Breast implant litigation and the case of the 1.5% problem.

While it's been a slow summer in the Mass Tort arena there have been some headlines that have caught my eye, and upon examination further illustrate why there needs to be a fundamental reworking of the settlement process to avoid the mountains of headaches caused by the Payment of claims in mass torts.

The first case, which has gotten a lot of coverage is the Phen-fen case in Kentucky where a Federal judge actually ordered jailed three trial lawyers embroiled in a controversy over the under payment of claims, and over payment of fee's to the attorneys. I've reported on it here on the blog and you can search the archives to bring yourself up to speed. My point in those commentaries was that if a 468b Qualified settlement fund had been implemented at the time the case was brought, and the funds had been kept under the supervision of a third party trustee for the clients from day one, I have little doubt that the people who appear to have been badly treated by the Kentucky 3 would have gotten a much fairer, more transparent and expedited payment. There are too many mass tort cases where a single firm has hundreds, if not thousands of clients on a mass tort, and when the funds are paid out they go into the equivalent of an IOLTA account pending distribution.

The second case, which was the victim of some truly atrocious reporting by some hack columnist from Townhall.com, she was the chairman of the Chamber of Commerce national litigation project as I recall, slurred Attorney John O'Quinn over a recent arbitration panel decision that decided he needed to pay $35.7 million in damages to his clients in the breast implant litigation and settlement. This hack lumped Attorney O'Quinn in with the corrupt attorney's from Kentucky, when the circumstances beyond the headline of the $35.7 million over charge where a totally legitimate issue of how are case expenses to be allocated among thousands of clients in a mass tort where the recovery for his clients was literally in the hundreds of millions.

What just annoys me to death is that the arbitration panel was looking into Attorney O'Quinn's attempt to equitably spread case expenses among clients by deducting 1.5% from each clients recovery, and they referred to this as a " very close to perfect solution" and admitted that mass tort attorneys have struggled for years to find a fair and reasonable mechanism. Of course the columnist just lumps him in with no explanation or reporting with potential criminals instead of pointing out that Attorney O'Quinn had attempted to find something that was as fair as possible for all members of the class. As he was quoted, " This all happened because when I executed fee agreements I didn't specifically state i'll deduct 1.5% in expenses upon recovery, and thats a little bit over the top." You can read an excellent summary on this case by clicking here. How could a mass tort trial lawyer know what the expenses of the case are going to be upon sign up, and how can this not be an equitable solution. I suspect this ruling will be appealed but in the bigger picture, lets think about how this could have been avoided.

If, as I have done on other multi-litigant cases, a 468 QSF had been established at the onset of litigation, with language that anticipates issues such as unknown case expenses, recovery formula's, allocations for clients, governmental or other liens, etc, the funds at settlement could have been paid into the trust and a rational plan for allocation, expense payment and fee's would be reviewed and approved by a neutral third party in a court of appropriate jurisdiction. On top of it while this was going on the clients could consider settlement options, negotiate lien resolution, design settlement trusts for managed funds or handle probate matters all with out constructive receipt of the funds. I doubt that if a judge over seeing a 468b was presented with this fee allocation of 1.5% and a rational explanation and accounting of expenses that they would have even blinked an eye. The problem was the lack of language in the fee agreement upon engagement, however, with proper coordination with a settlement professional who knows and understands mass torts you would be sure that fee language, options and rights matched the fact that a 468b fund for this attorney's clients was anticipated and that the allocation issue would be covered.

Unfortunately for Attorney O'Quinn and other trial lawyers, the settlement community has done a generally wretched job of using the 468b trust and QSF to assist in the management of mass tort claims. The result has been clients with excessive expenses charged, loss of governmental benefits, failure to consider structured settlement options and probate entanglements. Attorney's have had fee's tied up for months and years after a mass tort payment, all because my industry is reluctant to use this tool because it tends to remove defense opportunities to structure annuities. What a short sighted failure on the part of all parties involved.

By the way, we did a great video podcast with Attorney O'Quinn a few months back. You can watch it again by clicking below. As i've said before, if you had to go to central casting and get " A Texas trial lawyer", Attorney John O'Quinn would fit that bill. Check out the interview, I think you'll enjoy it.  

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Posted on August 25, 2007 .