Mass Tort Settlements & Life Science Litigations
Mass tort and class action settlements totaled over $40 billion for the third year in a row. While this number is staggering, unlocking its history provides key considerations to dial back this billion-dollar settlement trend. Mass tort litigation has been a part of the American legal system for decades. Settlements have been the end of a long road of bellwether trials, ultimately resolving the litigation. But recently, companies have elected to avoid this traditional path in response to new tactics by the plaintiffs’ bar. The end result has been this unprecedented increase in the valuation of settlements. This outcome is not sustainable, and companies and their insurers have looked at ways to diminish these losses. This blog discusses the recent trends and plaintiff firms’ tactics leading up to the significant uptick in settlement values, how companies have tried to mitigate these issues through bankruptcy and other novel approaches, and steps that manufacturers can consider in flipping the switch on the seeming momentum plaintiffs have in order to reduce both the volume and value of claims.
How did we get here?
Class actions and multi-district litigation (“MDL”) dominate the court dockets. And it is not just the number of lawsuits; it is the volume of plaintiffs in each of those lawsuits that has risen exponentially. Plaintiffs’ firms have long used litigation funding for advertising to reach more potential plaintiffs, and with the rise in social media use and influencers, that reach has become easier, less expensive, and faster. What used to take a year or longer to build up a firm’s inventory can now take just weeks. There is a huge incentive for plaintiff firms to grab as many plaintiffs as possible – it equates to leadership roles in the MDLs or class actions, as well as larger total settlements for that firm. Ultimately, these sizable numbers of plaintiffs allow them to form the class or an MDL. And once these are created, courts often push for centralized settlement as the quickest way out of the onslaught of filings.
This exponential increase in lawsuits was not the only tactic plaintiff firms used that resulted in the rise of mass tort settlements in recent years. Plaintiff firms also benefitted from business decisions during the pandemic. During Covid, settlements went up sharply, largely because companies were trying to cut their losses by removing liabilities, many of which were attributable to lawsuits. This desire coupled with a moratorium of trials and cash to settle, resulted in an increase in settlements since 2020.
Post Covid, trials resumed, but plaintiffs’ ability to select favorable venues due to the marked rise in plaintiffs from all over the country led to another problem. Nuclear verdicts in plaintiff-friendly jurisdictions. To avoid these nuclear verdicts, companies and insurers agreed to nuclear settlements. Overpaying plaintiffs in settlements of lawsuits, many of which are meritless, is not and cannot be a long-term goal.
Alternatives to Settlement
Given that it is impossible for a company to predict when the mass tort claims against it may come to a natural ending point, it can be difficult to make long-range plans to account for these liabilities. What emerged was the rise of new strategies to avoid both the nuclear verdicts and high value settlements and reach a permanent solution for mass tort claims. Companies turned to bankruptcy protection – some of them successfully, others less so – and corporate restructuring to reduce their exposure.
An unprecedented number of defendants have in recent years filed for bankruptcy following mass tort litigations, including the Catholic Diocese (see https://elibrary.law.psu.edu/bankruptcy/index.html for a link of the 40 Catholic Diocese who have sought bankruptcy protection since 2004), Boy Scouts of America (In re Boy Scouts of America and Delaware BSA, LLC. , Case No. 20-10343 (Bankr. D. Del. 2020), Johnson & Johnson (see In re LTL Mgmt., LLC, Case No. 21-30589 (Bankr. D.N.J. 2021), 3M (In re Aearo Technologies LLC, Case No. 22-02890-JJG-11 (Bankr. S.D. Ind. 2022), and defendants in national opioid litigation (see, e.g., n re Purdue Pharma L.P., 69 F.4th 45 (2d. Cir. 2023)). Bankruptcy is attractive for two reasons. First, it can do what traditional litigation often cannot, that is expeditiously extinguish all lawsuits – past, present, and future. Although bankruptcy has been an available option for companies for decades, what has been more novel with the recent filings is the second reason; using bankruptcy to end these lawsuits before the company is in financial distress from thousands of cases going to trial or settling. Resorting to bankruptcy court to solve what traditional courts have not yet been able to has not always been successful, and it also comes with unintended consequences. Both Johnson & Johnson and 3M tried unsuccessfully to resolve their liabilities using the Texas “two-step” bankruptcy – a bankruptcy process that allows a solvent company to spin off certain liabilities into a new undercapitalized subsidiary and then the subsidiary declares bankruptcy. (See In re LTL Mgmt., LLC, No. 22-2003, 2023 WL 1098189 (3rd Cir. 2023); In re: Aearo Technologies LLC, No. 22-02890-JJG-11 (Bankr. S.D. Ind. 2023)). Other companies elected bankruptcy to seek protection of the company’s owners who were individually named in the lawsuits, which courts have ruled was too expansive.
Even if bankruptcy protection is successful, restructuring unmanageable debt in this fashion has consequences. It can lead to diminished stock values, significant losses for investors, and credit issues for future investments. With this outcome, companies have looked at other ways to reorganize the corporate structure before lawsuits hit to help mitigate the potential losses. Factors that are important here is understanding the legal protections and pitfalls – both as to corporate liability as well as product liability – in the states where a spinoff entity may incorporate so that the desired outcome is not thwarted by the legal issues.
With plaintiff firms increasingly targeting claims involving minuscule levels of purported carcinogens in products, companies have also taken a closer look at their supply chain and those contracts. Making changes in the supply chain, modifying contracts to include indemnity provisions or enhancing those provisions, help to reduce the company’s exposure.
Manufacturer Considerations for Reversing the Trend
With the momentum swinging in the direction of increased mass tort settlement values, manufacturers need to consider new options to halt and ultimately reverse this momentum. One of the most effective ways to alter the course is to return to trials. Quick settlement can avoid legal expenses; however, the settlement valuation could be exaggerated in the absence of court victories. In other words, plaintiff firms see the settlements that have already occurred as the floor, resulting in companies overpaying to resolve their inventory. Trying individual cases in favorable jurisdictions with effective trial counsel can result in defense or nominal verdicts. Such results give leverage to manufacturers in the negotiations to help drive down the case values for the ultimate settlements.
Recent changes to the federal rules relating to MDLs can also assist in early case management to weed out the meritless claims. See Fed.R.Civ.P. 16.1. Defense counsel has always sought to reduce the plaintiffs’ inventories by filing motions based on legal defenses or lack of factual support. But often, these efforts took a backseat to plaintiff firms successfully pushing for discovery. While it remains to be seen how these new rule amendments will be implemented in the MDLs, advocating for dispositive motions early and often may assist companies in eliminating the claims that lack product identification, use, or supportable damages. With a reduction in plaintiff inventories, manufacturers can focus on resolving only those claims with arguable merit, lowering the total settlement number.
Finally, engaging outside counsel adept in mass tort settlement strategy early in the litigation allows for a comprehensive approach to achieving the best solutions in these complex, high-stakes lawsuits. Experienced settlement counsel know how to develop creative and out-of-the-box settlement strategies for effective resolutions, while at the same time working closely with lead trial counsel to dismantle the plaintiffs’ themes. Victories in litigation help supplement the settlement strategies to reduce not only the number of plaintiffs/claims, but just as importantly, the value of the remaining claims.
Product liability and consumer class action and MDL litigation are becoming larger, with more defendants and more plaintiffs, posing a greater risk for life science companies. Taking a proactive approach with early case management that includes collaboration between settlement and trial counsel to strategize on short-term and long-term solutions will assist companies in leveraging these risks and reversing the recent trends of monumental settlements.
Authored by Lori G. Cohen (Vice Chair), Sabrina Gallo (Shareholder), and Sydney Fairchild Williamson (Shareholder) of Greenberg Traurig, LLP’s Pharmaceutical, Medical Device & Health Care Litigation Group.
Greenberg Traurig, LLP’s Pharmaceutical, Medical Device & Health Care Litigation Practice is a premier life sciences litigation team, involved in pharmaceutical and medical device industries’ top mass torts and class actions. As national, regional, trial, and settlement counsel for industry leaders, GT’s team routinely tries cases involving cutting-edge medical and scientific issues. Distinguished by its depth of experience and thorough understanding of the industry, this nationwide team of 130+ litigators deliver top-of-class client service. GT has also assembled a mass tort settlement team within the Pharmaceutical, Medical Device & Health Care Litigation Practice that is skilled in settling major litigations and high-profile MDLs. They oversee every aspect of the process, from negotiating with unrepresented claimants to mediating single-plaintiff cases and negotiating global settlements. www.gtlaw.com