Mass Tort, Not a Mass Short
Mass tort litigation has left this company undervalued and overlooked
FOREWORD
Today I’m going to be writing about an opportunity in a name with material mass tort litigation. The plaintiffs here are patients diagnosed with cancer and other serious conditions. Nothing in this article is intended to make light of their situation or indicate that plaintiffs—here, or in any similar tort case—whose conditions are actually caused by a liable company should be denied compensation in any way. The following article provides a suggested roadmap for the named company to restructure in a way that provides litigation certainty while simultaneously accounting for market-rate damages for current and future plaintiffs. Valorem Research and affiliates express their deepest sympathies for individuals, their families, and other loved ones facing and battling through cancer diagnoses.
MASS TORT CASES—A PRIMER
If you’ve watched cable television in the last twenty years, you’ve probably become somewhat familiar with mass tort litigation in some form. Commercials with plaintiff’s attorneys asking “have you or a loved one been diagnosed with [disease/condition]” are everywhere. The largest ad campaigns have probably been for asbestos-related mesothelioma and talc-related ovarian and lung cancers, but mass tort cases are certainly not limited to cancer. When you think about the economics and incentives behind it, it’s not really surprising to see these expensive ad campaigns.
Mass tort is notably different from class actions. In a class action suit, the most important event is “class certification.” This is where the judge says either “yes, the plaintiffs here are all similarly situated enough for this to be litigated under one umbrella,” or “no, these plaintiffs don’t have enough in common for this to be a single case.” Class certification requires
numerosity (are there enough plaintiffs—usually more than 40—that it makes sense to treat this as a class);
typicality (whether the claims or defenses of the representative parties are similar to those of the class);
commonality (whether there is a common question of law or fact that can be answered in a common way); and
adequate representation (whether or not the lead plaintiff will adequately protect the class’s interests).
But mass tort cases typically don’t qualify for class action. Class action is great for things like mis-labeled foods. If Yoplait says their yogurt is zero sugar, but ends up having tons of sugar, then (1) a bunch of people will have been affected, (2) the claims (false advertising) will be common to all plaintiffs, (3) there will be similar questions of law (e.g., did the plaintiffs rely on that representation in making their purchase?), and (4) you can find someone among the likely millions affected to adequately look after the other members of the class.
But mass tort, where plaintiffs allege that say, a product has caused their cancer, are much more complex. Class certification breaks down at the typicality and commonality stage.
Did everyone use the product in the same way? Did the plaintiffs have the same level of exposure? Is the harm the same type of harm (e.g., same type of cancer)? It’s easy to see how the Roundup lawsuits are more suited for mass tort than class action. Maybe your exposure was through your school’s grounds maintenance staff. Maybe you applied it to your backyard for years. Maybe you used it once. Maybe you have stomach cancer and another plaintiff has lung cancer. The point is, these cases become hyper-individualized quickly, and it’s not necessarily reasonable to say that a groundskeeper who worked with Roundup for 40 years and has non-Hodgkin lymphoma (a cancer type among the highest correlations to Roundup exposure) should be litigating next to someone alleging causation of skin cancer despite a limited exposure over a short period of time.
And so when the litigation is fractured, you have plaintiffs lawyers competing for plaintiffs. The cases may not be tried together, but plaintiff’s lawyers can leverage the work done in one case in another, as the legal strategies won’t differ excessively. Further, these mass tort lawsuits typically get settled en-masse, meaning that if you’re a plaintiff’s lawyer representing 100 individual plaintiffs, you’re likely taking 33% of each plaintiff’s award, so it pays to have plenty of plaintiffs in your stable.
Historically, these cases have settled in the low hundreds of thousands of dollars:
That means that, in a hypothetical mass settlement where each plaintiff is getting $300,000, the plaintiff’s attorneys are typically walking away with $100,000 for each plaintiff they’ve recruited to their firm.
Many of those numbers in that chart are over a decade old. Recently, mass tort cancer cases have been garnering higher settlements, with numbers reaching just shy of $500,000/plaintiff in many cases. For plaintiff’s attorneys, that’s big money.
MASS TORT RISK STRATEGIES
With such significant potential exposure, it’s no surprise that companies have tried to limit the total damage. In early 2023, the Third Circuit dismissed J&J’s attempt at a “Texas Two Step” to limit liability related to cancer cases arising from its talc product.
The Texas Two Step, now effectively dead, was comprised of:
incorporating a new entity in Texas because it’s business-friendly, and
transferring the tort liabilities at-issue into that newly created corporation, usually by way of a divisive merger or reverse merger.
J&J’s plan though, which put its own spin on the Two-Step, was flawed from the start.
Unfortunately for J&J, the talc liabilities arose prior to their 2021 corporate restructuring when they divided the company’s pharmaceutical and consumer businesses. This meant that the liabilities accrued to the parent J&J entity, not some remote subsidiary—a hurdle, but not fatal to the Two-Step maneuver. More of an issue though was that J&J attempted to fund a new “LTL Management” entity and immediately bankrupt the entity to force plaintiffs to come to the table and litigate the mass tort claims in a bankruptcy proceeding. It was an objectively unsavory move which many called an abuse of the bankruptcy process for an entity that—at least under the original plans—was accused of being under-funded relative to the total liabilities that J&J likely faced. The under-funding concerns were probably overblown given the indemnity from J&J to LTL Management, but the Third Circuit found other grounds to reject the move: LTL wasn’t actually insolvent.
And so J&J effectively poisoned the well of the Two-Step process. There’s other language in the Third Circuit decision that restricts the ability to complete any sort of Two-Step move that resembles the J&J plan, but we don’t have time to get into it all here.