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The Lawyers' Payday?

March 13, 2010

By James R. Copland

What 9/11 settlement means

On Thursday, lawyers suing onrs suing on behalf of workers alle gedly injured by smoke in the post-9/11 cleanup announced that they had reached a settlement agreement, valued at over $575 million, with the City of New York. But the agreement hardly marks the end of this litigation game: The lawyers must first convince Judge Alvin Hellerstein to approve the deal -- and he’s promised to take a close look at their fees.

Then they have to convince their clients to sign on, and then turn to processing the claims to determine who gets what.

The settlement’s terms clearly suggest that the city hopes to avoid some of the problems that have befallen past defendants in mass-tort litigation.

Mass torts are legal cases that share a common cause but are too dissimilar to be grouped into class actions. The large bulk of these cases inevitably settle because it is prohibitively costly to take them to trial--as it would be for the thousands of claims stemming from the 9/11 cleanup.

Because mass-tort lawyers know that their cases must settle, they aggressively recruit clients, some of whom have injuries that are exaggerated or not linked to the defendant being sued. If a settlement makes it too easy for claimants to “opt out,” the plaintiffs’ lawyers have every incentive to encourage their clients with weak claims to accept, while they cherry-pick the best cases to use in a second round of litigation.

The pharmaceutical company Wyeth learned this lesson the hard way. The company sold a diet-drug cocktail, Fen-Phen, which was widely used before doctors at the Mayo Clinic discovered that it could cause heart damage. Beset by litigation, Wyeth reached a settlement with plaintiffs’ lawyers in 2000, initially valued at $3.75 billion.

Now, some 10 years and $20 billion later, Fen-Phen litigation still continutes. Fen-Phen lawyer Paul Napoli has been far from coy about how he plays this game: In 2006, he crowed to Forbes magazine about his hopes for “Wyeth’s nightmare -- a third wave of victims.”

When such “victims” emerge, defendants shouldn’t rely on evidence from doctors working for the plaintiffs’ lawyers. According to federal Judge Harvey Bartle, a doctor hired by Napoli’s firm to process fen-phen claims ran “a mass production operation that would have been the envy of Henry Ford” and “never met with the claimants, never reviewed their medical records and largely relied on the law firms to provide the medical history.”

Oh, and Napoli and his partner Marc Bern happen to head one of the two major plaintiffs’ firms handling the 9/11 litigation.

So you can see why the city insisted on a settlement designed to avoid Wyeth’s woes: The plaintiffs’ lawyers must convince at least 95 percent of their clients to agree to its terms; if more than 500 of the 10,000 or so claimants balk at the deal, the parties have to return to the drawing board. And the settlement even provides for potential future claimants who’ve yet to show any injury, in an effort to head off another Napoli “third wave.”

The proposed settlement also specifies procedures designed to avoid another mass-tort “medical mill,” in which possible claimants are hustled past shady doctors rubber-stamping injuries. The deal would segregate claims among four “tiers” of plaintiff. The lowest tier -- those who offer no proof of injury -- get a $3,250 payment if they buy insurance to cover potential future injuries. At the high end -- claims requiring the most medical proof, or the severest injuries -- claimants must provide substantial medical documentation, and claims are subject to random audit.

How this process all shakes out in the end, only time will tell. Plaintiff’s attorney Bern calls the proposed deal “a good settlement,” and it surely is -- for the lawyers.

Of the $600 million or so to be distributed under the settlement agreement, more than a third will go to the plaintiffs’ counsel, assuming they’ve negotiated standard contingent-fee contracts -- and Judge Hellerstein approves. The city has already paid over $200 million to its lawyers. Nine years after the terrorist attacks, the victims stand to get less than half of what they’ve “won.”

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