Results matching “fen-phen”

Comments on Prof. Childs' "tort reform for liberals" - PointOfLaw Forum

I agreed heartily with most of what Prof. Childs had to say here last week in his excellent "tort reform for liberals" series (starting here; also see entries on his must-read TortsProf site). Maybe this means I've become a liberal (OK, maybe a "classical liberal") but I prefer to think it instead indicates that many of the issues here transcend conventional political labels.

A few observations:

Vicksburg Post executive editor Charlie Mitchell has some things to say about the Mississippi diet-drug-suit scandal.

Superstars, Lawsuits, and the Public Interest - PointOfLaw Featured Discussion


My intention today was to get fully into my critique of your article with Eric Helland, but after your most recent post, I again wanted to clarify some theoretical issues. To keep this entry at a readable length, I'm posting it first. I'll follow up tonight or in the morning with an analysis of your empirical findings.

In your most recent post, you draw an analogy between contingency fee arrangements and arrangements in which "superstar" actors and actresses -- like Julia Roberts -- get a piece of the eventual revenues from their movies. You then suggest that such forms of actor compensation are a major reason why we have bad, dumbed down "blockbuster" movies -- and argue that nevertheless we shouldn't regulate actors' movie contracts (that's an easy point of agreement!).

I don't think your analogy works on a number of levels. Studios, not actors, are the main drivers behind the "blockbuster" business model. They may be coming into question of late, but summer blockbusters have been the industry's staple since Jaws and Star Wars hit it big some 30 years ago. The blockbuster movie model predated actors' ability to get a slice of movie revenues, not the other way around.

Now, a limited group of actors has proven its ability to "draw" audiences based on reputation alone, and has thus gathered a piece of the pie (not on a true "contingency" basis but rather on top of a multimillion dollar guaranteed fee). But this group is a very limited one, and includes only the "top draw" actors like Tom Cruise, Julia Roberts, Reese Witherspoon, Will Smith, and a handful or two others. These artists get a stake in blockbuster movies' outcomes because they have negotiating leverage based on their unique human capital, a proven brand name that virtually guarantees ticket sales. But the run-of-the-mill actor doesn't get a percentage of the movie's profit. The "superstar actor" model, then, is very different from what we observe with contingency fee arrangements for lawyers, in which the vast majority of plaintiffs' lawyers in personal injury/ products liability/ medical malpractice cases work on a contingency fee -- at essentially the same standard 33% level.

Studios, unlike the vast majority of contingency fee plaintiffs, have no liquidity constraints when it comes to paying actors. They may get some improved performance out of superstar actors when they give them a piece of the pie, by inducing them to be more enthusiastic about promotional movie junkets. But that incentive effect is much more analogous to incentives offered to top corporate executives in the form of stock options than lawyer contingency fees; and with the exception of employers trying to wring union concessions via ESOP plans, stock options only go to key personnel.

So when it comes to clever but misleading rhetorical devices, I think the "actor superstar" analogy fits the bill. And, most importantly, it conveniently sidesteps the crucial difference between employee incentive arrangements in the free market and contingency fee arrangements in the legal market: litigation involves using government force to redistribute wealth, whereas movie sales involve willing consumers. If I pay for a movie, then I presumably value the experience more than the ticket price. I may sometimes be disappointed, ex post, just as I might be for a meal, a bottle of wine, or a basketball game. But going in, I expect to prefer the experience to the cash. The social planning instinct that underlies wanting "better movies" through contract regulations is of course silly to those of us with libertarian instincts -- and after all, in this day and age we can watch classic movies via Netflix or AMC; visit art house cinemas; or take in opera, theater, and the like.

But litigation is a different beast entirely. What the plaintiff and lawyer are contracting for is to take money from someone else. While it isn't quite the same as Tony Soprano paying a henchman to shake down a local business owner for "protection," it isn't always so different. Yes, in an ideal world, our legal system would be the perfect black box that only spit out awards to deserving plaintiffs, quickly and at low cost. But it isn't.

There are a couple key points that bear emphasis:

First, litigation costs society. Lawsuits are not just market transactions in which two parties both benefit, helping society apart from any negative externalities. Plaintiffs may be perfectly happy to give up one-third of their ultimate winnings to obtain financing and reduce attorney-client agency costs. But let's not forget that defendants and companies insuring defendants end up paying over one-third of all litigation costs. Moreover, market incentives are significantly distorted by the prospects of litigation. If you believe, a la Calabresi, that the courts are on average creating distortions that drive decision makers in the economy to reduce true "accidents" or social costs, at an efficient level, you're just fine with that (as long as the social costs reduced exceed the dead weight loss of the system). But if you agree with Peter Huber that such distortions are actually welfare and safety reducing (as the recent study by Paul Rubin and Joanna Shepherd tends to suggest), you've got an even bigger reason to worry about litigation's effects on our society.

Second, contingency fees increase the quantity and decrease the quality of litigation. I've suggested a couple of mechanisms through which this effect happens, which you consider to be in "real tension." Well, let's see. First of all, most contingency fee plaintiffs are unsophisticated, creating a market failure because there's no price competition over the fee. Apart from the Brickman studies previously cited, I think that the fact that fee percentages are not varied based on case risk (or in most instances attorney quality) is extremely evident to anyone with much familiarity with the legal system. As Walter Olson pointed out on Overlawyered yesterday, David Giacolone recently wrote extensively about this market failure on his blog, in much more detail than I have here. (I don't agree with everything he says, but it's very interesting.) In my view, the fact that there are a lot of cases in which attorneys on a contingency fee get high returns for little risk leads a lot more attorneys -- filing a lot more lawsuits, often dubious -- to enter the field. The latter attorneys do worse than their hourly fee brethren, but the end result is more lawyering, and more money for lawyers on both sides.

The second mechanism I suggest to explain how contingency fees drive up the quantity and reduce the quality of litigation is the very fact that contingency fee lawyers have a big incentive to file low probability, high value cases because they have a stake in the outcome. In your initial post you attacked this line of thinking in a couple of ways. First, you note that "the lawyer's client has exactly the same incentives (indeed, given a contingent fee of 1/3rd, twice as strong incentives!)." But that isn't really very compelling to me: remember, the plaintiff, just like Tony Soprano, may have lots of incentive to shake down a business, but that doesn't mean that society is better off if he does. It doesn't really trouble me that some plaintiffs who aren't liquidity constrained (and who are capable of assessing and monitoring their cases) might still find ways to file low probability cases. To begin with, the contingency fee from the outset was a mechanism for giving the poor access to the legal system. That the non-liquidity-constrained might prefer it, too -- because it reduces monitoring costs but also because it gives attorneys incentives to cut ethical corners -- doesn't in my view add much to the debate. And it isn't really in tension with the fact that some plaintiffs are abused, either: the corporations and rich folks who want contingency fee lawyers are almost certainly better able to protect themselves from their own attorneys' potential abuse.

Your second argument against my point that contingency fees encourage "low probability, high value" lawsuits is that "[n]ot all low-probability, high damages cases lack merit." Well, sometimes that's true (though I'd say that on average we witness the opposite effect -- that cases that really lack merit are high probability due to bad laws or rules, or judges' or juries' prejudices). But you wouldn't really argue that in our legal system good cases are on average very unlikely to win, would you? Even accounting for selection bias, that's hard to believe when over 50 percent of civil jury trials result in a plaintiff verdict. In reality, most low probability cases are low probability for a reason: the plaintiff shouldn't win (but might given a bad judge or jury). Recognizing that litigation costs society due to huge administrative costs and substantial distorting effects, as I explained in point 1, we really don't want those cases in court.

Finally, the fact that contingency fees create a direct and very powerful incentive for attorneys to bend the rules is a crucial point. Attorneys having a stake in the outcome gives them a strong inducement to generate fraudulent claims, fabricate evidence, and suborn perjury. Hourly fee attorneys are zealous advocates, for sure, but without a stake in the outcome of the case, their advocacy typically has real limits. If you don't believe that the contingency fee has an extremely powerful effect on attorneys trolling for clients, consider what Ted Frank reported on Overlawyered a couple weeks back: "Six of the eight most expensive Google AdSense search terms are for attorneys (the other two are for mortgage and loan refinancing), with 'mesothelioma lawyers' topping the charts at $54.33." And if you don't think that contingency fee lawyers haven't been manufacturing false claims on a grand scale, take a look at Janis Graham Jack's findings in the silicosis litigation (along with our commentaries), or what Judge Harvey Bartle found in the fen-phen litigation (summarized nicely in a recent Forbes article). I haven't heard of any silicosis or fen-phen lawyers working on hourly fees. But one thing's for sure: these cases are extremely costly to society.

In sum, I think the contingency fee is a primary cause of the litigation explosion. The contingency fee caps you and Eric study are a crude mechanism to be sure, but their problem isn't that they infringe on the right to contract but that they don't go far enough. Your empirical analysis, as you interpret it, directly undermines the arguments I've made above: you conclude that contingency fees on average improve case quality and lower the time it takes cases to settle -- presumably increasing the social welfare. I think you misinterpret your data, though, as I'll explain in full later tonight or in the morning.

"Home court"? - PointOfLaw Forum

Judge Higbee's courtroom isn't as bad as a south Texas or Alabama state court where the judges are directly elected by the plaintiffs' bar, but it's hardly Merck-friendly. She is a former plaintiff's attorney who has repeatedly made rulings unfavorable to Merck, including certifying a groundless fifty-state class action. Many of the cases involve out-of-state plaintiffs whose attorneys deliberately chose to file in New Jersey to guarantee that their case wouldn't be removed to federal court by Merck. So why do plaintiffs' attorneys keep referring to the New Jersey cases as being fought in "Merck's home court"? The answer is to make Merck's liability seem worse than it is, which will help (1) recruit plaintiffs and (2) create financial market pressure on Merck to settle and quantify its uncertain liability (though we know from Wyeth and fen-phen that settling defensible cases at an early stage only makes liability worse in the long run). Occasionally, you'll see the press or a stock analyst buy the hype, but you, gentle reader, now know better.

"The $22 Billion Gold Rush" - PointOfLaw Forum

Forbes magazine has a must-read overview of the fen-phen litigation as its cover story this week, as well as the update that some 8000 additional claims have been settled. Wyeth has set aside $22 billion to pay out claims, most of which are fraudulent.

Judge resigns in Ky. fen-phen scandal - PointOfLaw Forum

Last May 10 we reported on the questions that were being asked about a sealed settlement of Kentucky fen-phen claims which had included (along with vast sums in legal fees) the quiet diversion of $20 million into a mysterious new charitable entity called the Kentucky Fund for Healthy Living. Now the mystery has turned to scandal: the judge who approved the settlement, Joseph F. ("Jay") Bamberger has resigned after allegations surfaced that he was serving as a director of the fund, receiving $5,000 a month (three of the plaintiff's lawyers were also paid directors). The state's Judicial Conduct Commission said Bamberger's actions "shock the conscience" and he faced possible removal had he not resigned. Particular attention is being focused on Bamberger's close ties to Mark Modlin, a trial consultant in the fen-phen case who has had co-investments with the judge. The alleged closeness between Bamberger and Modlin had led to protests from litigants in a number of earlier cases, including a high-profile priest-abuse case against the Catholic Diocese of Covington.

The commission's reprimand (PDF) revealed a startling fact. "The attorney fees approved were at least $86 million and perhaps as much as $104 million" -- well exceeding the $74 million that was split among the 431 claimants in settlement. A lawsuit continues on behalf of some allegedly victimized clients against four plaintiff's lawyers involved in the settlement, including big-league Cincinnati operator Stanley Chesley. (Beth Musgrave, "Fen-phen lawsuit judge resigns", Lexington Herald-Leader, Feb. 28; Jim Hannah, "Judge quits amid allegations", Cincinnati Enquirer, Feb. 28; "Investigation of Bamberger warranted" (editorial), Cincinnati Enquirer, Mar. 1; "A blistering rebuke" (editorial), Cincinnati Post, Mar. 1; Peter Bronson, "Hold this judge in contempt", Cincinnati Enquirer, Mar. 2)(cross-posted at Overlawyered).

Today's Wall Street Journal has a good—if only partial—overview of the problems facing Merck as it tries to defend itself from the feeding frenzy of Vioxx litigation. The Garza case, which began yesterday, demonstrates the logistical challenge: the trial—with its one-week-on, three-weeks-off calendar in a jurisdiction where a third of the jury pool knew the plaintiff's family—was scheduled only three weeks ago, which required a new trial counsel because of a scheduling conflict with the old one. As many as a dozen cases could be tried simultaneously in 2006, and each trial team must be familiar with seven million documents and tens of thousands of pages of videotaped deposition testimony. Meanwhile, the company is distracted from its mission and numerous executives' careers are ruined by the need to spend months sitting in courtrooms, with the concomitant problem that witnesses get "stale" after repeated use, and a single in-trial or in-deposition mistake by a witness will get used against that witness in all future trials. (Heather Won Tesorio, Jan. 26; AP, Jan. 24). But, as not mentioned in the Wall Street Journal article, Merck has little choice but to defend itself if it is to avoid the problems of Wyeth, which paid billions in phony fen-phen settlements in the mistaken belief that settling cases would end its litigation troubles.

Elsewhere in the Vioxx case, Merck deposed New England Journal of Medicine editors today, who have been placed on the plaintiffs' trial-witness list in the Plunkett retrial. Derek Lowe comments; our earlier coverage: Dec. 8, Dec. 10, Dec. 16, and Jan. 8.

Is Prilosec the next Vioxx? - PointOfLaw Forum

That's the question asked by Larry Ribstein, back from an Asian trip where heartburn was a first-hand worry. Of course, it's too early to even say that Vioxx is the next Vioxx, since we don't know whether Vioxx will follow the fen-phen (giant verdicts followed by giant verdicts and giant settlement and endless litigation) or Propulsid (giant well-publicized verdict reversed followed by settlement for a pittance) route. But Professor Ribstein has some good observations about the problems of letting lawyers dictate which drugs are in the market.

Silicosis affair -- typical? - PointOfLaw Forum

Evan Schaeffer argues that the problems brought to light in the silicosis affair are not necessarily typical of other mass-tort litigation over products such as fen-phen or Vioxx, and that corporate defense lawyers can and do succeed in turning back questionable claims in many of these other areas. Ted joins in in the comments section, and a discussion of asbestos and fen-phen ensues.

Mississippi fen-phen scandal - PointOfLaw Forum

What did the lawyers know, and when did they know it?

Lawyers for clients involved in fraudulent diet drug claims are under scrutiny in the ongoing FBI and Internal Revenue Service investigation for what, if anything, the attorneys knew about those false claims.

Of the 1,500 Fayette residents who made diet drug claims, less than 50 were legitimate, said Eva Johnson, one of 16 who have pleaded guilty in connection with the fraud.

Fake claims included prescriptions from dead doctors, medication from closed pharmacies and dates for using the drug before it even came on the market.

Two nonlawyer employees of a Jackson law firm have been indicted on fraud charges, and one has pleaded guilty. In addition, a Vicksburg lawyer has denied as "a complete and utter falsehood" statements by a ringleader in the scheme, Regina Green, that he had told her that prescription labels cited as evidence of having taken the drug would be boxed up in a place where no one would see them; the faking of such labels was a key step in the fraud.

Because federal authorities have no direct evidence at this point tying lawyers to the fraud, authorities are examining whether to pursue the case under the legal theory of deliberate ignorance, regularly given as a jury instruction in federal court in Mississippi as "willful blindness" of an individual, often someone in power.

Similar language was used to help convict former WorldCom CEO Bernie Ebbers, who testified he knew nothing about chief financial officer Scott Sullivan's manipulating the company's books to make it meet profit projections. Sullivan testified Ebbers did know. The judge allowed jurors to consider "conscious avoidance," if they believed Ebbers turned a blind eye to the crime.

And a fen-phen indictment - PointOfLaw Forum

The fall-out from the multi-billion fen-phen attorney fraud (e.g., Mar. 1) has produced a federal indictment—but only of a Mississippi paralegal who's charged with six counts of mail fraud. One hopes that bigger fish will be landed.

The indictment listed a $5,000 check Foster and others tried to deposit in a bank account that was derived from the illegal activity.

"It was part of the conspiracy that Foster and others, known and unknown to the grand jury, in order to qualify as plaintiffs in the Fen-Phen II settlement, fraudulently represented to the court-appointed special master and others that they had received prescriptions for, purchased, and used Redux or Pondimin, when in fact they had not received prescriptions for, purchased, or used the named diet drug," the indictment says.

Assistant U.S. Attorney Cindy Eldridge said Foster was unsuccessful in getting money for herself but is believed to have helped countless others with false claims.

(Jimmie E. Gates, "Former law firm paralegal indicted in Fen-Phen case", Clarion-Ledger, Aug. 25).

Kentucky fen-phen settlement - PointOfLaw Forum

The Cincinnati Enquirer reports on a pending lawsuit that may focus attention on mass-tort settlement practices:

Thirty-four Kentuckians who shared in a multimillion-dollar, class-action settlement against the maker of the diet drug fen-phen say their former lawyers deceived them.

The group alleges that the lawyers who handled the settlement in May 2001 didn't tell them that at least $18 million was given to The Kentucky Fund for Healthy Living, a nonprofit corporation chartered and controlled by the lawyers.

Prominent Cincinnati mass-tort lawyer Stanley Chesley, who is named as a defendant in the suit but is not among the lawyers said to control the nonprofit group, called the action a "spite suit" with "no merit". More coverage: Lexington Herald-Leader, Louisville Courier-Journal. Update Mar. 6, 2006: judge resigns amid scandal.

For me but not for thee - PointOfLaw Forum

If you follow class actions, you might be amused by the irony that plaintiffs' firm Napoli, Kaiser & Bern persuaded a federal district judge that a putative class action against it over fen-phen settlements should be dismissed because its contracts with its clients were governed by arbitration agreements. (Mark Hamblett, "Federal Judge Dismisses Fen-Phen-Related Action Against Napoli Law Firm", NY Law Journal, Apr. 14). Related story: Overlawyered, Feb. 14; "It's Trial Lawyers Vs. Trial Lawyers", NY Sun, Dec. 15 ($).

Specter on the asbestos bill - PointOfLaw Forum

Senator Arlen Specter has a column in today's Washington Times on the asbestos bill being considered by his Judiciary Committee. It looks like he's working toward a $140 billion trust fund, with a workers' compensation-type schedule for payouts for various ailments--with the courts opening back up should the fund be exhausted. I'm not sure that in such a form the bill will get the necessary business support, but we'll see. In any event, the devil will be in the details of how claims are to be processed and what medical standards will be used (see my post on "Fen-Phen Follies" below to see how a misconceived plan can go terribly awry).

Fen-Phen Follies - PointOfLaw Forum

Alison Frankel has an extensive article in today's American Lawyer (available online at chronicling the extensive Fen-Phen litigation, which she calls "a disaster of a mass tort." Drug manufacturer Wyeth has already shelled out $14 billion in the litigation and has recently increased its reserves to account for a total expected cost of $21 billion.

Writes Frankel:

But it's not the cost of the litigation that makes fen-phen so remarkable and disturbing a story. It's where the money went. The court records of the global class action by which Wyeth attempted to resolve its fen-phen problems are a veritable catalogue of ignominy. Law firms allegedly attempting to fleece a lawyer-built victims trust fund. Doctors working for contingency fees, filing questionable supporting reports. Corporate executives, facing the prospect of ruin, hurling money at claimants. The fen-phen class action approved in 2000 was supposed to be a new paradigm of how to resolve a mass tort equitably. Instead, the iron law of unintended consequences has ruled. Misconduct has not been punished, but rewarded.

In many respects, Fen-Phen litigation has resembled that for asbestos: "Some uninjured people have been paid to go away while thousands of claimants alleging real injuries still wait for compensation." How? Doctors at the Mayo clinic discovered a link between Fen-Phen and a heart valve disorder. The association was strongest for aortic valve damage, a rare condition. But, contrary to Wyeth's initial models, most claims wound up coming in for mitral valve damage, "a much more common condition among overweight people generally."

And as we've seen in asbestos litigation, there was lots of funny business in how the actual medical evidence of injury was collected. Two law firms were set to take in $50 million for 120 claimants when a whistleblower approached the trust fund administrator. The trust fund did its own review and found that only 7 of the claimants were eligible for recovery, for a much smaller sum of $3.2 million. An six-day inquiry by Judge Harvey Bartle III of the Eastern District of Pennsylvania focused on 78 claimants who had been screened by 1 of 2 doctors. The first of these "was working on contingency for the Hariton firm; he received an extra $1,500 whenever a claimant he'd evaluated submitted a green form to the trust." As for the second doctor, the judge stated that her "mass production operation that would have been the envy of Henry Ford," and her lead sonographer had been trained by an employee of the plaintiffs' firm.

Judge Bartle ultimately ordered that payment could be withheld from each of the 78 claimants until new doctors had reviewed their case. He also permitted the trust to audit every claim. The fund hired Richard Scheff, a former federal prosecutor, who "says he had never before encountered anything like the shenanigans in the fen-phen litigation. 'I was stunned,' he says. 'Stunned. Truly, truly stunned.'"

Those of us who've followed mass tort shenanigans in other contexts are less surprised. I encourage everyone to read the entire article.

Fen-phen's spiral - PointOfLaw Forum

From an October Forbes article: "You're to be forgiven if you thought the fen-phen crisis was over. Two years after it first emerged in 1997, Wyeth officials told investors it would cost a maximum of $4.75 billion to fix. As of the second quarter of [last] year the company had reserved $16.6 billion for the problem. Thanks to guys like [Houston attorney George] Fleming, it's a safe bet the costs will climb further." For more on fen-phen litigation, see Overlawyered, Aug. 28, 2004 and links from there.

Fen-phen food fight - PointOfLaw Forum

Intense bickering between plaintiff's firms in the diet drug litigation has shone a spotlight on the various types of firms that trade and sell inventories of cases, including the "advertisers" who may do little more than answer the phone for their high share of a fee (farming out the actual representation immediately to other firms) and the "warehousers" who accumulate cases for batch disposition. The New York Sun's Josh Gerstein quotes Notre Dame law prof Jay Tidmarsh who says the batch handling of settlements needs more scrutiny: ""The ethical rules we have were really developed for one-on-one cases. What we have in this mass tort area are a very different animal," Mr. Tidmarsh said. "It's a significant problem."

Chasing pots of Vioxx gold - PointOfLaw Forum

No surprise here, especially since hundreds and even thousands of suits were already in progress alleging injury from Merck's just-withdrawn arthritis drug: "plaintiff attorneys are gearing up for a repeat of the Baycol, Rezulin and fen-phen torts. After Thursday's recall, firms around the country rushed to send mass e-mails and issue press releases to recruit Vioxx litigants." (

10 charged with fraud in $150 million fen-phen verdict - PointOfLaw Forum

Ten people were arrested in Mississippi on charges related to the $150 million verdict rendered for five plaintiffs in 1999 against the manufacturer of one of the components of the diet-drug combination fen-phen. See 10 arrested in probe of $150M fen-phen verdict, Jackson (Miss.) Clarion-Ledger, Aug. 31; AP, Ten charged with fraud in fen-phen-case in Jefferson County, Biloxi (Miss.) Sun-Herald, Aug. 31. An FBI agent said that the arrests came after an 18-month investigation into large jury awards in the state, focusing on how plaintiffs became involved in the lawsuits and how juries were selected from an area where many people are related or acquaintances.

Fen-Phen Trials Get Under Way in Philadelphia - legal news

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