Mob Bosses in Black Robes IV

In this article, we explain why multidistrict litigation (“MDL”) is unconstitutional and how “resourceful” MDL judges embrace, rather than are deterred by, this fact. Since the BP oil well blowout MDL (“MDL 2179”) is considered to be the gold standard for MDL, it will be used as a case study.

I. MDL 2179 is Unconstitutional

A. Overview

MDL 2179, which employs a victims’ compensation fund on the frontend and a settlement class action on the backend, involves no litigation and infringes individual claimants’ procedural due process rights. The most serious problem with the MDL 2179 settlement class action is that by its nature it does not involve any live dispute between the parties that a federal court is being asked to resolve through litigation, and because from the outset of the proceeding Lead Counsel and BP are in full accord as to how the claims should be disposed of. There is missing the adverseness between the parties that is a central element of Article III case-or-controversy requirement.

In a settlement class action, an agreement to resolve the dispute is reached by the parties involved prior to the district court’s ruling on a motion to certify the class.

In MDL 2179, Lead Counsel and the Plaintiffs’ Steering Committee (“PSC”) attorneys and BP are not adversaries. They are cohorts expeditiously seeking judicial efficiency and the common objectives of closure, limited liability, and profit.

MDL 2179 Lead Counsel and the seventeen MDL 2179 PSC attorneys/dealmakers are privy to the settlement matrix and the confidential guidance document given to the claims administrator, which explains qualifying criteria for recovery. This knowledge allows Lead Counsel and the PSC attorneys to tailor their own clients’ claim submissions to maximize their payout (and Lead Counsel and the PSC attorneys’ contingent fees). This insider information also prompts Lead Counsel and the PSC attorneys to seek and collect co-counsel fees for serving as co-counsel to non-PSC attorneys.

The settlement class action is always unconstitutional because it involves no litigation. A typical class action is legitimate because the interests of the plaintiffs and defendant are adverse. In that scenario, the monetary interests of class counsel, which are contingent on class recovery, are aligned with the absent class members’ interest in maximum redress, incentivizing a presentation of the issues that benefits both equally. These incentives break down in the context of the non-adversarial settlement class action. Because class counsel seeks the same outcome as the defendant, she has no reason to formulate her clients’ arguments or destroy her opponent’s case. Particularly, she lacks incentive to present to the Court evidence that may shed unfavorable light upon the non-adversarial agreement, even though that evidence may reveal critical details about the effect of the settlement on absent class members.

The Court needs to consider class settlements in terms of separation of powers because maintaining the limits of Article III’s “case or controversy” requirements is fundamental for protecting the individual liberties of all. By authorizing a federal court to redistribute resources as a means of enforcing legislative directives absent an adversary adjudication, the settlement class action effectively transforms the Court into an administrative body, which is more appropriately located in the executive branch….and improperly transfers powers reserved to the executive branch to the federal judiciary, in clear contravention of separation-of-powers dictates.

B. Where’s the Case or Controversy in MDL 2179?

“Centralization may also facilitate closer coordination with Kenneth Feinberg’s administration of the BP compensation fund.”

The Honorable John G. Heyburn II, Chairman, Panel on Multidistrict Litigation, In re: Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico, on April 20, 2010 (Transfer Order, August 10, 2010).

“In February 2011, [only 4 months after I appointed my pre-selected cooperative attorneys to the PSC] negotiations began in earnest for the proposed Economic and Property Damages Settlement. Talks intensified in July 2011, occurring on an almost-daily basis.”

The Honorable Carl J. Barbier, In re: Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico, on April 20, 2010 (Rec. Doc. 7138 at 3, December 21, 2012).

Article III extends federal judicial power solely to the adjudication of a “case” or a “controversy.” “Case,” in Article III, means a justiciable “action or suit,” or an “argument.” “Controversy” means a disagreement or a dispute between parties as to the suit’s preferred outcome. Both a “case” and a “controversy” require an adversarial suit. For a suit to be justiciable, according to the U.S. Supreme Court, the parties must maintain “adverse legal interests” throughout, and their dispute must be “definite and concrete.” The Fifth Circuit has held that Article III plainly “requires that the parties be truly adverse.”

On the most basic analytical level, the unconstitutionality of the settlement class action should be obvious, purely as a matter of textual construction. There is simply no rational means of defining the terms “case” or “controversy” to include a proceeding in which, from the outset, nothing is disputed and the parties are in complete agreement. Moreover, from both historical and doctrinal perspectives, U.S. Supreme Court decisions could not be more certain that Article III is satisfied only when the parties are truly “adverse” to one another, which, at the time the relevant proceeding is undertaken, they are not in the case of the settlement class action.

The most serious problem with the settlement class action is that by its nature it does not involve any live dispute between the parties that a federal court is being asked to resolve through litigation, and because from the outset of the proceeding the parties are in full accord as to how the claims should be disposed of, there is missing the adverseness between the parties that is a central element of Article III case-or-controversy requirement. The settlement class action, in short, is inherently unconstitutional.

The term “collusion,” in the class action context, is used to refer to a secret, unethical agreement between the named plaintiffs and defendant. For purposes of Article III’s adverseness requirement, however, the term has a far broader meaning. It includes any suit in which, from the outset, the parties are in agreement as to the outcome.

Article III proceeds on the assumption that a showing of a lack of adverseness at the outset of a suit automatically establishes the improperly collusive nature of the suit. Article III adopts lack of adverseness as an ex ante, categorical basis on which to find inadequate representation of the interests of future litigants who are similarly situated.

When the plaintiffs and defendant agree on settlement terms and the desirability of certification prior to coming to Court, neither party has the incentive to challenge such important questions as whether class representation is “adequate” or whether the claims are “typical” of the class as a whole. This inherently deprives the Court of the benefit of adversarial litigation concerning the satisfaction of Rule 23’s requirements, thereby seriously limiting its ability to protect absent class members.

In contrast to the case-by-case focus employed by class action scholars, Article III employs a far more categorical and prophylactic conception of “collusion.” Article III makes an ex ante categorical judgment that a non-adversarial suit is inherently collusive and therefore in violation of constitutional norms. As the U.S. Supreme Court in Poe v. Ullman, construing Article III, explained: “The case may not be ‘collusive’….in the sense of merely colorable disputes got up to secure an advantageous ruling from the Court. But the Court has found unfit for adjudication any cause that ‘is not in any real sense adversary,’ that ‘does not assume the honest and actual antagonistic assertion of rights’ to be adjudicated – a safeguard essential to the integrity of the judicial process, and one which we have held to be indispensable to adjudication of constitutional questions by this Court.” 

The settlement class’s fundamental constitutional defect is that all settlement classes – not merely those involving unethical attorney behavior – are, by definition, non-adversarial. An adversarial dispute cannot be said to exist at the time the class action proceeding begins. At that point, the litigants differ over absolutely nothing. They have agreed on the terms of both certification and settlement prior to the filing of the class proceeding. In fact, the only conceivable reason that class counsel in this position files a complaint and request for certification with the Court, rather than simply embodying the terms of their private agreement in an enforceable contract, is to bind absent class members to a settlement negotiated in their absence. 

C. Where’s the Due Process in MDL 2179?

“All motions, requests for discovery or other pre-trial proceedings with respect to plaintiffs shall be initiated by and/or coordinated through the Plaintiff Steering Committee (“PSC”), to be filed by and through Plaintiffs’ Liaison Counsel. If the PSC does not support the motion, discovery or other requested proceeding, then the moving or requesting plaintiff shall be permitted to file such motion or request, but shall include a certificate of non-support.”

The Honorable Carl J. Barbier, In re: Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico, on April 20, 2010 (Rec. Doc. 569 at 13, October 19, 2010).

“….all pending and future motions, including the Motions to Remand, are continued without date unless a motion is specifically excepted from the continuance by the Court.”

The Honorable Carl J. Barbier, In re: Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico, on April 20, 2010 (Rec. Doc. 676 at 1, November 5, 2010).

“Any individual plaintiff who is a named plaintiff in a case that falls within Pleading Bundle B1, B3, D1, or D2, or any combination thereof, is deemed to be a plaintiff in the applicable Master Complaint(s)….All individual petitions or complaints that fall within Pleading Bundles B1, B3, D1, or D2, whether pre-existing or filed hereafter, are stayed until further order of the Court.”

The Honorable Carl J. Barbier, In re: Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico, on April 20, 2010 (Rec. Doc. 983 at 2, 4, January 12, 2011).

Each claimant in an MDL has an individually held, constitutionally protected property right at stake. Those rights are guaranteed by the Fifth Amendment, which protects life, liberty, and property against deprivation absent due process of law. The “property” at stake in an MDL is the “chose in action.” This historically established concept refers to the right to sue to enforce a legally protected claim, even the unlitigated right to sue. Under the Fifth Amendment, then, MDL claimants cannot be deprived of their rights to a chose in action without due process of law.

In MDL 2179, individual litigants, for all practical purposes, lose a substantial degree of control over the procedural fate of their claims. In sum, MDL 2179 fails to provide a constitutionally adequate opportunity to litigate.

The so-called “day-in-court ideal” is at the heart of constitutionally guaranteed procedural due process, according to the U.S. Supreme Court, and is central to the American conception of the adversarial model of litigation. MDL 2179 severely undermines the day-in-court ideal by depriving individual litigants of their opportunity to protect their interests through the litigation process.

The right to one’s own day-in-court means a right to meaningful control over litigation strategy and goals, including choice of legal representative. It requires a full and fair opportunity to litigate, which means a full opportunity to prepare one’s own arguments and evidence. At base, meaningful participation in the adjudicatory process – the day-in-court ideal – includes, in the words of a respected scholar, “the right to observe, to make arguments, to present evidence, and to be informed of the reasons for a decision.”

The U.S. Supreme Court has identified the “two central concerns of procedural due process” to be “the prevention of unjustified or mistaken deprivations and the promotion of participation and dialogue by affected individuals in the decision making process.” The day-in-court ideal takes account of both of these concerns. First, an individual day-in-court helps achieve accurate outcomes (thus avoiding “unjustified or mistaken deprivations”) because the stakeholders, those who will be most affected by the outcome and are the most motivated to protect their own rights, participate in the decision-making process. In addition, individual participation is inherently valuable in a democratic system because it legitimizes the adjudicating entities in the minds of the litigants.

On the surface, MDL practice seems largely innocuous; the JPML merely temporarily transfers cases to a different district court for pretrial matters. But for a variety of reasons transfer effectively amounts to the end of the road for the overwhelming majority of cases. This is troublesome from a constitutional perspective, because not even the most minimal protection of the day-in-court ideal from the perspective of either the paternalism or autonomy models is satisfied.

MDL 2179 plaintiffs in no sense meaningfully participate in, much less control, their day-in-court. Nor are there any assurances that those in charge of the litigation are adequately representing the interest of the individual claimants.

One key way that litigants control their day-in-court is by selecting their attorneys. This is often the first expression of their autonomy: they seek the advice of counsel when they consider whether to even file a claim.

Permitting litigants to choose their representatives is central to providing a full and fair opportunity to litigate. The foundations of due process dictate that that choice belongs to the parties alone. But claimants forced into an MDL are deprived of that essential choice. By virtue of his case’s transfer into the MDL – a move that the plaintiff cannot prevent – his chosen lawyer will invariably not be the one actually representing his interests in the course of all the important MDL. Rather, the lawyers on the court-appointed steering committee will take over, and they will do so without the protective assurances of either there adequacy, their good faith, or the extent to which the interests of the absent litigants truly overlap or any other controls.

When an MDL judge appoints a steering committee, he does so at his discretion, outside the strictures of any Federal Rule, or statute, or adversary proceeding. Appointment to the steering committee comes after nothing more than a judge-designated period of nominations and written objections. The process fails to guarantee that the appointed representatives will zealously advocate on behalf of absent litigants in the same way that their hired representative presumably would have. This is certainly the case in MDL 2179.

In addition to the fact that appointed counsel are selected by the Court, rather than by the individuals they represent, MDL claimants do not enjoy a traditional attorney-client relationship with the members of the court-appointed steering committee. The small group of attorneys chosen for leadership roles is charged with representing all of the possibly thousands of plaintiffs, whose cases have facts that are often only loosely linked.

In consolidated proceedings, the attorney’s loyalty divides not only between clients, but also between clients and self-interest. Compensation for attorneys who work on behalf of the group depends upon the value of every plaintiff’s settlement or judgment. As a result, PSC attorneys may push hard for settlement as opposed to remand, prefer a quick settlement in favor of a protracted discovery period, or advocate for settlement terms that may not be particularly favorable to some or many plaintiffs. The First Circuit has acknowledged existence of this “inherent conflict of interest” between the PSC and individual plaintiffs in mass-tort MDLs.

MDL 2179 falls far short of providing the “deep-rooted historic tradition” of an individual’s day-in-court. At the most basic level, MDL 2179 Plaintiffs are not given a meaningful opportunity to present their case(s), as demanded by the Due Process Clause.

II. Fraudulent Inducement and a Secret Cap of $20 Billion on Settlements in MDL 2179

In addition to MDL 2179 being unconstitutional, the MDL 2179 plaintiffs/claimants were also victims of fraudulent inducement and a secret cap on settlements. 

A. Fraudulent Inducement

On November 10, 2014, Defendant Barbier states,

“….as the parties were approaching the final fairness hearing in November 2012, there was a concerted effort by the parties and claims facility to process a substantial number of high value claims in order to demonstrate that the settlement program was working as intended…BP and Class Counsel were aware of the push to resolve claims, as was the Court. Although some of these claims were for clients of PSC members, according to Mr. Juneau over 60% of the claims were for clients of non-PSC attorneys….While the Settlement Agreement in general terms provides that claims will be processed in the order in which they are received….there is no evidence that the Claims Administrator acted improperly in this regard.”

The Honorable Carl J. Barbier, In re: Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico, on April 20, 2010 (Rec. Doc. 13635 at 3, November 10, 2014).

In sum, the parties secretly conspired to inflate the amount of compensation received by some plaintiffs (just prior to the “fairness” hearing) in order to induce the remaining plaintiffs into believing that the proposed settlement is “fair, reasonable, and adequate.” Fraudulent inducement is not a procedure which is well within a Court’s discretion when it conducts a fairness hearing.

B. A Secret Cap of $20 Billion on Settlements

Unbeknownst to the victims of the BP oil well blowout, MDL 2179 Lead Counsel and BP made the business decision to have BP pay a total amount of $20 billion to compensate all the BP oil well blowout victims under the “Economic Settlement” and the “Medical Settlement” (collectively, “the Settlements”).

On October 25, 2016, the Honorable Carl J. Barbier states, “In December 2015, Magistrate Judge Wilkinson estimated the total claims payout from the Economic Settlement when he allocated amounts under the Transocean and Halliburton Settlements. Judge Wilkinson’s estimate was $10.825 billion. Judge Wilkinson’s estimate appears to be based solely on projected payments under the Economic Settlement, and does not appear to include Seafood and Tourism Promotional Grants, Transocean Insurance Proceeds, Medical Settlement benefits, administrative costs, notice costs, or common benefit attorney fees. Considering the foregoing, the Court finds that a conservative estimate of the total value of the Settlements is $13 billion.”

In October 2016, approximately $6.2 billion had been paid out under the GCCF. Judge Barbier could not predict, on October 25, 2016, that the total amount that will eventually be paid by just the Deepwater Horizon Claims Center is $13 billion unless Judge Barbier knew Defendant Herman and BP made the business decision to have BP pay a total amount of $20 billion to compensate all the BP oil well blowout victims in the settlement class action ($20 billion – $6.2 billion – $0.6 billion in attorneys’ fees yields an estimate of $13 billion).”

Conclusion

Justice Souter, in delivering the opinion of the Lexecon Court, explained, “If we do our job of reading the statute whole, we have to give effect to this plain command, see Estate of Cowart v. Nicklos Drilling Co., 505 U. S. 469, 476 (1992), even if doing that will reverse the longstanding practice under the statute and the rule, see Metropolitan Stevedore Co. v. Rambo (1995) (“Age is no antidote to clear inconsistency with a statute.” (quoting Brown v. Gardner, 513 U. S 115, 122 (1994))). The language is straightforward, and with a straightforward application ready to hand, statutory interpretation has no business getting metaphysical.”

There is no justification for allowing multidistrict litigation to continue to be unconstitutional.

There is no justification for allowing a judicial system, which is intended to protect victims of mass torts, to engage in fraudulent inducement and a secretive cap on settlements.

It’s time for MDL judges to focus on justice for the plaintiffs rather than merely judicial efficiency. “MDL Judges” should not be perceived as “Mob Bosses.”