Much like the housing bubble, the days of huge class action settlements providing millions in attorney fees may be ready to burst, at least in one federal circuit.
The Philadelphia-based 3rd U.S. Circuit Court of Appeals is starting to take a hard look at settlements that provide for huge attorney fees while leaving insurance companies stuck with the bill—and sometimes leaving plaintiffs claiming they got less than their fair share.
For years, critics say, it worked like this: Plaintiffs lawyers would file mass tort class actions—such as those for asbestos, tobacco and other products found to cause grave harm. Then, when the company allegedly responsible for damages filed for bankruptcy protection in the face of the claims, plaintiffs lawyers would settle for an amount that provided millions of dollars in attorney fees, while leaving individual claimants with a relatively small recovery. The company was then absolved of further liability and could reorganize and emerge relatively unscathed.
But recently that structure has begun to show cracks. In some instances, insurance companies—which usually pay the bulk of these settlements—have cried foul. The companies are seeking to intervene in cases where they face huge liabilities, sometimes joining forces with unhappy claimants who feel their lawyers didn’t have their best interests at heart when they agreed to the settlements.
In one case, the 3rd Circuit revived a suit last October that had been filed by a group of asbestos workers alleging their former lead attorneys had breached their fiduciary duty in negotiating a settlement. Huber v. Taylor, 469 F.3d 67.
