1. The value provided by the common benefit that the attorneys furnished – The court looked at the percentage of the recoveries for all the plaintiffs that was brought about by the work of the PSC attorneys. Here, the court extrapolated that the cases would settle for a total of $11 billion.
  2. The court then tried “to arrive at an independent and justified reasonable percentage” for the attorneys. The judge looked at other mega tort cases and concluded that 5% was the usual percentage that the PSC attorneys received in these cases. Thus, the court concluded that the 5% request was not unreasonable.
  3. The judge looked at something called the “Barber factors” to further analyze whether 5% was a reasonable award for the PSC attorneys. These are 12 different factors that look to the facts of the work that the attorneys did.
  4. Finally, the court looked to the lodestar method as a cross-check for its determination that the percentage awarded was reasonable. The court totalled up the hours spent for the common benefit and then multiplied by a reasonable hourly rate. Then, the court applied what is known as the “lodestar multiplier.”

The court then considered specific objections made by certain attorneys in the case and failed to find that they were enough to overrule the 5% request by the PSC attorneys. As a result, the attorneys were awarded $366 million from the amounts recovered and would receive 5% from future recoveries.

Who Pays the Common Benefit Fund Assessment?

While some may say that this issue is cut-and-dry, there is some nuance to this answer. There are two different parts of the money to which the PSC attorneys are entitled. The first is to reimburse them for all the time and effort that they have put into the case. The second is to reimburse them for the expenses that they have advanced. When a case involves hundreds of millions of dollars of legal effort, there are also costs such as travel and even investments in legal technology. In this case, some lawyers pay these costs out of their own fee while others expect the client to pay for it out of their recovery. Whatever the lawyer does in this regard must be spelled out in the representation agreement ahead of time.

Given the growing number of mass torts that are finding their way to multidistrict litigation, disputes over common benefit fund fees are becoming more common. Now, there is a growing body of case law that addresses the issue, although each judge will be able to make their own decision. Many cases now seem to fall into the 4-6% range for common benefit fees. In this regard, the common benefit assessment in the Coloplast case was not out of the ordinary. In the upper end of the range, there was one case where the PSC counsel were paid 18% of the settlement amounts. However, this is a rare case, and this type of fee is the exception rather than the norm.

In some cases, the court approves the request by the PSC attorney

Another thing that has become apparent is that there is no set procedure for courts to address common benefit fund disputes. In some cases, the court simply approves the request by the PSC attorney for a certain percentage of compensation and then the bill is presented to the other attorneys. In other cIases, the court’s decision will be the subject of a hearing. Another area where there is variance between courts is when this fee is assessed. Some courts will declare this fee earlier in the case. Then, the settlements will be subject to a holdback to pay the PSC attorneys, Other times, a court will decide on the amount towards the end of the case.

In the future, the common benefit fund process will be aided by transparency, especially on the part of the PSC attorneys. Communicating the scope of their efforts and their expenses may help reduce some of the opposition to the fee that they are requesting. It may also be helpful if the court sets the percentage or the compensation earlier in the process. The court should consider the individual elements of the effort put forward by the PSC attorneys and their expenses. While 4-6% has become close to the norm, participants should recognize that certain cases call for different distributions. In other words, there is no one-size-fits-all approach to common benefit fund fees.

Current Common Benefit Fund Issues

One of the largest multidistrict litigations in recent memory are the opioid lawsuits. States as well as thousands of cities and counties have sued the makers of these highly addictive substances to pay for the overwhelming costs of the opioid crisis. Settlements worth billions of dollars have been negotiated with these makers. Purdue Pharmaceuticals, one of the major manufacturers of opioids in the United States, entered into a settlement of claims that resulted in its bankruptcy and a multi-billion payment to plaintiffs.

Here, the cities and counties hired private lawyers to represent them in the multidistrict litigation. In addition, state attorneys general negotiated their own settlements. Now that the cases have been settled, the private attorneys representing the cities and counties have submitted their bill for their efforts and have asked the court to establish a common benefit fund to pay them for their efforts.

The major issue here is that the private attorneys who represented the municipalities and counties have interests that are competing with the state attorneys general. The states claim that the common benefit fund request will get in the way of their negotiations with the opioid sellers. The other issue is that the law firms have likely been backed by hedge funds and others who finance litigation. They now own a piece of the settlement and they would like to be paid now for their investment.

The plaintiffs’ attorneys have asked for a common benefit fund of 7% for their efforts. This is higher than the usual 4-6% that the PSC attorneys receive as a common benefit fund. Predictably, the judge has questioned this fee request and has directed the attorneys to justify the fee that they are seeking as well as answer other questions.