The Kentucky fen-phen case and the case for transparency.

In today's Wall Street Journal you will find an editorial on the disturbing case in Kentucky where three trial lawyers have been under intense scrutiny as a result of a state court civil suit that claimed they had withheld up to $62 million in settlement proceeds for 414 plaintiffs in the American Home fen-phen settlement.

You can read the entire commentary here and find links to prior reporting at the bottom of the article.

While I will admit I know little more then what I read in the papers and online about this case, the facts as laid out at the trial are disturbing to any settlement professional or trial lawyer who works in the mass tort arena. Essentially, the attorney's involved petitioned the state court for the extra compensation to "compensate for the incredible risks they took" and for various "administrative headaches." Unfortunately for all parties involved, the judge who approved these extra payments subsequently ended up being paid $5000 a month to be a director of the charity established by the three attorney's in question, and despite eventually returning those payments, his objectivity is obviously called into question.

As anyone who works in Mass Tort cases will tell you, they are exceptionally time consuming, expensive, administratively difficult and the potential for confusion and miscommunication with clients is huge. Every major mass tort firm spends millions on administrative overhead, hiring consultants and others to try and move cases through the system, but in this particular case 414 plaintiffs really isn't a big number for a firm to handle in my opinion if there was a plan in place to manage the case properly from the start.

Which brings me to my point, which is that most major mass tort firms do a really poor job at the onset of a case to develop a fully transparent and client friendly method of communicating what is going on with the case, determining which clients have specific or special needs that could slow down settlement at the case conclusion and how to allocate claims among the group once funds are received. In case after case that I've watched become a problem over the years, the single biggest mistake is the failure of the trial lawyers to establish a 468b qualified settlement fund early in the game and to engage experts to sort through Medicare, Medicaid and probate issues in the months and years it takes to settle or litigate a mass tort.

Why is this? Three reasons:

1. They have not adequately educated themselves as to how a 468b settlement trust works, why it needs to be in place early and who should be handling it for them. In almost every case the attorney's throw together a 468b trust at the very end of the case simply to receive funds but with no clear plan as to how to optimize it to handle client issues, pay legal fee's and expenses and most importantly, bring total transparency to the settlement process and remove the temptation of a trial lawyer or anyone else to game the system on fee's, expenses and payouts.

2. If they do want a 468b settlement fund they often don't know where to turn to find a settlement firm that isn't working with the defense that has practical experience in multi-claimant cases and knows how to shepherd this through the legal system in a seamless fashion. Basically, there are a lot of pretenders who say they know how to use a 468b fund, but have never actually done a mass tort or multi-claimant case using one. They don't have a team that can handle document creation, trust administration, client communication, etc, and the trial lawyers know it.

3. The attorney's are more comfortable with the unworkable mess that they already have, but know and understand, then they are trying something new that they don't understand. This again goes back to education of judges, trial lawyers and defense firms. If every time you are going to propose the use of this mass tort tool you run into constant obstacles and objections that are based on a total lack of understanding, it is the rare settlement professional who is going to slug away and get their clients to do the "right thing" if they feel that by pushing this they might antagonize their client attorney and lose the case all together.

Bottom line is this. In order to avoid any more mass tort fiascos where attorneys get paid too much, funds are held up in settlement for months and years and clients are prevented from structuring their payments due to a lack of a 468b being in place, the settlement industry has to do a better job of educating both defense and plaintiff counsel as to why these settlement trusts are mandatory on mass tort cases, and get past the commission control issue for the sake of our industry. The Kentucky case made the headlines, but there are a lot of other cases out there where mistakes were made, structures were lost, benefits were lost and people got less money due to our industries failure to educate our clients and promote this concept on a wider level.  

Posted on August 20, 2007 .