The what and why of claims resolution facilities

Stanford Law Review

Volumn 57, Issue 5, 2005, Pages 1361-1389

  McGovern, Francis E ^a  

^a DUKE UNIVERSITY   (United States)

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EID: 33646049369     PISSN: 00389765     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Conference Paper

References (144)

1. See, e.g., September 11th Victim Compensation Fund of 2001, Pub. L. No. 107-42, §§ 401-409, 115 Stat. 237, 237-41 (codified at 49 U.S.C. § 40101 (Supp. I 2001)). Claims resolution facilities generally are not associated with the initial determination of liability. The threshold determination of whether there should be payment at all is left to entities like legislatures, administrative agencies, courts, or one or more parties themselves. In certain instances, the liability decision is made in the abstract and the claims resolution facility has the task of determining which parties qualify for compensation, what the amount of each individual party's compensation should be, and the total amount of compensation to be paid. The statute passed by the U.S. Congress on September 22, 2001 is an example of the legislature deciding that the U.S. Treasury would pay for certain damages to persons injured on September 11, 2001, and that those damages would be determined individually and in toto by a special master using the process contained in the statute. Id. § 404;
2. see also September 11th Victim Compensation Fund of 2001, 28 C.F.R. §§ 104.1-.6 (2003).
3. More frequently the threshold determination is made both on liability and the total amount of compensation to be paid. The role of the claims resolution facility is to allocate and distribute those monies in accordance with the provisions of that determination. Sometimes the threshold decisions include detailed provisions as to how the claims resolution facility is to operate, and in other instances great discretion is given to a third party. The A.H. Robins bankruptcy case is an apt example of the latter option. $2.3 billion was placed in a trust to be distributed by five trustees who were provided in the plan of reorganization with a series of general rules for the allocation and distribution of the funds and were empowered with wide discretion in the implementation of those rules. See Sixth Amended and Restated Disclosure Statement Pursuant to Section 1125 of the Bankruptcy Code, In re A.H. Robins Co., 88 B.R. 742 (Bankr. E.D. Va. Mar. 28, 1988) (No. 85-01307-R) [hereinafter A.H. Robins Disclosure Statement]; see also In re A.H. Robins Co., 880 F.2d 694 (4th Cir. 1989); In re A.H. Robins Co., 788 F.2d 994 (4th Cir. 1986); Kenneth R. Feinberg, The Dalkon Shield Claimants Trust, LAW & CONTEMP. PROBS., Autumn 1990, at 79, 103-04;
4. Georgene M. Vairo, The Dalkon Shield Claimants Trust and the Rhetoric of Mass Tort Claims Resolution, 31 LOY. L.A. L. REV. 79, 129 (1997).
5. See generally S. ELIZABETH GIBSON, CASE STUDIES OF MASS TORT LIMITED FUND CLASS ACTION SETTLEMENTS AND BANKRUPTCY REORGANIZATIONS 187-238 (2000) [hereinafter GIBSON, CASE STUDIES] (summarizing the In re A.H. Robins Co. litigation);
6. S. ELIZABETH GIBSON, JUDICIAL MANAGEMENT OF MASS TORT BANKRUPTCY CASES (forthcoming 2005) [hereinafter GIBSON, JUDICIAL MANAGEMENT] (establishing best judicial management practices);
7. RICHARD B. SOBOL, BENDING THE LAW (1991);
8. Georgene M. Vairo, The Dalkon Shield Claimants Trust: Paradigm Lost (or Found)?, 61 FORDHAM L. REV. 617 (1992).
9. See supra note 1; see also Symposium, After Disaster: The September 11th Compensation Fund and the Future of Civil Justice, 53 DEPAUL L. REV. 205 (2003);
10. Michele Landis Dauber, The War of 1812, Sept. 11th, and the Politics of Compensation (Stanford Pub. Law & Legal Theory Working Paper Series, Research Paper No. 74, 2003) (on file with author).
11. Under the MDL-926 silicone gel breast implant settlement, the three principal defendants made a unilateral offer to settle all cases that met certain criteria for predetermined amounts of money. The MDL-926 claims resolution facility had the task of determining which claimants qualified for compensation and the precise amount each claimant would receive. It would be only at the conclusion of the claims process that the total cost would be determined. See Settlement Facility and Fund Distribution Agreement between Dow Corning Corporation and the Claimants' Advisory Committee at 2-3, In re Dow Corning Corp., 244 B.R. 705 (Bankr. E.D. Mich. Feb. 4, 1999) (No. 95-20512) [hereinafter Breast Implant Settlement Agreement], http://www.tortcomm.org/downloads/SETTLEMENT_FACILITY_AGMT.pdf (last visited Mar. 7, 2005); see also In re Silicone Gel Breast Implant Prods. Liab. Litig., 174 F. Supp. 2d 1242 (N.D. Ala. 2001), aff'd in part and rev'd in part, United States v. Baxter Int'l, Inc., 345 F.3d 866 (11th Cir. 2004).
12. The United Nations Compensation Commission was established after the 1990 invasion of Kuwait by Iraq. Its role was to determine the amount of money to be paid by Iraq to claimants from nearly one hundred countries, based upon eligibility criteria determined by the U.N. Security Council. The money was to be paid from a twenty-five percent share of the proceeds from the oil-for-food program operating under U.N. auspices. The total amount to be owed by Iraq was the total of all the awards made by the Commission and authorized by the Security Council. See generally S.C. Res. 687, U.N. SCOR, 46th Sess., 2981st mtg., U.N. Doc. S/RES/687 (1991); Report of the Secretary-General Pursuant to Paragraph 19 of Security Council Resolution 687, U.N. SCOR, 46th Sess., U.N. Doc. S/22559 (1991); THE UNITED NATIONS COMPENSATION COMMISSION (Richard B. Lillich ed., 1995); United Nations Compensation Comm'n, Claims Processing, http://www2.unog.ch/uncc/clmsproc.htm (last visited Mar. 7, 2005); United Nations Compensation Commission, Payment Procedure, http://www2.unog.cn/uncc/paymproc.htm (last visited Mar. 7, 2005).
13. The Global Research Analyst Settlement resolved litigation concerning the relationship between the equity research and investment banking areas of twelve financial institutions. The settlement provided that the U.S. District Court for the Southern District of New York appoint a Distribution Fund Administrator to prepare and implement terms for the distribution of funds to investors. The fund to be distributed consisted of $430 million. Aside from certain minimum criteria provided in the settlement, the Distribution Fund Administrator had wide discretion in devising the plan and its implementation. See Order of Appointment, SEC v. Bear Stearns & Co., Nos. 2937-2948 (WHP) (S.D.N.Y. filed Apr. 26, 2003), http://www.sec.gov/spotlight/globalsettlement/jdorder020604.pdf; Press Release, SEC, Federal Court Approves Global Research Analyst Settlement (Oct. 31, 2003), http://www.sec.gov/litigation/litreleases/lr18438.htm.
14. Approximately thirteen thousand individual plaintiffs entered into a class action settlement under FED. R. CIV. P. 23(b)(3) with a single defendant to resolve litigation regarding exposure to DDT. The total settlement amount was $15 million, and the plan of distribution was designed by a special master; both were approved by a U.S. district court. See Report of Administrator at 1-2, In re Redstone Arsenal DDT Litig., No. CV-86-C-53313-NE (N.D. Ala. Nov. 17, 1986). The claims resolution facility was operated by an administrator under court supervision. See generally Francis E. McGovern, The Alabama DDT Settlement Fund, LAW & CONTEMP. PROBS., Autumn 1990, at 61;
15. Francis E. McGovern & E. Allan Lind, The Discovery Survey, LAW & CONTEMP. PROBS., Autumn 1990, at 41.
16. See sources cited supra note 2.
17. Compare Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. §§ 5121-5205 (2000),
18. and Federal Emergency Management & Assistance, 44 C.F.R. § 300 (2004),
19. and KEITH BEA, CONG. RESEARCH SERV., CRS REPORT FOR CONGRESS: FEMA AND DISASTER RELIEF (1998),
20. and U.S. GEN. ACCOUNTING OFFICE, DISASTER RELIEF FUND: FEMA's ESTIMATES OF FUNDING REQUIREMENTS CAN BE IMPROVED (2000),
21. with Civil Liberties Act of 1988, 50 U.S.C. app. § 1989 (2000),
22. and Roger P. Alford, On War as Hell, 3 CHI. J. INT'L L. 207 (2002),
23. and Naomi Roht-Arriaza, Reparations Decisions and Dilemmas, 27 HASTINGS INT'L & COMP. L. REV. 157 (2004), and Dauber, supra note 3.
24. See Ian Ayres, Optimal Pooling in Claims Resolution Facilities, 53 LAW & CONTEMP. PROBS. 159, 161-65 (1990);
25. Gregory C. Keating, Distributive and Corrective Justice in the Tort Law of Accidents, 74 S. CAL. L. REV. 193, 200 (2000) (discussing damages theory in the tort law of accidents);
26. Gary T. Schwartz, Mixed Theories of Tort Law: Affirming Both Deterrence and Corrective Justice, 75 TEX. L. REV. 1801, 1818 (1997) (discussing the relationship between damages and deterrence).
27. See generally JAMES A. HENDERSON, JR., ET AL., THE TORTS PROCESS, 675-740 (4th ed. 1994);
28. W. PAGE KEETON ET AL., PROSSER AND KEETON ON TORTS 608-15 (5th ed. 1984).
29. See Deborah R. Hensler & Mark A. Peterson, Understanding Mass Personal Injury Litigation: A Socio-Legal Analysis, 59 BROOK. L. REV. 961, 1048-52 (1993) (discussing the inefficiencies of claim aggregation);
30. Francis E. McGovern, An Analysis of Mass Torts for Judges, 73 TEX. L. REV. 1821, 1824-25 (1995);
31. Scott Baldwin, Comment, LAW & CONTEMP. PROBS., Autumn 1990, at 9;
32. Samuel Issacharoff & John Fabian Witt, The Inevitability of Aggregate Settlement: An Institutional Account of American Tort Law (Columbia Law Sch., Ctr. for Law and Econ. Studies Research Paper Series, Paper No. 252, 2004), http://www.law.columbia.edu/center_program/law_economics/wp_listing_1/ wp_listing/251_260.
33. See generally N.C. GEN. STAT. §§ 108A-25 to -111 (1994); JERRY L. MASHAW, BUREAUCRATIC JUSTICE: MANAGING SOCIAL SECURITY DISABILITY CLAIMS (1983);
34. JERRY L. MASHAW, DUE PROCESS IN THE ADMINISTRATIVE STATE (1981);
35. JERRY L. MASHAW, GREED, CHAOS, AND GOVERNANCE: USING PUBLIC CHOICE TO IMPROVE PUBLIC LAW (1997);
36. Michele L. Landis, Fate, Responsibility, and "Natural" Disaster Relief: Narrating the American Welfare State, 33 LAW & SOC'Y REV. 257 (1999).
37. See, e.g. Black Lung Benefits Act of 1972, Pub. L. No. 92-303, 86 Stat. 150 (codified as amended in scattered sections of 30 U.S.C.);
38. Price-Anderson Act, Pub. L. No. 85-256, 71 Stat. 576 (1956) (codified as amended in scattered sections of 42 U.S.C.);
39. National Childhood Vaccine Injury Act of 1986, 42 U.S.C. §§ 300aa-1 to -34 (2000);
40. Radiation Exposure Compensation Act, 42 U.S.C. § 2210 (Supp. III 2003);
41. see also RICHARD E. NEUSTADT & HARVEY V. FINEBERG, THE SWINE FLU AFFAIR 57-62 (1978);
42. JOHN FABRIAN WITT, THE ACCIDENTAL REPUBLIC: CRIPPLED WORKINGMEN, DESTITUTE WIDOWS, AND THE REMAKING OF AMERICAN LAW 1-21 (2004) (discussing the states' evolution toward workers' compensation).
43. See, e.g., Financial Protection Requirements and Indemnity Agreements, 10 C.F.R. § 140 (2004);
44. Black Lung Benefits, 20 C.F.R. § 410 (2004);
45. Claims for Benefits, 20 C.F.R. § 725 (2004);
46. Claims Under the Radiation Exposure Compensation Act, 28 C.F.R. § 79 (2004);
47. Vaccine Injury Compensation, 42 C.F.R. § 100.3 (2004).
48. See S.C. Res. 827, U.N. SCOR, 48th Sess., 3217th mtg., U.N. Doc. S/RES/827 (1993); Alford, supra note 9; Roht-Arriaza, supra note 9; supra note 5.
49. See, e.g., Ortiz v. Fibreboard Corp., 527 U.S. 815 (1999); Amchem Prods., Inc. v. Windsor, 521 U.S. 591 (1997); In re Diet Drugs Prods. Liab. Litig., No. 99-20593, 2000 WL 1222042 (E.D. Pa. Aug. 28, 2000); In re Copley Pharm., Inc., 1 F. Supp. 2d 1407, 1408 (D. Wyo. 1998) (citing order approving settlement issued Nov. 15, 1995); see also PETER H. SCHUCK, AGENT ORANGE ON TRIAL (1986). See generally In re Sulzer Hip Prosthesis & Knee Prosthesis Liab. Litig., 268 F. Supp. 2d 907 (N.D. Ohio 2003); supra note 7
50. See, e.g., In re Nat'l Gypsum, 219 F.3d 478 (5th Cir. 2000); In re Dow Corning Corp., 86 F.3d 482 (6th Cir. 1996); In re Johns-Manville Corp., Nos. 82-B-11656 to 82-B-11676, 2004 WL 1876046 (Bankr. S.D.N.Y. Aug. 17, 2004); In re Western Asbestos Co., 313 B.R. 456 (Bankr. N.D. Cal. 2004); In re Celotex Corp., 204 B.R. 586 (Bankr. M.D. Fla. 1996); In re UNR Indus., Inc., 72 B.R. 796 (Bankr. N.D. Ill. 1987); Breast Implant Settlement Agreement, supra note 4; In re A.H. Robins citations supra note 2;
51. see also STEPHEN J. CARROLL ET AL., ASBESTOS LITIGATION COSTS AND COMPENSATION: AN INTERIM REPORT (2002);
52. GIBSON, CASE STUDIES, supra note 2.
53. See, e.g., Referee's Statement of Decision, Including Findings and Fact and Conclusions of Law (Corrected Version) at 1-2, Newman v. Stringfellow, Nos. 165994MF and 167122, 16173, 167291, 167327, 167467, 167691, 168088, 168349, 168591, 168939, 169223, 169610, 169999 (Cal. Super. Ct. May 9, 1995) (on file with author) [hereinafter Stringfellow Referee's Decision].
54. See, e.g., Francine A. Hochberg, HIV/AIDS and Blood Donation Policies: A Comparative Study of Public Health Policies and Individual Rights Norms, 12 DUKE J. COMP. & INT'L L. 231 (2002);
55. Charles Silver, "We're Scared to Death": Class Certification and Blackmail, 78 N.Y.U. L. REV. 1357, 1369-80 (2003);
56. Thomas M. Burton, Makers of Blood Products Agree to Offer $640 Million to Settle Cases Tied to AIDS, WALL ST. J., Apr. 19, 1996, at B6.
57. See GIBSON, CASE STUDIES, supra note 2; McGovern, supra note 11;
58. Francis E. McGovern, The Tragedy of the Asbestos Commons, 88 VA. L. REV. 1721 (2002);
59. Mark A. Peterson, Giving Away Money: Comparative Comments on Claims Resolution Facilities, LAW & CONTEMP. PROBS., Autumn 1990, at 113.
60. See Stringfellow Referee's Decision, supra note 18, at 6-14. The September 11th Victim Compensation Fund provided for a single special master to flesh out the intricacies of the statute, implement regulations, and then determine individual damages.
61. See September 11th Victim Compensation Fund, 28 C.F.R. §§ 104.1-.71 (2004). In the Alabama DDT litigation and the A.H. Robins litigation, a single special master designed the process but did not implement it. See In re Redstone Arsenal DDT Litig., No. CV-86-C-5313-NE (N.D. Ala. Nov. 17, 1986); Feinberg, supra note 2, at 91. MDL-926 had a single administrator whose job was to apply the settlement provisions to individual claimants.
62. See Breast Implant Settlement Agreement, supra note 4, at 10.
63. Virtually all the asbestos claims resolution facilities have this format. In Celotex there were five trustees, a claims administrator, facility counsel, a statistical consultant, and several financial advisors or money managers. The total number of employees on the facility payroll was approximately ninety. See Annex B: Second Amended and Restated Asbestos Personal Injury Claims Resolution Procedures, In re Celotex Corp., Nos. 90-10016-8B1, 90-10017-8B1 (Bankr. M.D. Fla. June 15, 1999) [hereinafter Celotex Settlement Facility Annex B], available at http://www.celotextrust.com/files/Claims%20Resolutions.pdf; Annual Report, Summary of Claims Disposed, Financial Statement, and Account of the Trustees of the Asbestos Settlement Trust for the Period January 1, 2001 to December 31, 2001 at 4-8, In re Celotex Corp., 204 B.R. 586 (Bankr. M.D. Fla. 1996) (Nos. 90-10016-8B1, 90-10017-8B1); see also In re A.H. Robins Co., 86 F.3d 364, 367-68 (4th Cir. 1996) (discussing the administration of the Dalkon Shield Claimants Trust).
64. See Breast Implant Settlement Agreement, supra note 4, at 10-11. The Dalkon Shield Claimants Trust utilized mediation, arbitration, and even jury trials to resolve cases that could not be negotiated. As a result, the facility had negotiators and lawyers who represented it in the various proceedings.
65. See A.H. Robins Disclosure Statement, supra note 2, at 6;
66. GIBSON, CASE STUDIES, supra note 2.
67. In MDL-926, a claims administrator was appointed contemporaneously with the settlement. See Breast Implant Settlement Agreement, supra note 4, at 1. In the Alabama DDT litigation, the administrator was appointed after the settlement. See Report of Administrator at 1-2, In re Redstone Arsenal DDT Litig., No. CV-86-C-53313-NE (N.D. Ala. Nov. 17, 1986).
68. See supra note 5.
69. In the A.H. Robins bankruptcy, it was anticipated that 40,000 to 60,000 claims would be made. The total number exceeded 300,000, but only approximately 100,000 received any payment. See Feinberg, supra note 2, at 106-11. In the original MDL-926 class action settlement, it was anticipated that the $4.3 billion fund would be sufficient to pay all the claims. When the individual payments were anticipated to be reduced by ninety-five percent to accommodate all the eligible claimants, the defendants decided not to settle in that manner. GIBSON, CASE STUDIES, supra note 2, at 218-20. The eventual number of successful claimants was a fraction of those who originally made claims.
70. See Francis E. McGovern, Resolving Mature Mass Tort Litigation, 69 B.U. L. REV. 659, 680-88 (1989);
71. Christopher S. Burnside et al., Mold Spores: Bad Science or Bad Dream?, NAT'L L.J., Feb. 18, 2002, at B13 (discussing the first major success in breast implant litigation - Stern v. Dow Corning).
72. In the asbestos claims resolution facilities, there is often an "exposure" requirement that can be satisfied by a statement that the claimant was exposed to the asbestos product manufactured or sold by the debtor. See Breast Implant Settlement Agreement, supra note 4, at 19 (providing for an affidavit as proof of "exposure").
73. In the Dow Corning claims resolution facility, there is a "proof of manufacture" requirement that the claimant had a Dow Corning product. This requirement can be met by a contemporaneous medical report indicating that an implantation involved a Dow Corning product. See Breast Implant Litigation Notice at 4, In re Silicone Gel Breast Implant Prods. Liab. Litig., No. CV 92-P-10000-S (N.D. Ala. Sept. 1, 1994) [hereinafter Breast Implant Litigation Notice]; see also Annex A to Settlement Facility and Fund Distribution Agreement at A-56 to A-61, In re Dow Corning Corp., 244 B.R. 705 (Bankr. E.D. Mich. Feb. 4, 1999) (No. 95-20512) [hereinafter Dow Corning Settlement Facility Annex A], available at http://www.mied.uscourts.gov/_dow/other/sfaannexa.pdf.
74. For instance, the September 11th Victim Compensation Fund used standard tables for income and mortality. September 11th Victim Compensation Fund of 2001, 28 C.F.R. §§ 104.41-.47 (2004). Because there are independent records of the role of certain asbestos products for specific uses by specific purchasers, some of the asbestos claims resolution facilities require only that a claimant provide a Social Security printout that confirms employment in an occupation during a particular time frame.
75. The September 11th claims resolution facility used a number of standard indices regarding mortality and income. These standards created presumptions or eliminated the need for specific proof. See 28 C.F.R. §§ 104.41-.47; sources cited supra note 3.
76. One of the more innovative approaches to processing claims has been to provide claimants with process options. So, for example, claimants in the Dalkon Shield Claimants Trust could choose among the following: • Option 1: A single flat payment that was lower in amount but required minimal evidence. • Option 2: A workers' compensation type approach that required more proof and the claimant would receive more money based upon a limited factor grid. • Option 3: An individualized review that required tort-like evidence with payment based upon an algorithm that mimicked tort factors and tort settlement values. • Option 4: A full-fledged resort to the tort system with negotiation, mediation, arbitration or trial as well as tort defenses and litigation methodology. See A.H. Robins Disclosure Statement, supra note 2, at CRF-1 to CRF-4. Most of the asbestos claims resolution facilities have adopted a modified options approach. They generally provide for a discounted cash payment for lower amounts of proof and compensation; an individualized review process requiring more evidence for more money; and negotiation, mediation, arbitration, or trial for those unsatisfied with other options.
77. See Marianna S. Smith, Resolving Asbestos Claims: The Manville Personal Injury Settlement Trust, LAW & CONTEMP. PROBS., Autumn 1990, at 27, 32-33; supra note 26.
78. The Dow Corning claims resolution facility requirements mimic the MDL-926 procedures, down to the facility's training methods, manuals, and quality control techniques. See Dow Corning Settlement Facility Annex A, supra note 28, at A-10;
79. Breast Implant Settlement Agreement, supra note 4, at 9.
80. The quick-pay options referred to supra note 31 are examples. See also B. Thomas Florence & Judith Gurney, The Computerization of Mass Tort Settlement Facilities, LAW & CONTEMP. PROBS., Autumn 1990, at 189; supra note 12.
81. The MDL-926 and Dow Corning approaches are examples. See Dow Corning Settlement Facility Annex A, supra note 28, at A-13;
82. see also Annex B to Settlement Facility and Fund Distribution Agreement at B-1 to B-2, In re Dow Coming Corp., 244 B.R. 705 (Bankr. E.D. Mich. Feb. 4, 1999) (No. 95-20512) (containing a settlement grid of personal injury claims), http://www.implantclaims.com/plandocs/ANNEX%20B%20to%20SFA.pdf.
83. The asbestos claims resolution facilities use algorithms. See Asbestos Personal Injury Settlement Trust Distribution Procedures at 6-16, In re Western Asbestos Co., 313 B.R. 832 (Bankr. N.D. Cal. 2003) (No. 02-46284) [hereinafter Western Asbestos Distribution Procedures], http://www.wastrust.org/pdf/trust_distribution_procedures.pdf;
84. Second Amended and Restated Asbestos Personal Injury Claims Resolution Procedures at 2-33, In re Celotex Corp., Nos. 90-10016-8B1, 90-10017-8B1 (Bankr. M.D. Fl. Jan. 15, 1998).
85. Option 3 of the Dalkon Shield Claimants' Trust utilized such an approach. See A.H. Robins Disclosure Statement, supra note 2, at CRF-2 to CRF-4;
86. see also Western Asbestos Distribution Procedures, supra note 35, at 6-16 (using a similar approach).
87. The September 11th claims resolution facility looked to a variety of damage factors to establish compensation. See September 11th Victim Compensation Fund of 2001, 28 C.F.R. §§ 104.41-.47 (2004).
88. Oftentimes, the damages algorithm will include weighting for the quality of the evidence or for certain factors over other factors. See Feinberg, supra note 2, at 94-97.
89. The MDL-926 and Dow Corning claims resolution facilities provide for an appeal to an independent appeals judge. See Dow Corning Settlement Facility Annex A, supra note 28, at A-53. The asbestos claims resolution facilities and the Dalkon Shield facility provide for negotiation, mediation, arbitration, and trial.
90. See A.H. Robins Disclosure Statement, supra note 2, at CRF-3 to CRF-4. The September 11th facility had no recourse above the special master.
91. See September 11th Victim Compensation Fund of 2001, Pub. L. No. 107-42, §§ 401-409, 115 Stat. 237, 237-41 (codified at 49 U.S.C. § 40101 (Supp. I 2001)).
92. See In re Redstone Arsenal DDT Litig., No. CV-86-C-5313-NE, slip op. at 3-7 (N.D. Ala. Nov. 21, 1988). The medical surveillance aspect of the fen-phen settlement is another good example. See In re Diet Drugs Prods. Liab. Litig., Nos. 1203, 99-20953, 2000 WL 1222042 (E.D. Pa. Aug. 28, 2000) (order approving class action settlement). Many defendants would prefer to have more control over services provided to claimants because they believe they would then have better opportunities for controlling costs and obtaining volume discounts. Most plaintiffs are skeptical that they will receive full value if the defendant has any control over the facility process.
93. Both the MDL-926 and Dow Corning facilities have provisions that claimants who suffer certain future harms can return to the facility for additional compensation. See Dow Corning Settlement Facility Annex A, supra note 28, at A-13;
94. Breast Implant Litigation Notice, supra note 28, at 5. Virtually all of the asbestos claims resolution facilities have provisions under which future malignancies are to be compensated for when they occur.
95. See, e.g., Celotex Settlement Facility Annex B, supra note 22, at 7.
96. The Dalkon Shield, silicone gel breast implants, and fen-phen were all removed from the marketplace. The polybutylene pipe that was defective was replaced. See In re Diet Drugs Prods. Liab. Litig., 2000 WL 1222042, at *2; In re A.H. Robins Co., 88 B.R. 742, 743 (Bankr. E.D. Va. 1988).
97. The MDL-926 and Dow Corning facilities have some provision for personal and legal assistance and a variation of an outreach program. See Breast Implant Litigation Notice, supra note 28, at 12.
98. See generally E. ALLAN LIND & TOM R. TYLER, THE SOCIAL PSYCHOLOGY OF PROCEDURAL JUSTICE (1988);
99. JOHN THIBANT & LAURENS WALKER, PROCEDURAL JUSTICE: A PSYCHOLOGICAL ANALYSIS (1975);
100. TOM R. TYLER, WHY PEOPLE OBEY THE LAW (1990);
101. Tom R. Tyler, A Psychological Perspective on the Settlement of Mass Tort Claims, LAW & CONTEMP. PROBS., Autumn 1990, at 199.
102. The Holocaust funds probably illustrate this point most directly. See In re Holocaust Victim Assets Litig., 105 F. Supp. 2d 139 (E.D.N.Y. 2000). The monetary compensation would generally be viewed as inadequate, but the recognition of responsibility was deemed to be even more important. MICHAEL J. BAZYLER, HOLOCAUST JUSTICE: THE BATTLE FOR RESTITUTION IN AMERICA'S COURTS 307-34 (2003).
103. For examples of consensus-building facilities, see Ortiz v. Fiberboard Corp., 527 U.S. 815, 824-25 (1999); Amchem Products, Inc. v. Windsor, 521 U.S. 591, 599-601 (1997); and Stringfellow Referee's Decision, supra note 18, at 6-14. Most class action settlements are negotiated by class counsel, not class members. The U.S. Supreme Court's opinions in Ortiz and Amchem illustrate this point. The bankruptcy courts never initiate a majority, two-thirds, or three-quarters positive vote. Some counsel actively involve their clients in the discussions concerning the claims process. In Stringfellow, there were independent special masters who dealt directly with the plaintiffs and developed consensus approaches that were adopted by the courts. See id.
104. See, e.g., In re Redstone Arsenal DDT Litig., No. CV-86-C-5313-NE, slip op. at 3-7 (N.D. Ala. Nov. 21, 1988). All the bankruptcy claims resolution facilities fall into this category. See, e.g., Breast Implant Litigation Notice, supra note 28, at 13.
105. See generally GIBSON, JUDICIAL MANAGEMENT, supra note 2.
106. The Stringfellow claims resolution facilities are an example.
107. These committees are known as "claimants' advisory committees" or "technical advisory committees." See Breast Implant Settlement Agreement, supra note 4, at 14.
108. Both the MDL-926 and Dow Corning claims resolution facilities have an appeals judge. See id. at 11.
109. The DDT claims resolution facility is an example. See supra note 7; see also,GIBSON, JUDICIAL MANAGEMENT, supra note 2, at 187-215.
110. In Stringfellow, the court approved the plan of distribution before its application, and plaintiffs were bound by the plan once it was approved. The plan contemplated a "points" system where each plaintiff was assigned points for how long they had lived in the areas, how close they lived to the site, what their mode of exposure was, their age, their diseases, if any, and whether they had been a representative plaintiff. Once all the plaintiffs had completed and verified claim forms that provided the answers to these questions, points were assigned to each plaintiff. The total number of points for all plaintiffs was then divided into the amount of the settlement. Once the value of each point was mathematically determined, each plaintiff's total points were multiplied by the value of a point, and the result was the amount of compensation to be received. No plaintiff could know the value of his or her award until all claims were processed. See Plaintiff's Motion to Approve the Plan of Distribution of Settlement Funds as Fair and Reasonable to the Adult and Minor Plaintiffs, Including Findings of Fact and Conclusions of Law at 5-6, Newman v. Stringfellow, Nos. 165994MF and 167122, 167173, 167291, 167327, 167467, 167691, 168088, 168349, 168591, 168939, 169223, 169610, 169999 (Cal. Super. Ct. May 9, 1995); see also GIBSON, JUDICIAL MANAGEMENT, supra note 2, at 188-94;
111. Francis E. McGovern, Foreword, LAW & CONTEMP. PROBS., Autumn 1990, at 1, 2; McGovern, supra note 7, at 75-76.
112. See generally JOHN RAWLS, A THEORY OF JUSTICE 136-42 (1971) (providing the theoretical underpinning for this idea with its Rawlsian "veil of ignorance").
113. The September 11th Victims Compensation Fund's claims process used this approach. It took hypothetical examples and gave advance guidance before the claims were processed. See 28 C.F.R. § 104.34 (2004).
114. The MDL-926 settlement provided for a letter to each plaintiff who had filed a qualifying claim form letting them know how much money they would receive if they decided to participate. See Dow Corning Settlement Facility Annex A, supra note 28, at A-2 to A-3.
115. The fen-phen class action settlement had three separate opt-out rights for plaintiffs, depending upon the stage of their claim. See In re Diet Drugs Prods. Liab. Litig., Nos. 1203, 99-20953, 2000 WL 1222042, at *25-26 (E.D. Pa. Aug. 28, 2000).
116. For a brief description of the problem-solving versus consensus-building debate, see Francis E. McGovern, Strategic Mediation: The Nuances of ADR in Complex Cases, DISP. RESOL. MAG., Summer 1999, at 4.
117. For more in-depth coverage, see generally THE CONSENSUS BUILDING HANDBOOK (Lawrence Susskind et al. eds., 1999).
118. See, e.g., Stringfellow Referee's Decision, supra note 18, at 1-2.
119. The Dow Corning settlement facility was based upon the MDL-926 facility. All the asbestos bankruptcy claims resolution facilities have followed their predecessors. The September 11th Victim Compensation Fund used a number of governmental programs as guidelines.
120. The United Nations Compensation Commission used teams of experts in a number of areas to support their decisions. See Christopher S. Gibson, Mass Claims Processing: Techniques for Processing over 400,000 Claims for Industrial Loss at the United Nations Compensation Commission, in THE UNITED NATIONS COMPENSATION COMMISSION, supra note 5, at 155, 160-62.
121. See Michael F. Raboin, The Provisional Rules for Claims Procedure of the United Nations Compensation Commission: A Practical Approach to Mass Claims Processing, in THE UNITED NATIONS COMPENSATION COMMISSION, supra note 5, at 119, 135-44. To legitimate the decisions, the commissioners in the UNCC were all highly respected jurists, arbitrators, or governmental officials. Id.
122. See Peterson, supra note 20, at 127-34; Francis E. McGovern, The Evaluation of Damages in Mass Torts, Reparation des Prejudices de Masse, Le Seminaire "Risques, Assurances, Responsabilites," Address to the Cour de Cassation et Institute des Hautes Etudes sur la Justice (Jan. 29, 2004) (on file with author).
123. See generally STEPHEN J. CARROLL ET AL., ASBESTOS LITIGATION COSTS AND COMPENSATION (2002);
124. JAMES S. KAKALIK ET AL., COSTS OF ASBESTOS LITIGATION (1983); Ayres, supra note 10.
125. Peterson, supra note 20, at 127-31; McGovern, supra note 60, at chart 24.
126. McGovern, supra note 60, at 1-3.
127. See McGovern, supra note 7, at 76-77.
128. Probably the most extreme examples are American Home Products and the fenphen litigation. Most of the bankruptcy cases would have had the same pressures. See Charles Silver, "We're Scared to Death": Class Certification and Blackmail, 78 N.Y.U. L. REV. 1357, 1369-80 (2003);
129. see also Big Trouble for Merck, ECONOMIST, Nov. 6, 2004, at 61;
130. Roger Parloff, How Bad Will the Lawsuits Get?, FORTUNE, Nov. 1, 2004, at 96;
131. John Simons & David Stipp, Will Merck Survive Vioxx?, FORTUNE, Nov. 1, 2004, at 90;
132. David Whitford, AHP's Awful Losing Streak, FORTUNE, Nov. 22, 1999, at 52.
133. The concept of the time-consistency problem is that governments may make suboptimal decisions because their decisions cannot be enforced over time. For example, a government decision not to subsidize a flood plain area may change once the area has become populated due to the corresponding political pressure. This phenomenon in the context of litigation suggests that a defendant's decision to litigate rather than settle with a claims resolution facility can be undermined by the economic pressure that other actors can bring to bear. Plaintiffs' counsel may recognize this tendency and the inevitable "safe haven" of a claims resolution facility and attempt to raise the economic ante of litigation beyond the point of tolerance. Although a long-term "stay the litigation course" strategy would be preferable, the short-term pressure can lead to a suboptimal result. See generally ALLAN DRAZEN, POLITICAL ECONOMY IN MACROECONOMICS 99-216 (2000);
134. Finn E. Kydland & Edward C. Prescott, Rules Rather than Discretion: The Inconsistency of Optimal Plans, 85 J. POL. ECON. 473, 473-92 (1977);
135. Royal Swedish Acad. of Scis., Finn Kydland & Edward Prescott's Contribution to Dynamic Macroeconomics: The Time Consistency of Economic Policy and the Driving Forces Behind Business Cycles, in ADVANCED INFORMATION ON THE BANK OF SWEDEN PRIZE IN ECONOMIC SCIENCES IN MEMORY OF ALFRED NOBEL 4-10 (2004), available at http://nobelprize.org/economics/laureates/2004/ecoadv.pdf.
136. The concept of elasticity in mass torts is closely akin to the economic concept of demand elasticity. If supply is high and cost is low, an increase in demand means it is elastic. In litigation terms, if the supply is the number of cases processed by the system and cost is the transaction cost of that processing, then an elastic mass tort would have an increase in filings, whereas an inelastic mass tort would not. Aircraft crash cases are, for example, inelastic; asbestos cases are highly elastic. Since only 10-20% of all actionable torts result in litigation, there is a universe that remains unfiled. If there is a claims resolution facility that processes claims quickly and at low costs, one can anticipate a much higher filing rate than one would otherwise expect in the tort system. These larger numbers of claims can create a major dilution of benefits, particularly if they are accompanied by large numbers of false positives that cannot be eliminated. See McGovern, supra note 11, at 1827-34.
137. See Florence & Gurney, supra note 33, at 189-96. Time, quality, and cost are three main possible priorities for claims resolution facilities; emphasis on any two will make it hard to truly emphasize the third. If the speed and expense of processing claims are the priorities, as is the case almost by definition for claims resolution facilities, then quality will suffer. Error rates will be higher. The concept of rough justice contemplates larger numbers of false positives, thereby exacerbating the dilution-of-damages effect promoted by claims resolution facilities. One interesting approach to this problem occurred in the Global Research Analyst Settlement. See supra note 6. That settlement allowed for plaintiffs to bring arbitrations or other legal actions to enforce their claims. The distribution plan recognized this phenomenon and focused on ensuring that only true positives were paid, because false negatives could pursue other remedies. Recognizing that there will be higher error rates than with a more deliberate and expensive process, most claims resolution facilities err on the side of paying the highest possible number of positives, thereby increasing the number of positives that are false. The distribution of the Global Research Analyst Settlement focused on not paying false positives, even at the risk of not paying true positives. One of the most prominent examples of the use of error rates in legal decisionmaking is in Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), where the "known or potential error rate" is one of the four factors considered in deciding on the admissibility of scientific evidence. Id. at 594; see also Ayres, supra note 10; Florence & Gurney, supra note 33.
138. The fundamental problem here is the well-known psychological phenomenon of reference points. If the reference point is 100, there will be disappointment if one gets 10. If the reference point is 1, 10 will look terrific. The same applies to claims resolution facilities. If the reference point for liability is based upon tort and its concept of full individual compensation, the specter of a welfare-like low and uniform payment will not be attractive. Since there is usually discontinuity between the liability and damages determination and the allocation and distribution determination, there is substantial opportunity for cognitive mischief. What, for example, was the September 11th Victim Compensation Fund? A welfare safety-net program? A tort replacement? An airline bailout? For the claimants, it seemed to substitute for tort compensation - and anything less than that was unsatisfactory. For the American public, it often seemed like a hybrid insurance/welfare-safety-net/war-reparations model. Depending upon the frame of reference, the viewers' attitudes could be radically different. Prospect theory contemplates that "individuals evaluate outcomes as changes from a reference point." JONATHAN BARON, THINKING AND DECIDING 255 (3d ed. 2000);
139. see also LAWRENCE W. BARSALOU, COGNITIVE PSYCHOLOGY 209-12 (1992) (describing referent models);
140. DANIEL KAHNEMAN & AMOS TVERSKY, CHOICES, VALUES AND FRAMES (2000) (providing a more complete discussion of the concept of reference in a variety of contexts).
141. 521 U.S. 591 (1997) (refusing to certify a global class for the settlement of current and future asbestos-related claims).
142. 527 U.S. 815 (1999) (holding that certification of a class in an asbestos case under a limited fund theory required showings that the fund was limited by more than the agreement of the parties and that conflicting interests of class members had been taken into account).
143. 391 F.3d 190 (3d Cir. 2004) (rejecting a prepackaged bankruptcy).
144. For a more complete suggestion of rules of formal procedure for negotiating mass tort settlements, see Francis E. McGovern, Toward Federal Rules of Negotiation Procedure for Mass Torts, 74 UMKC L. REV. (forthcoming 2005).