Governing the Anticommons in Aggregate Litigation

Article excerpt

INTRODUCTION

Following the September 11, 2001 terrorist attacks, more than ten thousand rescue and cleanup workers brought individual lawsuits against New York City for respiratory and other illnesses they developed after working in the ruins of the World Trade Center. After years of litigation, the parties put together a comprehensive settlement in 2010. The defendant agreed to pay a total of $625 million so long as 95% of the plaintiffs accepted the terms of the settlement. If 100% of the plaintiffs signed on, however, the defendant was willing to increase the total settlement amount to be shared among all the plaintiffs to $712.5 million.1 In other words, to get the last 5% of plaintiffs to sign on, the defendant was willing to pay a substantial premium-more than twice the per-claimant amount for the first 95%. But, because the plaintiffs could get only 95.1% of their ranks to participate by the deadline, they leftup to $87.5 million on the table.2

Why did the plaintiffs fail to maximize the collective value of their claims? Looking to property theory, I argue, can help us understand. As this Article will explain, there is an "anticommons" problem in aggregate litigation.3

A tragedy of the anticommons occurs when property rights are fragmented. Many owners have the power to block the most efficient use of a resource, but no one has the right to use it without obtaining permission from all the others.4 In such a dynamic, transaction costs and strategic holdout behavior can prevent the owners from assembling dispersed property rights into a bundle more valuable than the sum of its parts.

Aggregate litigation exhibits the same dynamic. Defendants want peace, and they are often willing to pay for it. Plaintiffs therefore may stand to gain if they can package all of their claims together and sell them to the defendant (i.e., settle) as a single unit; that is, they can charge a premium for total peace. But, because the rights to control those claims are dispersed among many individual plaintiffs, aggregating them into a more valuable collective can be difficult.

In some circumstances, plaintiffs can use the class action mechanism to offer defendants peace. But the class action has become less and less practical for resolving many types of large-scale aggregate litigation, such as mass torts.5 Attention has increasingly turned to nonclass aggregate settlements where the parties attempt to resolve claims in bulk, even though the plaintiffs are pursuing formally separate lawsuits.

To obtain peace outside of the class action, the defendant must buy it from each individual plaintiffbecause each plaintiffretains ultimate control over the decision whether and on what terms to settle. Indeed, the legal ethics rules governing aggregate settlements in all fifty states require such fragmentation of control by barring plaintiffs from relinquishing autonomy over settlement decisions. Thus, even as the handful of specialized plaintiffs firms that represent the vast majority of plaintiffs in mass litigation attempt to negotiate large-scale aggregate settlements, they are hampered by their inability to guarantee defendants that every plaintiffwill sign on.

In recent efforts to set forth principles to regulate nonclass aggregate settlements, the American Law Institute ("ALI") recognized that the traditional "aggregate settlement rule"-which requires a lawyer attempting to settle claims in bulk to obtain each client's individual consent after disclosing all the terms of the deal, including every other client's share in the settlement-can be an obstacle to comprehensive settlements.6 The rule empowers any single plaintiffto hold up a global deal by refusing to participate once the deal's terms have been negotiated. Thus in the most controversial (and perhaps most important) recommendation in its Principles of the Law of Aggregate Litigation, the ALI proposed modifying the aggregate settlement rule in mass litigation. …