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After giving preliminary approval to a class settlement in Sulzer hip-implant litigation that puts the assets of Sulzer defendants out of the reach of plaintiffs who choose to pursue separate suits, a federal judge in Cleveland stayed all action in state court suits in Texas and elsewhere. Those rulings by U.S. District Judge Kathleen McDonald O’Malley are worrisome to a coalition of plaintiffs’ lawyers that includes 14 Texas firms. The plaintiffs’ firms are appealing O’Malley’s rulings, asking the 6th U.S. Circuit Court of Appeals in Cincinnati for an expedited review. Houston’s Charles Parker says O’Malley’s rulings are aimed to force plaintiffs in hip-implant litigation to accept the class settlement by making it difficult for their lawyers to pursue suits separately. Parker and three other plaintiffs’ lawyers in Texas with hip-implant cases say the proposed class settlement is simply inadequate. “It is such a bad deal that frankly we would have better remedies in bankruptcy court,” says Parker, one of two lawyers who wrote motions filed with the appeals court. “By order of magnitude, this is worse than any class action settlement I’ve ever seen proposed,” says Edward Blizzard, a partner in Blizzard & McCarthy of Houston. Blizzard alleges that Sulzer Orthopedics Inc. of Austin, Texas, the manufacturer of the hip implants, and its parent and related companies aren’t contributing or pledging as much money to the proposed settlement as they can. “It’s our belief the Sulzer entities are basically trying to seek the protection of federal court and limit their exposure and their liability without … seeking bankruptcy protection,” says Zona Jones, a partner in Beaumont, Texas’ Provost & Umphrey. “They want to be protected and really not pay.” The Texas lawyers worry, as well, about precedent. They are concerned that the way O’Malley handles the multidistrict litigation, In Re: Inter-Op Hip Prosthesis Product Liability Litigation, MDL No. 1401, will affect future mass-tort litigation. “This could be the end of mass torts. This class action procedure has really put plaintiffs, not only Texans, but all Americans, at a real disadvantage,” says J. Scott Nabers, a partner in Houston’s Helm, Pletcher, Bowen & Saunders. “It could be the end of individuals being able to file an individual case and have their individual day in court,” Nabers says. Others disagree. One of nine plaintiffs’ lawyers serving as class counsel in the multidistrict litigation says the proposed settlement is the only way Sulzer’s limited assets can be allocated fairly. “It’s the only alternative,” says R. Eric Kennedy, a partner in Weisman, Goldberg & Weisman of Cleveland. “Without this, it’s going to be first come, first serve, and the ones who get there first are going to get paid, and the ones who do not get there won’t,” he says. Sulzer defense lawyer Richard Scruggs, of the Scruggs Law Firm in Pascagoula, Miss., says terms of the proposed settlement allow the Sulzer companies to stay in business while providing as much as possible for the plaintiffs in the class. “It’s everything they have. It isn’t enough, I agree,” says Scruggs, who represents Sulzer Orthopedics and its parent, Sulzer Medica USA, and its Swiss parent, Sulzer Medica Ltd. He says the plaintiffs’ lawyers who find fault with the settlement are simply trying to “get to the head of the line to take it all home.” “What they are arguing is that 20 to 30 people would have the right to go to trial by jury and the other 30,000 wouldn’t have a right to go to trial by jury,” says Scruggs, who is in a rare defense role in this litigation. Rather than setting a bad precedent in mass tort litigation, Scruggs says the settlement is innovative because it’s a template for a plan that allows a company to continue in business while resolving litigation. “We call it bankruptcy light,” says Sam Issacharoff, a professor at Columbia Law School who is assisting the plaintiffs’ lawyers. Sulzer hip-implant litigation is one of the hot mass torts of the day. Waves of personal-injury suits were filed in state and federal courts across the country after Sulzer Orthopedics announced a voluntary recall of its Inter-Op hip shells in December 2000. The company said traces of lubricant were discovered on the implants preventing them in some cases from fusing properly with tissue and bone. According to pleadings in the MDL, Sulzer Orthopedics recalled about 40,000 Inter-Op shells, but about 26,000 already had been implanted in patients, with about 90 percent in the United States. And according to O’Malley’s stay order on Sept. 17, 1,580 state and federal suits involving about 2,000 named plaintiffs have been filed against Sulzer Orthopedics and related companies, and 90 percent of the state court suits are pending in Texas, California, Florida and New York. Kennedy says the proposed settlement is worth at least $578 million in cash and stock, while Scruggs puts its value at about $750 million. Plaintiffs who have not had any problems with their implants would receive $750 in cash, $2,000 in Sulzer Medica Ltd. stock and spouses would get $500. Claimants who have received one revision surgery would get $37,500 in cash, $20,000 in stock, and spouses would get $5,000. For more than one surgery, they would receive $63,500 in cash, $34,000 in stock, and spouses would get $5,000. The settlement sets aside a minimum of $30 million in cash and stock for additional compensation for extraordinary injuries. The agreement also says that if the defendants settle an individual suit on terms more favorable than those received under the settlement agreement, the defendants are agreeing to pay all participating claimants the additional benefit. But the settlement O’Malley tentatively approved is not likely to provide as much for individual plaintiffs as they might get from a jury, according to Texas plaintiffs’ lawyers who would rather take their chances in state court. A state court jury in Corpus Christi, Texas, returned a verdict on Aug. 30 finding Sulzer Orthopedics liable for the injuries to three plaintiffs who received hip implants, awarding them a total of $15.5 million in damages, including $11 million in punitives. County Court-at-Law No. 4 Judge James Klager signed a final judgment the same day. It was the first trial to date in the implant litigation. But developments in the MDL could prevent, or delay, the plaintiffs from collecting that judgment. FLURRY OF ACTIVITY While O’Malley has been presiding over the hip-implant litigation for months, much of the relevant activity has been in the last few weeks. On Aug. 29, she signed an order provisionally certifying a class and granting preliminary approval to the settlement. The proposed class would include Americans who received an Inter-Op implant and their loved ones and includes people who had replacement surgery and those who have not. O’Malley rejected complaints that the settlement is unfair on the grounds it ties up Sulzer assets for up to six years, effectively making it a mandatory class action. “The court rejects this argument completely. The essence of this complaint is that the settlement agreement is ‘too good’ to opt out of. If true, this is an extremely strong indication that the settlement is fair,” O’Malley wrote in a memorandum to her order giving tentative approval to the settlement. O’Malley wrote that class counsel are not charged with negotiating a settlement that’s as beneficial to opt-out plaintiffs as to claimants. She also contended the settlement creates the likelihood of a prompt recovery for the plaintiffs, and the alternative could be bankruptcy court. The coalition of plaintiffs’ lawyers appealed O’Malley’s ruling, but before the 6th Circuit could act on the appeal, O’Malley signed an order on Sept. 17 staying all related state-court claims. Defense attorneys sought the stay, and Kennedy says class counsel supported the motion. “We clearly supported it. It’s allowing us to do our discovery over the next three-and-a-half months so we can have a fairness hearing,” he says. Kennedy says the fairness hearing is set for March 2002. O’Malley found the stay is authorized by the Anti-Injunction Act and the All-Writs Act, and she said allowing state-court plaintiffs to proceed would “frustrate” proceedings in the MDL. Not only would the discovery schedule pose an “undue burden” on the defendants, O’Malley wrote, but defense costs also would waste money that otherwise could go to pay plaintiffs. But in a motion seeking permission to appeal, the coalition of plaintiffs’ lawyers argued the stay violates the due process rights of the plaintiffs because they have not been given the opportunity to opt out of the class litigation. (Kennedy says that is expected to occur in January 2002.) Their lawyers also complain O’Malley held an ex parte hearing on the motion for stay. “None of the parties actually affected by the injunction — that is, the represented injured plaintiffs who are proceeding in state court — was given notice of the filing of the motion seeking the injunction (filed only hours before the issuance of the injunction) or an opportunity to participate and be heard,” Parker and Issacharoff wrote. The stay puts a halt to about 40 hip-implant suits set for trial before the end of the year — Nabers says at least half of them are in Texas — and any discovery. He says that while O’Malley has set up a discovery schedule within the MDL, lawyers with state-court suits have done a lot of discovery already and have been sharing their work. “We would have finished our discovery this week if she hadn’t stopped us,” says Nabers, who had at least one suit set for trial in 2001. None of the class counsel are from Texas. Parker, a partner in Hill & Parker, and Issacharoff are the lead lawyers on the appeals. The other Texas firms listed on the pleadings are Blizzard & McCarthy; Byrd, Davis & Eisenberg; Whitehurst, Harkness, Ozmun & Archuleta; Shields & Rusk; Mithoff & Jacks; Provost H Umphrey; the Link Law Firm; Storey, Moore & McCally; Helm, Pletcher, Bowen & Saunders; O’Quinn, Laminack & Pirtle; the Schmidt Firm; Slack & Davis; and Demarest, Smith, Giunta & Howell. Judge O’Malley’s injunction also affects other litigation in Texas against Sulzer. Nabers and Jones say lawyers for Sulzer in the class action in late September removed hundreds of suits from Jefferson County to the MDL on the grounds the plaintiffs’ lawyers were violating O’Malley’s stay by continuing with discovery. Jones says about 700 suits against Sulzer are pending in Jefferson County. But the two lawyers say the discovery they were doing relates to knee-implant suits against Sulzer, and they had specific permission from 60th District Judge Gary Sanderson to go forward with depositions in Mexico on Sept. 24 and 25. Bill Miller, a spokesman for Sulzer Orthopedics, says the company removed the knee implants from the market in March for business reasons. Plaintiffs’ lawyers have filed 37 suits alleging problems with the company’s knee implants, he says. Nabers and Jones say O’Malley held a hearing on Oct. 1 on their request to have the suits sent back to Beaumont, but she had not ruled by presstime. Nabers is outraged at the removal, saying, “There are cases in there that are clearly not part of the injunction.” Kennedy says O’Malley has invited lawyers who oppose the settlement to participate in the discovery in federal court. So far, the Texas lawyers and their cohorts have “resisted” that offer, says Jones. “They want us to be there only so they can control us,” he says. But in a Sept. 28 letter to O’Malley, the plaintiffs’ lawyers with state-court suits offered to turn over all of the discovery they’ve done over the last nine months, and offered to assist — for free — in MDL discovery. The lawyers say, however, they want authority to initiate and conduct discovery, and do not want to take a subordinate role to the class counsel. They also want the MDL lawyers working on discovery to review the discovery they’ve completed to make sure there’s no duplicated effort. “As the court has stated, expenditures on duplicative and possibly unnecessary discovery will proportionately and materially reduce the total funds available to pay injured claimants,” the lawyers wrote. The letter was signed by lawyers from 10 firms on the appeals pleadings along with Houston firms Fleming & Associates and Hackerman, Peterson, Frankel & Manela. Nabers says a copy of the letter was filed with the court on Oct. 1, but O’Malley did not bring it up during the hearing.

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