Applying State Contingency Fee Caps in Multidistrict Litigation (MDL) Settlements*

Article excerpt

I. Introduction

An attorney signs a retainer agreement to represent a Connecticut resident allegedly harmed by taking a new prescription drug manufactured by a New York drug company. The attorney will charge a 40% contingency fee according to the agreement. The attorney decides to bring the case in federal court in the Southern District of New York on the basis of diversity jurisdiction and files suit under New York state tort law. Given that the defendant's headquarters are in New York, the plaintiffworks full-time in New York, and the plaintiff's injury-a heart attack-happened in New York, the attorney believes New York law will apply to all substantive legal issues under New York choice-of-law rules.

Just weeks later, upon the defendant's motion in this case and in 500 other cases filed nationwide involving the same drug, the Judicial Panel on Multidistrict Litigation approves the transfer of all 501 cases to the federal district court in Connecticut for consolidated multidistrict litigation (MDL) proceedings. In a matter of months, the defendant settles almost all of its pending claims with the MDL plaintiffs in a single settlement, while the case is still pending before the MDL transferee court.1 The original Connecticut plaintiffsettles for $800,000, and the attorney keeps 40% ($320,000) as her contingency fee. But the Connecticut plaintiffwants the benefit of New York state law, which caps contingency fees for this size settlement at 25%,2 or $200,000 in this case. Can the Connecticut plaintiffenforce the state contingency fee caps?

Stated differently, the question posed by this hypothetical is whether state laws capping contingency fees apply to settlements of federal diversity cases pending before MDL transferee courts. Because several state laws broadly cap contingency fee awards, this question will continue to arise in cases consolidated through the MDL process. This question also raises a plethora of interesting legal issues, including the application of state law in federal courts, the possibility of forum shopping between state and federal forums, and the equities among plaintiffs and their counsel, all consolidated in the same MDL court.

This Note ultimately argues that state contingency fee caps should apply to settlements of federal diversity cases pending before MDL courts. Part II of this Note begins by giving background on state contingency fee caps and the MDL consolidation process. Part III then moves to the Note's core analysis: it argues that state fee caps should apply to MDL settlements for three important reasons. Next, Part IV addresses two policy concerns that critics have advanced against the analysis in Part III. After resolving these policy concerns, the Note briefly concludes in Part V.

II. Background on State Contingency Fee Caps and MDL Consolidation

A. State Contingency Fee Caps

Several state laws broadly cap contingency fees in most kinds of tort suits.3 For example, New Jersey's rule caps contingency fees in all tort cases, "including products liability claims . . . but excluding statutorily based discrimination and employment claims."4 Other state laws cap contingency fees in more narrow contexts, like medical malpractice or worker's compensation suits.5 For the purposes of this Note, the state contingency fee caps that apply broadly are most relevant, since many MDL settlements arise outside of the narrower contexts like medical malpractice.6 This Note addresses three states' broad contingency fee caps-those of New Jersey, New York, and Florida-as examples of the kinds of state caps at issue. What follows is a brief description of each of these states' fee caps.

New Jersey's fee caps are found in a rule entitled "Contingent Fees" within the New Jersey Rules of Court.7 As mentioned, the New Jersey caps apply "[i]n any matter where a client's claim for damages is based upon the alleged tortious conduct of another" with the exception of statute-based discrimination and employment claims. …