Commercial Litigation and Arbitration

Traditional vs. Advisory Mandamus — Appropriateness of Allocating Portion of Settlements in MDL to Lead Counsel

From In re Zyprexa Prods. Liab. Litig., 2010 U.S. App. LEXIS 2260 (2d Cir. Feb. 3, 2010) (Kaplan, D.J., concurring) (extensive citations omitted throughout):

A. The Traditional Mandamus Standard

Mandamus and other prerogative writs "are reserved for really extraordinary causes." Mandamus is "not to be used as a substitute for appeal, even though hardship may result from delay and [a] perhaps unnecessary trial." Indeed, it often has been said that mandamus is not available unless the petitioner's right to relief is "clear and indisputable" and a direct appeal from a final judgment would not be an adequate remedy. Moreover, while traditional formulations of the standard have spoken of using the writ to confine a lower court to the exercise of its proper jurisdiction, it long has been clear that mandamus will not lie to review a claim of mere error in a lower court's jurisdictional determination. Indeed, any different view would conflict with the requirement that the petitioner's right to relief be clear and indisputable.***

B. Advisory Mandamus

The stringencies of traditional mandamus standards admit of a limited exception for what has been termed "advisory mandamus" — the use of mandamus to provide guidance on a novel question of general or exceptional importance to the administration of justice that should not await review by appeal from a final judgment.

In Schlagenhauf v. Holder, [379 U.S. 104,] the Supreme Court "departed in some degree" from the traditional mandamus standards to countenance the use of the writ for such advisory purposes. There, the Court indicated that mandamus may be used to settle important questions of first impression where there is a "substantial allegation of usurpation of power" by the district court. Thus, courts of appeals have some scope for use of mandamus to settle novel questions. On the other hand, as this Court has written, "[n]o one could reasonably suppose that the [Supreme] Court has now subscribed . . . to a doctrine that any non-frivolous claim of error in a decision is a claim of 'usurpation of power' on the theory that courts are bound to decide all issues correctly."

The Second Circuit's decisions subsequent to Schlagenhauf do not resolve entirely the uncertainty as to the criteria dividing appropriate from inappropriate uses of advisory mandamus. The cases that bear most strongly on the facts at bar are In re International Business Machines Corp.[, 687 F.2d 591 (2d Cir. 1982),] and United States v. Amante[,418 F.3d 220]. In IBM, the Circuit granted mandamus to halt the district court's consideration of whether the Tunney Act requirement of judicial approval of consent decrees in government antitrust cases applied to stipulations of dismissal under Federal Rule of Civil Procedure 41(a)(1). It did so, however, not simply because it disagreed with the district court's retention of jurisdiction to consider the issue, but for three other reasons. First, both parties were united in their desire that the case be dismissed outright. Second, the case already had gone on for thirteen years, tying up "one of the nation's largest industrial concerns," during which time "many of the underlying products [had become] commercially outmoded." Finally, there was no serious basis for the assertion that the Tunney Act applied to a Rule 41(a)(1) dismissal in light of the plain language of the statute and "the clear and indisputable legislative history." 39

Amante concerned a different question, viz. whether a district court had erred in bifurcating a simple felon-in-possession firearm case to require first a trial on the issue of possession and then a separate trial on the issue of the prior felony conviction, the latter of which would take place only after a jury finding of possession. In granting mandamus to vacate the bifurcation order, the Circuit relied upon its conclusions that (1) the issue was significant because "[i]ts resolution will affect numerous defendants in similar trials and will aid in the administration of criminal justice," and (2) "no remedy [wa]s available to the government other than mandamus."

Both IBM and Amante demonstrate that this Court has granted mandamus for advisory purposes when presented with questions of significance and the district court had committed a clear abuse of discretion and usurpation of power. In addition, both cases reached the merits of the issues presented by the petitions as, of course, the Court was compelled to explain the district court's error. But they did not involve the question whether this Court may reach the merits for advisory purposes to deny a petition for mandamus where the issue and need for review are sufficiently pressing. This question was answered in the affirmative in Kaufman v. Edelstein[,539 F.2d 811]. There, two expert witnesses whom the government had subpoenaed to testify in a civil antitrust case petitioned for a writ of mandamus directing the district court to quash the subpoenas. Observing that the district court's denial of the motions to quash "clearly was no 'usurpation of power'" nor a clear abuse of discretion, the Court, speaking through Judge Friendly, stated that the only argument in favor of granting the writ was that the case presented a "novel and important" issue. The Court then discussed the merits of the case at some length, concluding that, although there existed no privilege protecting expert witnesses from being called to testify, courts in their discretion could protect expert witnesses when good cause was shown. Judge Friendly listed a number of factors pertinent to deciding whether a particular expert witness merited the protection of the court. ***

II. The District Court's Order

A. Subject Matter Jurisdiction

The fundamental question here is whether a district court has subject matter jurisdiction — power — to order that settlement funds be set aside to fund possible fee awards to counsel in MDL cases that have been removed to federal court and in which motions to remand remain undecided in the district court. In essence, Mulligan argues that it does not and that we therefore either should (1) decide the jurisdictional issues that were not passed upon below and exempt from the set aside order any cases in which removal was improper or, alternatively, (2) exempt all of these cases from the set aside order on the theory that the entry of the set aside order in advance of determination of the remand motions was erroneous. These contentions are unpersuasive.

The starting point for this analysis is the proposition that a federal court has jurisdiction to determine its own jurisdiction. While it must make this determination before it reaches the merits of the case before it, it is empowered to issue non-dispositive orders between the filing of the action and its ultimate determination on the merits.

Mulligan nevertheless argues that federal courts are permitted, prior to a ruling disposing of any subject matter jurisdiction challenge, to take only such actions as may aid in determining their jurisdiction and that actions reaching the merits are void. The district court's set aside order, in its view, reached the merits and thus went beyond the limits of the court's authority. Mulligan relies for this proposition on United States Catholic Conference v. Abortion Rights Mobilization, Inc.[, 487 U.S. 72 (1988)].

Catholic Conference involved an appeal from an order holding two non-party witnesses in civil contempt, over their objection that the district court lacked subject matter jurisdiction, for refusing to comply with a subpoena. The Supreme Court held that a non-party witness can challenge the subject matter jurisdiction of a court in defense of a civil contempt citation. It stated further that the contempt orders would be void if the district court lacked subject matter jurisdiction. Mulligan argues that Catholic Conference therefore stands for the proposition that federal courts are permitted only to "take actions in aid of determining [their] jurisdiction." But he overreads the decision.

In Willy v. Coastal Corp., the Supreme Court upheld a district court's Rule 11 sanctions order notwithstanding a subsequent determination that the district court had lacked subject matter jurisdiction, and it rejected the petitioner's contention that this result was precluded by Catholic Conference. As the Court explained:

"[a] final determination of lack of subject-matter jurisdiction of a case in federal court, of course, precludes further adjudication of it. But such a determination does not automatically wipe out all proceedings had in the district court at a time when the district court operated under the misapprehension that it had jurisdiction."

Thus, a district court's order that is "collateral to the merits" may be upheld despite a later conclusion that the court lacked subject matter jurisdiction over the litigation.

In this case, the set aside order simply imposed an assessment in order to create a fund that could be used to compensate attorneys who demonstrate that their efforts conferred a benefit on Zyprexa plaintiffs generally. It is even less related to the ultimate merits than orders awarding attorney's fees, which are collateral matters over which a court retains jurisdiction even if it ultimately is determined to lack subject matter jurisdiction. It does not preclude the Mulligan plaintiffs from challenging any proposed distribution of funds on the ground that they did not benefit from the efforts of counsel to whom a distribution might be made. At least in these circumstances, the set aside order was collateral to the merits and well within the district court's power. ***

B. The Common Fund Doctrine

The district court's set aside order raises also the question whether a district court in an MDL or other litigation involving a large number of separately represented individual claimants, in which any recovery will be unique to each plaintiff, has the authority to create a fund out of those recoveries for the purpose of financing an award of fees and expenses to those counsel whose work benefits the entire group of plaintiffs. The answer to this question lies in the common fund or common benefit doctrine.

The so-called "American rule" is that the prevailing litigant ordinarily must bear the litigant's own attorney's fees. Since the nineteenth century, however, the Supreme Court has recognized an equitable exception to this rule — known as the common fund or common benefit doctrine — that permits litigants or lawyers who recover a common fund for the benefit of persons other than themselves to obtain reasonable attorney's fees out of the fund, thus spreading the cost of the litigation to its beneficiaries. The doctrine "reflects the traditional practice in courts of equity," which recognized "that persons who obtain the benefit of a lawsuit without contributing to its cost are unjustly enriched at the successful litigant's expense." court acting in equity therefore may assess attorney's fees proportionally among those benefitted by the suit.

In Alyeska Pipeline, [421 U.S. 240 (1975),] the Supreme Court identified several characteristics of cases in which the application of the common benefit doctrine may be appropriate. These include the ease in identifying the persons, or classes of persons, benefitted by the recovery, ease in tracing the benefit flow from the fund to those persons, and confidence that the costs of litigation can be shifted with some exactitude to those benefitted by the litigation. Courts routinely employ the common benefit doctrine in awarding fees to counsel in class actions which, when successful, often result in lump sum recoveries that benefit identifiable classes. Class actions present also the free-rider problems the common fund doctrine was designed to remedy, as class members who do not hire counsel nonetheless benefit from any recovery. The doctrine thus prevents the unjust enrichment of these class members at the expense of class counsel by compensating counsel in proportion to the benefit they have obtained for the entire class, rather than just the named class representatives with whom they contracted. Likewise, it prevents the unjust enrichment of class members at the expense of the class representatives who contracted with attorneys to prosecute the action. ***

The situation is somewhat different with respect to MDLs consisting of individual cases prosecuted by individual plaintiffs, sometimes numbering in the thousands, and other litigation involving large numbers of separately represented claimants. Unlike most class actions, recoveries by individual plaintiffs or groups of plaintiffs in such matters may occur at different times, and individual plaintiffs or groups of plaintiffs, unlike most individual class members, usually are represented by individual counsel. Nevertheless, there are substantial similarities to class actions as well. As an initial matter, the efficient handling of such cases demands a similar approach to case management. District courts typically appoint a lead counsel or plaintiffs' steering committee to coordinate and conduct pretrial proceedings on behalf of all plaintiffs in order to avoid what otherwise might well become chaotic. Moreover, while individual plaintiffs are separately represented, they typically benefit also — often predominantly — from the work of the lead counsel or committee.

The same equitable considerations that warrant payment of class counsel out of common funds generated by their efforts apply in these circumstances as well. The desirability — indeed, the compelling need — to have pretrial proceedings managed or at least coordinated by lead counsel or a steering or executive committee demands the existence of a source of compensation for their efforts on behalf of all. The logical, and a most equitable, source of that compensation is recoveries of individual plaintiffs who benefit from that work. Indeed, foreclosing those recoveries as a source of funding for the common benefit work would enrich the non-contributing individual plaintiffs unjustly at the expense of either or both of the lead counsel and any contributing individual plaintiffs. The district court thus acted within the scope of its discretion when it established an account to compensate counsel for common benefit work funded by a set aside of future Zyprexa MDL recoveries.

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