(Reuters) - The academic debate about whether judges overseeing multidistrict litigation have the power to cap fees for lawyers who signed individual contingency fee contracts with the clients is fierce. Some scholars, notably including William Rubenstein of Harvard, believe that when MDLs are resolved via class action settlements, judges have inherent power to abrogate individual fee contracts. Others contend those fee contracts remain binding.
In the last half of 2018, Robert Klonoff of Lewis & Clark, who subscribes to the former view, faced off against a bevy of academics – Arthur Miller and Geoffrey Miller of New York University, Charles Silver of the University of Texas, Alexandra Lahav of the University of Connecticut and Brian Fitzpatrick of Vanderbilt – in consolidated litigation in Kansas federal district court, accusing the agricultural giant Syngenta of peddling genetically modified seeds that produced corn China refused to import. Klonoff, as an expert for class counsel who led the negotiations that resulted in a $1.5 billion global settlement for U.S. farmers, argued that MDL judges’ authority to regulate plaintiffs’ lawyers’ fees is settled law. The other scholars appeared as experts for Watts Guerra, a Texas firm that signed up tens of thousands of farmers to bring individual cases in state court. The Watts Guerra experts contended that no precedent from the 10th U.S. Circuit Court of Appeals nor the U.S. Supreme Court gives the judge overseeing the Syngenta MDL, U.S. District Judge John Lungstrum of Kansas City, power to override Watts Guerra’s client contracts. (I’m simplifying nuanced arguments, but that’s the nub of the debate.)
In a doozy of an opinion this week, Judge Lungstrum took the authority Klonoff said he had and ran with it. The judge, largely following recommendations in a Nov. 20 report by special master Ellen Reisman, set aside plaintiffs’ lawyers individual contingency fee contracts. Those lawyers will not be paid directly out of their clients’ recovery from the settlement. Instead, the judge allocated 12 percent of his previously-announced $503 million pool for attorneys’ fees – about $60 million - to compensate lawyers for those contingency fee contracts.
Lawyers who believe they provided a casewide benefit to the litigation can also apply for fees from one of the three common benefit funds Judge Lungstrum established to reflect the multiple prongs of litigation against Syngenta. But they can’t try to collect anything else from their individual clients, according to the judge.
“The court does intend that its fee award from the settlement fund cover all fees recovered by attorneys on contingent fee contracts relating to claims included in this settlement,” Judge Lungstrum wrote. “This court has the authority and duty to determine the amount of reasonable fees paid to attorneys from the settlement fund, and because any further contingent fee payments would necessarily come from proceeds from the settlement fund, the court can and does prohibit any such additional payments. To be clear, any attorney representing a client on a contingent fee basis relating to claims covered in this settlement may recover attorney fees only from the pools created by this order, allocated from the court’s total one-third fee award, and that attorney may not recover any additional fees from the client’s recovery based on any contingent-fee contract.”
Judge Lungstrum’s opinion was co-signed by U.S. District Judge David Herndon of East St. Louis, Illinois, and Minnesota state court judge Laurie Miller of Hennepin County District Court. Judge Miller oversaw consolidated state cases against Syngenta and Judge Herndon presided over separate federal court litigation. The ruling designates 49 percent of all fees go to lawyers who had a role in the Kansas MDL, 23.5 percent to those in the Minnesota state court case and 15.5 percent to those in the Illinois federal proceeding. Judges Miller and Herndon will sign off on the allocation of fees to lawyers in the cases before them.
Judge Lungstrum said he’d read the conflicting views on his authority from Klonoff and the Watts Guerra experts and agreed with special master Reisman that the weight of precedent backs Klonoff. Judges have claimed authority over individual contingency fee deals in several MDLS, Lungstrum said, from the NFL concussion litigation to litigation by 9/11 first responders. “The Supreme Court has not indicated that a court may not exercise its inherent authority in this way, and federal courts have routinely concluded that they may do so,” the judge said, citing the court’s “inherent authority to supervise attorneys appearing before it, to act as a fiduciary for and protect the interests of the settlement class members and to ensure that the integrity of the judicial process is not undermined by the recovery of unreasonable attorney fees.”
Judge Lungstrum also found power in the language of the settlement agreement, which granted him jurisdiction over fee disputes between class members and their individual lawyers and contemplated his review of their contingency fee deals. He rejected arguments by the Watts Guerra experts that the Restatement of the Rule of Laws and the Rules Enabling Act bar him from interfering with reasonable contingency fee contracts.
Watts Guerra and other objectors protested that capping fees for contingency fee lawyers at such a small percentage of the total fee pool would be unprecedented, Judge Lungstrum said. But so be it. “The present case must be decided on its particular facts,” he wrote. “The court is persuaded that an approximate 10 percent contingent fee is reasonable and appropriate in this case for (contingency fee lawyers) who did not perform work (in addition to filing a case) that benefited the entire settlement class.”
Watt Guerra name partner Mikal Watts told me Judge Lungstrum’s ruling, if it holds up, is going to be a big obstacle for global settlements in litigation in which a big chunk of plaintiffs choose to hire their own lawyers and file individual suits. Watts said he and other plaintiffs’ lawyers who represented individual farmers suing Syngenta had negotiated joint prosecution agreements with MDL lawyers pursuing classwide resolution. Those agreements, he said, would have resolved fee issues so that class members paid roughly the same attorneys’ fees regardless of whether they hired individual lawyers or not. Judge Lungstrum, he said, didn’t need to invoke his inherent authority to protect class members when the joint prosecution agreement already did so.
In the future, Watts said, the judge’s invocation of his power to override contingency fee contracts will discourage plaintiffs’ lawyers who sign up a lot of individual clients from participating in global settlements like the Syngenta deal. “You’ve got to have posted rules of the road before you start driving,” he said. If lawyers fear that MDL judges will tear up their contracts and ignore their deals with class counsel, they just hold out for their own settlements, Watts said.
“I think it just got a lot harder for defendants to get global peace,” he said.
Watts said Judge Lungstrum’s order will be appealed. The crux of his argument, he said, will be that the sophisticated farmers who chose to sign individual contingency fee contracts didn’t need the judge’s protection, unlike plaintiffs in many of the other cases in which judges have invoked their inherent authority to override fee agreements. Instead of acknowledging the choice of these well-informed businessmen, Watts said, the judge made an unprecedented decision to re-allocate fees to lawyers other than the ones they hired.
“A court’s inherent authority has never been used to take 75 percent of the fees from lawyers clients hired and give it to lawyers they did not,” Watts said.