MDL Common Benefit Funds Cannot Pilfer from Non-MDL Cases

In re Hair Relaxer Mkt. Practices & Prods. Liab. Litig., 2024 U.S. Dist. LEXIS 150916 (N.D. Illinois Aug. 22, 2024), is a fairly interesting decision on MDL procedure.  We say “fairly” because the case is mostly a matter of voyeurism for defense hacks. The case is about how lead plaintiff counsel get paid.  Nobody – not the courts and certainly not the plaintiff counsel – asks for the defense opinion on such things.  

And we’re not sure we have much of an opinion. But maybe we should.  Someday, someone should do a game theory analysis about how allocation of moneys among plaintiff lawyers in MDLs affect things such as the initiation, size, and cost of MDL litigation.  In the meantime, and just before scrolling through the Hair Relaxer opinion, we grabbed a bag of popcorn and watched the plaintiff lawyers squabble among themselves.   

The Plaintiffs’ Co-Lead Counsel, Plaintiffs’ Executive Committee, and Plaintiffs’ Steering Committee (these titans of the law were collectively referred to as the PLC)  sought to have the MDL court impose a “common benefit fee” holdback not only on cases that were in the MDL but also on similar cases “in state court or that are settled before filing in any court.”  

Only one plaintiff firm objected to this request.  Usually, the plaintiff firms objecting to PLC requests are bottom feeders. Not here.  The objecting plaintiff firm is a really good firm with really smart lawyers.  How smart? You do not need to read the sparkling website bios (Supreme Court clerkships, etc.) to answer that question   All you have to do is read the Hair Relaxer opinion to see how the objecting firm correctly made the point that an MDL court cannot allocate moneys from cases not in the MDL. 

The PLC did not go down without a fight.  They (it?) argued that the MDL court was empowered to impose holdbacks under at least three separate sources of judicial authority: (1) the equitable common benefit doctrine; (2) the court’s inherent managerial power over consolidated litigation; and (3) private contracts.  But the MDL court did not buy any of these arguments.  It held that it did not have any basis for exercising jurisdiction over non-MDL cases.  

Equitable Common Benefit Doctrine

The common fund doctrine is an exception to the American rule whereby everyone pays their own attorney’s fees.  The idea of a common benefit fund in aggregated litigation is to address the situation where “the plaintiff’s successful litigation confers a substantial benefit on the members of an ascertainable class, and where the court’s jurisdiction over the subject matter of the suit makes possible an award that will operate to spread the costs proportionately among them.”  

Did you catch that bit about the court’s jurisdiction?  The Hair Relaxer decision makes clear that, whatever the equitable benefits of the common benefit fund doctrine, it cannot confer “unbridled jurisdiction” on the MDL court.  

The PLC whined that a common benefit fund is necessary to prevent “free riding” by their indolent plaintiff side colleagues.  We like how the court characterizes this argument: “indeed, the PLC portends the day when MDL courts will be unable to attract any counsel without assurances of adequate compensation and protection against free riders.”  At this point, we find ourselves quoting the great Brian Wilson — “Wouldn’t it Be Nice.”  And then we like even better how the court rejects the plaintiff’s argument: “As this MDL evidences, that day has not come.”  Ha. Look, if there really is a “free rider” problem, it is the PLC’s problem, not the court’s, since that sort of (non) problem is no basis for expanding jurisdiction.  

Inherent Managerial Power

Just like any district court, an MDL court undoubtedly has inherent managerial power over its docket. (It is a profound pity how some MDL courts decide that the best management strategy is to do nothing and wait out the parties until they settle.  But we digress.) in any event, managing an MDL docket is limited to the cases actually in that docket.  Thus, “the authority to conduct multidistrict litigation does not alter the inherent limits on a district court to manage only its docket at the exclusion of cases beyond the MDL.”  The PLC endeavored to evade this limitation by recharacterizing the assessments as recoveries from counsel rather than the Hair Relaxer claimants. But recoveries come from the clients, and the MDL court is not permitted to pick the pockets of clients who are not in the MDL. 

Contract Law

A contractual agreement among counsel to pay holdbacks would be enforceable, but that sort of participation agreement simply did not exist here.  (This is further proof that the objecting plaintiff firm was plenty smart.). 

Assessment

The objecting plaintiff firm did not win on every issue.  It argued that the PLC’s proposed 11% assessment was “extremely high” and “premature.”  On this issue the court sided with the PLC, not the objector.  The court sort of looked at comps, the way house hunters do. The court found multiple MDLs with common benefit holdbacks between 8% and 16%, and concluded that the 11% figure (coincidentally amounting to a third of a third) was an appropriate amount for those plaintiffs in the MDL.  The objector argued that the 11% figure was inappropriate in a case, such as the Hair Relaxer MDL, where the plaintiffs claimed that the product gave them cancer.  The court saw no support for this argument. So the PLC will get paid what it wants, but the sources of such payment were circumscribed.