Wheels of disbursement turn slowly

  • Article by: DAVID PHELPS , Star Tribune
  • Updated: September 14, 2008 - 10:38 PM

The settlement is in writing, but all the checks are not in the mail.

More than $300 million sits in a pair of Twin Cities escrow accounts awaiting disbursement to more than 11,000 people who got potentially faulty defibrillators implanted in their chests.

But nine months after the settlements were announced, getting proceeds from the manufacturers -- Fridley-based Medtronic Inc. and Guidant Corp., which had cardiac rhythm management operations in Arden Hills and is now part of Boston Scientific Corp. -- has been stalled by legal wangling and disputes about attorneys' fees, some of which are substantial.

Less than half of the Medtronic settlement has been mailed to people who received defibrillators that were recalled in 2005 because of concerns about battery failures. The rest of the disbursements remain stalled, as lawyers deal with Medicare and Medicaid issues and third-party liens.

"We wanted to get some money into the hands of the claimants while we get other issues resolved," said Dan Gustafson, a Minneapolis lawyer and co-lead counsel in the Medtronic lawsuit.

But getting 40 percent of your total damages in September 2008 from a settlement that was announced in December 2007 still rankles some of those people who wore the recalled devices.

"That still doesn't answer the question, 'What the heck are they doing with this money and why is it taking so long,' " said Rick Austin, a Florida resident who received a Medtronic device and became a member of the class action. "In the end, we're the victims being left to accept what we're being told. If it was settled, it was settled."

In the Guidant case, it's unclear when the money will hit the mail. U.S. District Judge Donovan Frank noted in a recent order that a committee of plaintiffs' attorneys leading the case "optimistically, but quite possibly unrealistically, asserts that the first rolling payments to claimants will begin by the end of this year."

Attorneys sympathize with their clients, but the reality is that nine months to a year is not unusually long for settlement proceeds to be in limbo while the parties and court work out details of the distribution and the attorneys' fees.

"First, parties agree on a settlement. Then you give members [of a class] notice to object. Then there's a court hearing to ratify the settlement. And there's approval of attorneys' fees and a period of time for members to file claims," said Herbert Kritzer, a professor at William Mitchell College of Law. "Only when all of that is done do you get payouts. Eighteen months to two years is not out of the picture."

The lawsuits against Medtronic and Guidant are known as MDLs, for Multi-District Litigation. An MDL is a consolidation of a host of lawsuits based on a common issue, in these cases, product liability issues.

The two cases gathered speed in 2006 after the government ordered the devices recalled. The Medtronic case eventually involved 2,700 people; the Guidant case covered 8,550 patients. The settlements are for $114.1 million and $240 million, respectively.

Squabbles over attorney fees

The Medtronic settlement and a substantial portion of the Guidant settlement have been placed in low-risk escrow accounts until the money can be distributed.

In the Medtronic case, $18.25 million of the total settlement has been set aside as attorneys' fees for the core group of lawyers who did the bulk of the pretrial work -- filing motions, writing briefs, gathering patient records and conducting dispositions. How that amount will be distributed is under discussion. Attorneys who joined the class action but stayed on the sidelines can collect the fees they contracted for with their clients. Some will get as much as 40 percent, but many will collect the more standard rate of one-third.

Gustafson, for instance, said he would collect a fee from the pool but not from his individual clients.

Settling the fee issue in the Guidant case is a little more problematic. Judge Frank has imposed a 37.1 percent cap on fees after lawyers objected to a 25 percent share recommended earlier.

But if a firm's contracted amount is less, that is the amount the firm can collect.

Typical of the fight among attorneys is an objection filed by a Louisiana law firm that referred a number of cases to the class. The Becnel Law Firm complained that it would get just $295,000, while the Minneapolis firm Zimmerman Reed, one of the lead counsels in the case, will receive $6.2 million.

"It is referral counsel who are the backbone of this litigation," Daniel Becnel Jr. wrote in a memo to the court.

Charles (Bucky) Zimmerman, a principal in Zimmerman Reed, alluded to the complaint as sour grapes.

"Some would argue he did almost no work, including me," Zimmerman said.

"The court ultimately decides. It's standard fare [bickering over attorney fees]. It's one of the realities we learn to live with."

In his fee order, Frank was particularly critical of Guidant and the paperwork it required from attorneys in order to qualify their clients for an award, including "lengthy" plaintiff fact sheets and "redundant" documents.

"At least some of the delays and resulting increased ... costs are attributable to the inflexible position Guidant took on many aspects of this litigation," Frank wrote in an opinion last month. "Guidant's demanding (some may say unreasonable) approach often resulted in individual attorneys having to perform significant administrative work on behalf of claimants -- work that was not demanded in other MDLs of this nature," he said.

Zimmerman acknowledged the plaintiffs' frustrations with the process. "It's been too technical," he said. "In the scheme of things, the settlement was a quick result. Now we don't want the tail to wag the dog."

David Phelps • 612-673-7269

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