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In re Avandia Marketing, Sales Practices And Products Liability Litigation

United States District Court, E.D. Pennsylvania

January 2, 2018

IN RE AVANDIA MARKETING, SALES PRACTICES AND PRODUCTS LIABILITY LITIGATION THIS DOCUMENT APPLIES TO ALL ACTIONS MDL

          MEMORANDUM

          Rufe, J.

         It has been brought to this Court's attention that Steven M. Johnson, Esquire is once again refusing to pay a seven percent assessment to the Avandia Multidistrict Litigation (“MDL”) common benefit fund from claims that he settled in the state court action captioned Gabel v. GlaxoSmithKline, [1] filed in the Twentieth Judicial Circuit in St. Clair County, Illinois, despite the Court's prior ruling that he do so. Rather than complying with this Court's ruling, Johnson now opposes the disbursement of funds in the Illinois court.

         The Plaintiffs' Advisory Committee of the Avandia MDL moves this Court to issue an injunction, preventing the Illinois court from taking any further action to prevent or delay payment to the common benefit fund from any clients or counsel in the Gabel litigation. The Committee further moves this Court to enjoin the Illinois court from ordering any disbursement of the common benefit assessment monies that are currently held by counsel to GlaxoSmithKline (“GSK”) in escrow, and to order GSK to pay forthwith the funds into the Avandia common benefit fund.

         The dispute before this MDL Court concerned only whether Johnson and the Gabel claimants were subject to the seven percent assessment. This Court determined that, because Johnson's co-counsel used the Committee's work product to secure a settlement in the Gabel case, he and the Gabel plaintiffs were subject to the seven percent assessment on their gross recovery. Therefore, GSK was ordered to deposit the seven percent assessment it holds in escrow on behalf of Johnson and the Gabel plaintiffs into the Avandia common benefit fund. The United States Court of Appeals for the Third Circuit affirmed this decision.[2]

         Johnson now attempts to relitigate this MDL Court's order in the Illinois Court. He also argues that applying the assessment puts him at risk of violating the Illinois Rules of Professional Conduct because he failed to advise his clients that their recovery may be subject to the assessment, and that applying the assessment may result in payments to his co-counsel that would otherwise be barred by Illinois rules concerning conflicts of interest. Because Johnson's arguments about his duties and his co-counsels' fees under the Illinois Rules of Professional Conduct can be separately litigated in the Illinois court, and do not affect the MDL Court's prior ruling that Johnson and the Gabel claimants are subject to the assessment, there is no reason for Johnson to continue to impede payment to the Avandia common benefit fund.

         I. Background

         This Court has already ruled on Johnson's refusal to contribute to the common benefit fund; therefore, the following facts are taken from the Court's prior Memorandum Opinion issued on July 21, 2015:

In February 2015, the Plaintiffs Advisory Committee (“PAC”) in the federal Avandia Multi-District Litigation (“MDL”) filed a motion for an order to show cause why claims settled in the Illinois state court Avandia action captioned Gabel v. GlaxoSmithKline should not be considered “covered claims” subject to the Avandia MDL common benefit assessment, pursuant to Pre-Trial Order Number 70 (“PTO 70”). The Court issued the requested order to show cause. Lead counsel for the Gabel plaintiffs, the Law Offices of Steven M. Johnson, P.C. (“Johnson Firm”), contests the MDL Court's jurisdiction to enter or enforce any orders reaching it or its clients. The parties briefed the relevant issues, and the Court held a hearing on April 22, 2015, at which attorneys Michael Baum and Erick Rosemond testified as fact witnesses .....
The Avandia MDL was created in 2007 to consolidate, for pretrial proceedings, all product liability cases against GlaxoSmithKline, the maker of Avandia, filed in or properly removed to federal court. This Court, which oversees the Avandia MDL, created a Plaintiff's Steering Committee (“PSC”), which spent years conducting fact and expert discovery and briefing pretrial motions. On August 26, 2009, the Court entered Pretrial Order 70 (“PTO 70”), establishing the Avandia common benefit fund. This is a funding mechanism to reimburse plaintiffs' lawyers (including but not limited to PSC members) for expenses and time spent conducting discovery and litigating legal issues for the common benefit of all MDL plaintiffs.
Although all federal cases were consolidated in the MDL, thousands of Avandia cases were litigated in state courts. In some state court cases, plaintiffs' counsel entered into voluntary Attorney Participation Agreements with the PSC, agreeing to pay an assessment to the Fund, as outlined in PTO 70, in exchange for access to the MDL common benefit work product. By its express terms, once counsel signs on to the Attorney Participation Agreement, all Avandia claims in which counsel has a financial interest (including filed state and federal claims, as well as tolled and unfiled claims) are “covered claims, ” subject to a common benefit fund assessment. PTO 70 further provides that a total assessment of 7% of gross monetary recovery applies to all covered claims, with 4% deducted from attorneys' fees and 3% from the clients' shares of the recovery.
In 2009, the Johnson Firm filed a multi-plaintiff lawsuit, Gabel v. GlaxoSmithKline, in Illinois state court. The Complaint alleged that the claimants had been injured by the ingestion of Avandia. The Gabel case was litigated exclusively in state court; neither the individual plaintiffs nor the Johnson Firm litigated any Avandia claims in federal court.
In Spring 2012, Johnson attended an Avandia litigation meeting led by Paul Kiesel, who had been appointed by this Court as coordinating counsel for the MDL. The meeting was convened after thousands of MDL cases and claims had been settled, for the purpose of distributing the MDL's work product, dubbed “trial in a box, ” to attorneys still litigating Avandia cases in state courts. Kiesel announced that he would be circulating paperwork (the PTO 70 Participation Agreement and the PTO 10 Confidentiality Agreement), which the attorneys present should sign as a prerequisite to obtaining the MDL “trial in a box” flash drives being distributed at the meeting.
During that conference, Johnson met with Michael Baum of the law firm Baum, Hedlund, Aristel & Goldman (“Baum”) and Erick Rosemond of Rosemond Law Group, P.C. (“Rosemond”), both of whom had cases in the MDL, had signed the PTO 10 Confidentiality Agreement and the PTO 70 Attorney Participation Agreement in the course of litigating those cases, and had performed common benefit work for the MDL. As signatories to the Participation Agreement, Baum and Rosemond agreed to pay “the assessment amount provided in paragraph 4 of [PTO 70] on all filed and unfiled cases or claims in state or federal court in which they share a fee interest.”
Knowing of Baum and Rosemond's connection to the MDL, and “hopeful that by having a trial team, it would enable him to get the type of settlements he thought his cases ought to receive, ” Johnson asked Baum and Rosemond to serve as trial counsel in Gabel. Rosemond testified that Johnson understood that Rosemond “had worked extensively with the PSC, knew the PSC's work product and was well positioned to go get his cases ready for trial.” Baum testified that Johnson understood that if he retained Baum and Rosemond as trial counsel, they would use the MDL work product in Gabel and a common benefit assessment would be owed from any recovery or settlement. Baum and Rosemond agreed to assist as trial counsel, and they filed pro hac vice motions and entered appearances in the Gabel case.
Baum testified that he proposed a fee split of the Johnson Firm's contractual contingency fee agreements, based upon which Baum believed that he would receive 75% of fees obtained from bellwether trials, and 10% of fees from all other cases in the Gabel litigation. Email communications between Baum and Johnson regarding fee sharing again made it clear that trial counsel were planning to use the MDL trial in a box and other work product, and indicated that trial counsel's fees would be calculated on the balance of the fees remaining after subtracting the debt owed to the PSC for the use of the MDL work product. Although trial counsel believed they had reached a fee-sharing agreement with the Johnson Firm via email, and began conducting depositions and working up cases for the Gabel trials based upon this belief, the feesharing agreement was not formalized by the parties. Baum testified that he was reimbursed for expenses incurred litigating the Gabel case (nearly $200, 000), and received 75% of the fees generated from the trial pick cases, but the division of fees for the other settled claims is currently being litigated in state court.
The judge in the Gabel case had scheduled trials beginning in the fall of 2012, and so Baum and Rosemond immediately began to prepare for trial. Baum testified that he reviewed Johnson's entire inventory of cases, and identified cases which would make viable bellwether cases. Baum testified that “neither Mr. Johnson nor his local counsel knew enough about the science and mechanisms of liability in the cases to figure out which ones would be good bellwethers and they, in fact, had selected some that were not suitable.” Baum testified that because of the short time frame, counsel all agreed that trial counsel would be using the MDL “trial in a box, ” including the MDL's experts and their reports, and other MDL work product. He further testified that he explained to Johnson, in an email, that because they were relying upon MDL work product, the cases in the Gabel case would be subject to the common benefit fund assessment, although they could discuss the possibility of a set-off or reduction of the assessment required by PTO 70 with the MDL PAC. The relevant email chain was introduced into evidence at the hearing (PSC Exhibit 6). In preparing for the Gabel trials, Baum relied primarily upon the MDL database of discovery documents, which had been assembled, coded, and organized by the PSC, rather than the discovery produced directly to the Johnson Firm from GSK. He worked with the MDL experts to provide updated reports, incorporating new research and regulatory findings. And he and Rosemond used MDL work product to support successful motions to take the deposition of the CEO of GSK or a surrogate. Rosemond also testified that he used the MDL work product extensively in his capacity as trial counsel for the Gabel case.
Late in 2012, before any trial began, but while Baum was “feverishly getting all of the last bits of trial prep done, all the last bits of motions, motions in limine, summary judgment oppositions, the depo designations ..., ” the Johnson Firm was, unbeknownst to Baum, negotiating a master settlement agreement with GSK. By December 10, 2012, the Johnson Firm had reached an agreement in principle with GSK to settle the claims asserted on behalf of the Gabel plaintiffs, although the details of that agreement were not worked out for some time. Rosemond testified that because they had been getting a case ready for trial, the Gabel plaintiffs received a more favorable settlement than any they had been offered prior to Baum and Rosemond's involvement.
In January 2015, the Illinois state court entered an order requiring GSK to hold 7% of the Gabel settlement fund in reserve, pending disposition of any MDL common benefit fund obligations under the MDL's PTO 70. Pursuant to that order, the reserved funds are being held in an attorney trust account in Philadelphia. The Illinois court scheduled a hearing to determine whether Johnson and its clients were obligated to pay a common benefit assessment to the MDL's common benefit fund, pursuant to PTO 70. Before the Illinois court could hold that hearing, however, the PAC moved for an order to show cause why the MDL Court should not interpret its own order and determine whether a common benefit assessment is owed. The Court issued the order to show cause.
In response, trial counsel for the Gabel case, Baum and Rosemond, filed declarations stating that their firms did not dispute their obligations to pay an assessment on all state and federal claims in which they had a fee interest, including the Gabel claims. Local (Illinois) counsel for the Gabel case, Robert G. Jones, The Jones Law Firm, P.C., and David R. Jones, also filed a declaration indicating that they did not oppose payment of the common benefit fees to the PAC.
The Johnson Firm responded by challenging the Court's jurisdiction over it and its clients. Specifically, the Johnson Firm challenge[d] both the Court's power and jurisdiction to issue an MDL order which purports to reach purely state court actions, and the Court's jurisdiction to enforce PTO 70 with regard to the Gabel settlement. The Court held a hearing, at which evidence was presented on the issue of the Court's jurisdiction to issue and enforce PTO 70.[3]

         The Court held that it has jurisdiction over Johnson, and that the Johnson Law Firm “implicitly entered into a contract with the MDL Plaintiffs' Steering Committee, agreeing to be bound by the terms of . . . PTO 70 in exchange for access to MDL work product, by its conduct, including retaining signatories Baum and Rosemond as trial counsel, and extensively using MDL work product to advance the Gabel case.”[4] This Court also ruled that Johnson was obligated to pay the PTO 70 assessment on all settled claims in the Gabel litigation.

         Johnson appealed the Court's decision to the United States Court of Appeals for the Third Circuit, and on July 27, 2016, the Third Circuit affirmed, writing in part:[5]

The specific question that we address is whether the MDL pretrial order entered in the District Court establishing a common benefit fund for plaintiffs' attorneys working for the common benefit of all similarly situated plaintiffs includes assessments from proceeds recovered in the Illinois cases if attorneys participating with lead counsel in the Illinois cases obtained discovery materials gathered and created by MDL common benefit counsel and consented to the proceeds from the Illinois cases being contributed to the fund. We conclude that the Court did not exceed its jurisdiction in resolving the issue and did not err in finding that the seven-percent assessment was warranted. Consequently, we will affirm its order of July 21, 2015.[6]

         Johnson then filed a petition for writ of certiorari to the United States Supreme Court, which was denied.[7] Therefore, according to the Court's decision, the seven percent assessment on the gross recovery from the Gabel case that is currently being held in escrow should have been deposited into the Avandia common benefit fund. To date, no such deposit has been made.

         Instead, when GSK moved the Illinois court for an order to be released from that court's prior order directing it to hold the funds in escrow, [8] Johnson opposed the motion, arguing that the MDL Court lacked personal jurisdiction over him and that imposing the assessment would violate Illinois rules regulating the conduct of lawyers.[9] The Committee therefore seeks an order enjoining the Illinois court from ordering any disbursement of the common benefit assessment monies currently held by GSK's ...


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