Lawsuit Ecosystem II New Trends, Targets and Players DECEMBER 2014 © U.S. Chamber Institute for Legal Reform, December 2014. All rights reserved. This publication, or part thereof, may not be reproduced in any form without the written permission of the U.S. Chamber Institute for Legal Reform. Forward requests for permission to reprint to: Reprint Permission Office, U.S. Chamber Institute for Legal Reform, 1615 H Street, N.W., Washington, D.C. 20062-2000 (202.463.5724). Table of Contents Executive Summary .......................................................................................................................i Litigation Trends Mass Tort & Product Liability Litigation ..................................................................................1 Class Action Litigation ..........................................................................................................15 Asbestos Litigation ...............................................................................................................25 Securities and M&A Litigation ..............................................................................................38 False Claims Act Litigation ...................................................................................................48 Patent Troll Litigation ...........................................................................................................58 Social Media at Work: Plaintiffs’ Bar and the NLRB Go Viral .................................................66 Energy Regulation through Litigation ....................................................................................76 Telephone Consumer Protection Act Litigation .....................................................................86 The Plaintiffs’ Lawyer Alliance With State Attorneys General ...........................................95 Special Features American Law Institute Projects Quietly Reshape Civil Litigation ........................................110 Defendants Fight Back .......................................................................................................117 Prepared for the U.S. Chamber Institute for Legal Reform by Victor E. Schwartz and Cary Silverman, Shook, Hardy & Bacon LLP Contributing Authors The U.S. Chamber Institute for Legal Reform appreciates the contributions of each of the attorneys who contributed their insight to the development of this report. MASS TORT & PRODUCT LIABILITY LITIGATION Cary Silverman & Virginia Knapp Dorrell Shook, Hardy & Bacon LLP CLASS ACTION LITIGATION John H. Beisner & Jessica D. Miller Skadden, Arps, Slate, Meagher & Flom LLP ASBESTOS LITIGATION Mark A. Behrens Shook, Hardy & Bacon LLP James L. Stengel Orrick, Herrington & Sutcliffe LLP SECURITIES AND M&A LITIGATION Andrew J. Pincus Mayer Brown LLP FALSE CLAIMS ACT LITIGATION Peter B. Hutt II Akin Gump Strauss Hauer & Feld LLP Cary Silverman Shook, Hardy & Bacon LLP PATENT TROLL LITIGATION Phil Goldberg Shook, Hardy & Bacon LLP SOCIAL MEDIA AT WORK Sara A. Begley, Joel S. Barras, Divonne Smoyer & Amanda D. Haverstick Reed Smith LLP ENERGY REGULATION THROUGH LITIGATION Phil Goldberg Shook, Hardy & Bacon LLP TELEPHONE CONSUMER PROTECTION ACT LITIGATION Becca J. Wahlquist & Marjorie A. Witter Snell & Wilmer LLP THE PLAINTIFFS’ LAWYER ALLIANCE WITH STATE ATTORNEYS GENERAL Cary Silverman Shook, Hardy & Bacon LLP AMERICAN LAW INSTITUTE PROJECTS QUIETLY RESHAPE CIVIL LITIGATION Victor E. Schwartz & Christopher E. Appel Shook, Hardy & Bacon LLP DEFENDANTS FIGHT BACK Cary Silverman Shook, Hardy & Bacon LLP Executive Summary What are the latest trends in American litigation? Where are opportunistic plaintiffs’ lawyers prospecting for lawsuit gold? How are some state attorneys general delegating unprecedented powers to private lawyers who are driven by profit, not the public interest? Are targeted businesses pushing back? These key questions, and more, are examined in The Lawsuit Ecosystem II: New Trends, Targets, and Players. Big-ticket litigation is a highly lucrative business. As the National Law Journal observed, in 2013, the 100 largest verdicts yielded more than $10 billion in recoveries, a sum the NLJ expects plaintiffs’ lawyers to equal or surpass this year.1 Creative plaintiffs’ lawyers are continually developing new theories and identifying new targets to increase their profits. This report, authored by a distinguished group of practitioners, explores the evolving lawsuit “ecosystem.” It considers how plaintiffs’ lawyers generate litigation and significant developments that will spur more lawsuits or rein in excessive liability. Key findings are highlighted below. Litigation Trends ADVERTISING FOR MASS TORT CLAIMANTS The business model for building mass tort litigation is extensive and complex: • Plaintiffs’ lawyers work with “lead generation” firms to advertise for prospective claimants, spending millions each month; • At the first sign of a problem with a product, plaintiffs’ lawyers begin recruitment efforts; • Potential claims are sold, traded, and bundled before a plaintiffs’ lawyer actually files them; and • Plaintiffs’ firms rush to file as many lawsuits as possible to gain a strategic advantage in future litigation. U.S. Chamber Institute for Legal Reform I EXPANSIONS OF PRODUCT LIABILITY In three states, courts opened the door to new types of product liability lawsuits: • In Pennsylvania, the high court ruled that manufacturers may be liable for “negligent design” of a drug, even if it adequately warned of potential side effects; • In Alabama, the Supreme Court became the first high court to rule that a brand- name drug maker can be held liable for injuries caused by generic versions of the drug made by competitors; and • In California, a $1.15 billion verdict requires companies to pay to remediate lead paint they may not have sold on property they do not control. SANCTIONS FOR LOSS OF ELECTRONIC DATA Plaintiffs’ attorneys initiate discovery disputes to discredit a defendant in the judge’s eyes and, when possible, generate sanctions. • Given virtually unlimited amounts of electronic data, the risk of lost files, and opportunity for plaintiffs’ lawyers to cry foul, is high. • The largest verdict in a product liability case this year, $9 billion, stemmed from sanctions for failure to retain documents. • Proposed changes to the federal rules may help clarify document retention obligations. MIXED SIGNALS ON CLASS CERTIFICATION The battle over what does and does not constitute a certifiable class action continues. On one hand: • A class may include consumers who have experienced no problem with their purchases; and • Federal appellate courts are rarely granting immediate review of class certification rulings, thereby increasing the pressure on defendants to settle even meritless claims. But on the other hand: • “Ascertainability”—the need for plaintiffs’ lawyers to show they can accurately identify class members—has become increasingly prominent in class certification decisions; and • Some judges are scrutinizing class action settlements that generously compensate plaintiffs’ lawyers but provide little or no benefit to those they purportedly represent. II Lawsuit Ecosystem II ASBESTOS LITIGATION CONTINUES TO EVOLVE The outlook is mixed with respect to the seemingly endless parade of asbestos claims. On the plus side: • A federal bankruptcy judge has shed light on some of the more suspect tactics of plaintiffs’ lawyers, which might lead to additional evidence of abuse, and spur judicial action and legislative reform. On the minus side: • Court procedures in New York City were altered to favor asbestos plaintiffs; • In two major states, plaintiffs’ lawyers succeeded in subjecting employers to tort suits, circumventing workers’ compensation laws; and • Individuals with lung cancer—an illness often not related to asbestos—are being sought and recruited as a vast new pool of potential claimants. SECURITIES LITIGATION CONTINUES UNABATED Federal securities litigation harms investors while benefiting plaintiffs’ lawyers: • Shareholders lose $39 billion per year in wealth in order to collect $5 billion per year in settlement distributions; • Federal securities class action settlements resulted in $1.1 billion in attorneys’ fees, almost twice as much as the prior year; • “Frequent filers”—professional plaintiff investors—play a significant role in securities litigation; and • The U.S. Supreme Court maintained a court-created presumption that an alleged misstatement affects market price, which may result in even more complex and expensive securities litigation. A LAWSUIT FOR EVERY MAJOR DEAL Nearly every merger or acquisition results in multiple class action lawsuits within weeks of the announcement. • Businesses quickly pay this “litigation tax” as a cost of doing business in order to complete the deal; and • In three out of four settlements, shareholders do not receive a cent, but lawyers take home significant sums. U.S. Chamber Institute for Legal Reform III QUI TAM LAWSUITS REACH NEW HEIGHTS Federal False Claims Act (FCA) lawsuits— known as qui tam actions—reached a new high in FY 2013, and continued at near record levels in FY 2014. • The healthcare and financial services industries bear the brunt of the litigation; • As the federal government assumes a greater role in healthcare, plaintiffs’ lawyers may develop new theories to bring FCA lawsuits; • Courts are considering cases that could further expand or constrain FCA liability, such as allowing “whistleblowers” to sue even when