Selection and Compensation of Counsel in Multi-District Litigation

1. Selection and Compensation of Counsel in Multi-District Litigation Professor Samuel Issacharoff New York University School of Law Judge R. David Proctor Northern District of Alabama 2012 Transferee Judges Conference Palm Beach, Florida October 23, 2012

2. Overview • Selection is one of the most critical early decisions an MDL transferee court will make • Few decisions by the court in complex litigation are as difficult and sensitive • Reality is that the appointment of designated counsel often will alter the usual dynamics of client representation in important ways • Complex litigation often involves numerous parties with common or similar interests but separate counsel

3. Overview (cont’d) • A lot of cross currents in selecting counsel • Often intense competition between counsel for appointment • Judges must be comfortable with the selection • Attorneys have legitimate concerns about whether their clients' interests will be adequately represented and whether the case will be handled well and efficiently • There is a direct connection between selection and compensation

4. FRICTION POINTS • The incentives to secure a leadership position are obvious: potential fee awards, the experience it generates, along with prestige and marketing opportunities • “[D]efense attorneys can expect plaintiffs’ attorneys to jockey for the position of lead plaintiffs’ attorney. For many of the litigations potentially appropriate for centralization, that position is simply too valuable to ignore, . . . . Defense attorneys can take advantage of fractures in the plaintiffs’ line caused by their attorneys’ jostling. Defense attorneys presenting a unified front on a particular centralization proposal stand a better chance of prevailing over disorganized plaintiffs’ attorneys.” • Lawrence G. Cetrulo et al., Federal MDL Centralization: The Mystique of the Process and Why It Matters, For the Defense, March 2011, at 86

5. BALANCING OFINTERESTS • Plaintiffs’ counsel: • Must acknowledge that courts have a fundamental institutional obligation to ensure that proceedings before them are fair, regardless of what private arrangements the parties have made • Deferring to proposals by counsel without independent examination - even when they seem to have the concurrence of a majority of those affected – invites problems down the road • The courts: • Must understand that transparency and fairness are critical. • Must be careful to ensure that all interested and capable plaintiffs’ attorneys are given an opportunity to apply for common benefit positions

6. Striking the Right Balance • Up front communication • Notice and opportunity to be heard • Evidentiary hearing • Special Master/Monitor

7. Decision Points for the MDL Transferee Court • Organizational structure • Method of selection of MDL leadership • Role of the court (How active? How much oversight?) • Criteria for selection • Designation of responsibilities • Changes in the composition of plaintiffs’ leadership slate as necessary through augmentation, withdrawal, or disqualification • Compensation of counsel

8. Organizational Structure • Early organization is a critical case-management task • The structure and types of appointments and assignments of responsibilities depend on many factors • The key: achieving efficiency and economy without jeopardizing fairness to the parties • The functions of lead counsel may be divided among several attorneys, but the number should not be so large as to defeat the purpose of making such appointments – efficiency, economy and fairness

9. One Size Does Not Fit All • Simple MDLs • Class action consolidations • Small claims • Pro se claimants • Large MDLs: • Focus of repeat play concern

10. Committees • Committees most commonly needed when: • The scope of work justifies more than one firm’s involvement as lead counsel, or • When group members' interests and positions are sufficiently dissimilar to justify giving them representation in decision making • In the large MDL, the court may consider the following committees: • Steering committee • May not want to have all Alpha dogs on this committee • Have a combination of big picture people and detail people • You need to make sure there is a good brief writer on the committee—lots of Plaintiff's lawyers are not good writers • Discovery committee • State liaison committee

11. Responsibilities and Functions of Counsel • Upon appointment, the court should enter an order (or judicially approve a separate document drafted by counsel) that • Details the functions of lead (and, if necessary, liaison) counsel • The Manual on Complex Litigation (4th ed.) emphasizes the importance of a court order which designates common benefit counsel’s powers and responsibilities • This serves important purposes: • (1) aid in preventing abuses such as overreaching and • (2) encourage important communication with non-common benefit plaintiffs’ counsel • However, it is usually impractical and unwise to spell out these functions in too great a detail

12. Emerging Problem – Counsel Financing • We know many of these cases require huge financial investments • Know who the investors are • Require counsel to disclose all financing sources • Do not want economics of hijacked litigation or settlement strategy affected by third parties who have no stake other than recouping their investment • In certain cases, it makes general sense to give a “new” MDL plaintiff attorney the opportunity to be designated counsel • But if the case requires funding, and they do not have the ability to finance that, must take that into account

13. Some Suggestions from Your Colleagues • • There’s a reason there are no mega-size Plaintiff’s firms • Centralize work in your district • “Deepwater Horizon” MDL (No. 2179): Office suites that essentially operate as a 200 lawyer firm • 90% of depositions taken there • Magistrate Judge (and less frequently) District Judge can “visit” and help resolve issues • Single best resource for evaluating lawyers – other judges • • Particularly judges in their home district • Ask the lawyers you know about other lawyers, too • • Those opinions don’t control, but they are helpful

14. Some Suggestions from Your Colleagues (cont’d) • After appointment, meet monthly with designated counsel • Hold leadership accountable to do the work • Make sure they are the ones doing the work • Make sure that efficiencies aimed for are being achieved • Consider one year terms of appointment • Encourage counsel to reapply • Great incentive to make sure they are continuing to do the work • • Do not hesitate to reconstitute the leadership group (or position) if necessary • Make sure the leadership understands they have some fiduciary duty to parties and other counsel • Some counsel are terrific attorneys but terrible leaders • No Lone Rangers

15. Importance of Careful and Independent Review • The MDL court should • Invite attorneys to submit applications • Engage in an "independent review" of submissions • Ensure that counsel appointed to leading roles are qualified and responsible • Ensure that counsel appointed will act fairly, efficiently, and economically • Ensure that counsel appointed will fairly and adequately represent all of the parties

16. Factors in Selection of Counsel • Some of the factors a MDL court may want to consider: • Qualifications, functions, organization and competence • Clear and satisfactory guidelines for compensation and reimbursement • Arrangements for coordination among counsel - fair, reasonable, and efficient • Ability/willingness to fairly represent the various interests • Ability/willingness to commit adequate resources to the litigation • Resources, commitment, and qualifications to accomplish the assigned tasks • Ability to command the respect of their colleagues and work cooperatively with opposing counsel and the court • Full disclosure of all agreements and understandings among counsel • Experience in similar roles in other litigation • Personal antagonisms during prior proceedings – effectiveness in the present case • Compensation

17. Selection Process • Application forms • Common form to facilitate comparisons • Judicial review of candidates • Paper applications only • Personal interviews • Use of Facilitator • Client or local counsel involvement in selection • Proposed slate with notice and comment

18. Selection Criteria and Risks • Experience • Can lead to repeat players only • Resources for case management • Can squeeze out smaller firms or new attorneys • Quantity of cases • Can lead to filing non-meritorious claims • May give leverage to advertising referral lawyers • Subject mater expertise • Connections to forum • Requirement of local presence (BP) • Incompetent or unidentified individuals

19. Methods of Selection • Competitive (Court Selects) • Counsel Self-Selects (Consensus) • Auction/Bidding • PSLRA Model • Appointment by Special Master or Magistrate Judge

20. Judicial Selection vs. Counsel Consensus • There are two basic models for the appointment of counsel – and a hybrid of the two • The competition model—the court invites applications for leadership positions • The consensus model—the court directs the plaintiffs to file a proposed leadership slate, subject to court approval and an opportunity for objections to be heard • Sometimes it is suitable to use a hybrid model • Utilize consensus for some positions (such as liaison counsel), and competition for others (such as lead counsel and steering committee membership) • Regardless of the approach, there is no magic formula for selecting designated counsel. Largest inventory counsel hire lead counsel

21. Judicial Selection vs. Counsel Consensus (Cont’d) • Charles Silver & Geoffrey P. Miller, The Quasi-Class Action Method of Managing Multi-District Litigations: Problems and a Proposal, 63 VAND. L. REV. 107 (2010) • Follow PSLRA in assigning presumptive lead role to lawyers with most valuable inventory • Competitive bidding is preferred method for selecting class counsel, in securities fraud class action cases, under PSLRA. In re Comdisco Securities Litigation, 150 F.Supp. 2d 943 (N.D. Ill. 2001)

22. Plaintiff’s Counsel’s Criticisms ofConsensus Method • Silver’s model sounds great in theory • But then there’s human nature: we all work out of self-interest • Yes, there is an incentive to get it done well and efficiently • But there’s also an incentive to reward friends • Having a large stake in the MDL does not guarantee good communication skills, the effective use of attorney time, or even the best lawyering • Plaintiff’s counsel must be accountable to the court • The most experienced and effective attorney may have fewer cases in the MDL • What if the attorney with the most cases vigorously opposed consolidation in the MDL • Or has filed and maintained a number of cases in a parallel state court proceeding, thus avoiding the payment of common benefit “freight charges” for those cases? • Or has taken advantage of other opportunities presented in parallel state court proceedings, beyond the control of the MDL court and its orders, to self-benefit?

23. Evidentiary Hearing Necessary? • The court should move expeditiously and avoid unnecessary delay • However, an evidentiary hearing may be needed (or helpful) to bring all relevant facts to light • Allow counsel to state their case for appointment and • Provide the opportunity to answer questions from the court about qualifications • Potential to move the selection process out of the “Black Box” • Particularly appropriate when the court is unfamiliar with the attorneys seeking appointment. • Don’t forget compensation issues • The court may inquire as to normal or anticipated billing rates, define record-keeping requirements, and establish guidelines, methods, or limitations to govern the award of fees • Allows you to observe and assess counsels’ competence and professionalism, particularly if you are unfamiliar with the attorneys seeking appointment

24. Practical Pointers • Even when there’s a consensus among the big hitters - treat it like it’s a confirmation hearing • Contact other MDL judges for evaluations of particular lawyers • While prior MDL experience is valuable, each case requires different talent • Develop bench strength • Consider including attorneys who may bring new perspectives • Remember the issue of transparency in funding

25. Practical Pointers (cont’d) • Consider appointing steering committee members for one-year terms, and invite them to reapply for appointment along with any new applicants • Remember: The court’s responsibilities are heightened in class action litigation, where the judge must approve counsel for the class • In litigation involving both class and individual claims, class and individual counsel will need to coordinate • Don’t forget the End Game • How will counsel selection affect the opportunities to resolve the case(s)?

26. Some Suggestions and Concerns from the Plaintiffs’ Bar • Perception: We get a lot of “Repeaters” • “Same” judges get the big cases and in turn appoint the “same” lawyers • Utilize confidential peer review • Cherry pick lawyers, rather than picking the firms • A lot of the time the firms have histories — they also make deals among themselves — if I get on, I'll get you a position

27. Some Suggestions and Concerns from the Plaintiffs’ Bar (cont’d) • Make sure all agreements (including side agreements) are disclosed • Big cases need up front money • The cases may require millions of dollars invested early on • Lawyers must have resources • Have more judicial control downstream – i.e., with appointments to the various committees • Make sure that the majors and lieutenants are not a product of the good ole boy system, too

28. Some Suggestions and Concerns from the Plaintiffs’ Bar (cont’d) • How do you keep those not selected productive—or at least not destructive? • Do you want to keep them in the tent? There are destructive lawyers • Manage best you can – There will always be people excluded from the process • . • Some people deserve to be excluded • Look at diversity in appointing a committee • However, at least one court has noted that diverse representation in and of itself is an insufficient rationale justifying appointment of multiple lead plaintiffs in class action pursuant to Private Securities Litigation Reform Act (PSLRA), In re Nice Systems Securities Litigation, 188 F.R.D. 206 (D.N.J. 1999) (citing Manual 3rd ed., § 20.22) • Give an MMPI to all applicants

29. What About the Lawyer Who Has Little or No MDL Clients? • What about lawyers whose only financial interest in the case is through a fee generated by their work on the steering committee or by their service as liaison counsel or lead counsel? • Concern: For such a lawyer, the only way to maximize his fee is through the amplification and extension of the proceedings, particularly through extensive discovery and motion practice • Other counsel are concerned that, in addition to possibly "multipl[ying] the proceedings . . . unreasonably," this will discount the value of the plaintiffs' ultimate recovery (especially in a settlement) and possibly create a conflict of interest

30. PSC Appointment in Large Cases

31. Repetition of Leadership Number of Attorneys Number of Appearances on Steering, Coordinating or Executive Committee

32. Repetition of Leadership

33. Repetition of Leadership Summary

34. Five or More Appearances

35. Four Appearances

36. Three Appearances

37. Two Appearances

38. One Appearance

39. One Appearance (cont’d)

40. Percent of Attorneys on Committee with Repeat Experience

41. Common Benefit Fees • The connection between organization and compensation of counsel is recognized in the Manual, and also by the courts • But while common benefit counsel appointment and organization present vexing problems, compensation of such counsel can prove even more time-consuming and contentious • Essentially an intra-attorney fee allocation mechanism • each individual attorney in the consolidated proceeding – or even outside of it – who benefits from the work done by the common benefit attorneys contributes to those efforts

42. Court’s Authority to Collect a Common Benefit Fee • In his Order & Reasons in Vioxx (MDL No. 1657), Judge Fallon provides an excellent overview of the authority for collecting common benefit fees: • MDL courts have consistently relied upon the Common Benefit Doctrine as a legal basis for assessing common benefit fees in favor of attorneys who perform work that benefits all MDL plaintiffs • MDL courts have also (and alternatively) cited their Inherent Authority (i.e., their "managerial" power, and, to some extent, their inherent "equitable" power) to compensate common benefit counsel • MDL courts have also been granted express authority to assess common benefit fees based upon the parties' and counsels' consent contained in Settlement Agreements

43. Compensation of Common Benefit Counsel • Issues sometimes raised related to the compensation of common benefit counsel • The amount/percentage of assessment • Whether a particular plaintiff benefitted from the work of common benefit counsel • Should a particular party have to pay • Whether any final award of common benefit fees is allocated among counsel appropriately

44. How Do You FundCommon Benefit Counsel? • Plaintiffs Pay • The general procedure involves • establishing a fund to hold common benefit fees from settling plaintiffs; • setting a percentage of the settlement that will be deducted (or “held back”) to fund the common benefit account; and • determining a process for collecting the percentage while maintaining the overall confidentiality of the settlement • Defendant(s) Pay • Defendant agrees to fund a certain common benefit amount as part of settlement over an above grid (or other) settlement payments • Added benefit – Defendants are equipped to spot outliers (but they have motives, too)

45. Early Ruling on Common Benefit Fees • Early on, the court should establish (and enforce) • How the common benefit fund is to be funded • Define compensable functions of designated counsel, • Determine method of compensation, • Specify what records are to be filed/kept • Establish guidelines on what fees and expenses are to be allowed and • Set up a common benefit fund to which designated parties should contribute in specified proportions

46. Problem Areas and Risks • Too much reliance on such committees raises the specter of conflict of interest as committee members often determine how to allocate fee awards among their own firms and others • Billing of junior attorneys or those who support the leadership • Fee Expectation • PSC rules for work assignment • PSC rules for presumed compensation

47. Lodestar vs. Percentage Method for Determining Reasonableness • Over the years, courts have employed various methods to determine the reasonableness of an award of attorneys’ fees • These methods include: • the “Lodestar” method, which entails multiplying the reasonable hours expended on the litigation by an adjusted reasonable hourly rate, see Cooper Liquor, Inc. v. Adolph Coors Co., 624 F.2d 575, 583 n.15 (5th Cir. 1980); • the “Percentage” method, in which the court compensates attorneys who recovered some identifiable sum by awarding them a fraction of that sum; or • more recently, a combination of both methods in which a percentage is awarded and cross-checked for reasonableness by use of the lodestar method

48. Practical Pointers • Communication between common benefit counsel and the rest of the plaintiffs’ attorneys is critical • Keep other counsel informed of leadership decisions • Court should direct designated counsel to seek consensus when they make decisions • Section 10.222 of the Manual suggests entering an order specifically providing that communications between designated common benefit counsel and individual counsel do not waive the attorney-client or other applicable privileges • Order defining the limitations of common benefit fees and expenses, detailing issues ranging from travel expenses to the types of work that will be compensable

49. Practical Pointers (cont’d) • Require common benefit attorneys to submit regular reports to plaintiffs’ leadership (or a monitor) on any work or expenses incurred as a result of common benefit work • In Vioxx, reports submitted to court-appointed CPA • Catch and correct crazy activity early on • Consider use of a Special Master or Allocation Committee (which is separate from the Steering Committee) to arrive at a suggested distribution that is subject to objections and review by the court • No Magic Formula – Every case is different • Different facts, different parties, different attorneys with different strategies (or sometimes the same counsel trying new ones), and different judges

50. What Law Applies to MDL Fee Disputes? • Interesting question in a diversity case: federal or state law? • Because fee awards affect substantial rights, Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240, 245-46 (1975), state law may apply • However, in light of the serious administrative difficulties in MDLs, is this an appropriate context in which to develop a federal common law of procedure? • And does the MDL statute empower judges to create a federal common law of fees Cf. Textile Workers Union of Am. v. Lincoln Mills of Ala., 353 U.S. 448, 450-51 (1957) (inferring federal courts' power to fashion federal law for the enforcement of collective bargaining agreements)