The contemporary fixation on tort lawsuits in the public policy arena and in the popular media obscures an important development in litigation: with the decline of trial rates and the rise of alternative dispute resolution (ADR), the bulk of civil litigation is vanishing from public view. One place disputes are going is into "claims resolution facilities," privately designed, financed, and administered organizations for giving away money, established as a result of the settlement of mass litigation in trial or bankruptcy courts. The substantive and procedural rules applied by these facilities for resolving claims are usually known only to the small number of lawyers who participated in negotiating the agreements that established the facilities, the administrators of the facilities, and the facilities' overseers, and they have so far largely escaped the scrutiny of legal scholars. The increasing resort to private claims resolution facilities to determine the eligibility for and amount of compensation for civil plaintiffs raises efficiency, equity, and due process questions that deserve broad public policy attention. But the necessary data to support reasoned public policy debate about the proper uses of such facilities are generally unavailable and likely to remain so for the foreseeable future.
It is a truism that civil disputes have long been resolved in myriad ways. Notwithstanding legal scholars' focus on trial courts, disputes both large and small are resolved in diverse settings, including legislatively authorized administrative tribunals and specialized courts as well as informal dispute resolution programs. (1) Numerous state and federal agencies dispense social welfare benefits and compensation to special categories of claimants, some broad and some narrow. (2) Claims resolution facilities, as defined here, are distinguished from such administrative tribunals and social welfare and other public compensation programs by the fact that they are private entities; their rules are not subject to broad public debate, and their outcomes are often protected from public scrutiny. (3)
The expansion of securities and consumer class actions, most of which end in settlements that call for disbursing small amounts of money to large numbers of class members, has created a need for administrative processes to determine eligibility for and the amount of disbursements. Most such settlements specify relatively straightforward formulae for arriving at these determinations, which can be applied in routine bureaucratic fashion. (4) Not surprisingly, the private market has responded to the demand for such services, which are provided by a small number of firms that specialize in class action settlement claims processing. (5) Claims resolution facilities, as defined here, are distinguished from such firms by the fact that they are special purpose ("one-off") entities, designed by the parties to a litigation to deliver funds only to those whose interests were compromised under the settlement of a particular litigation.
Examples of claims resolution facilities that fit my definition are the Dalkon Shield Claimants' Trust, established as a consequence of Chapter 11 reorganization to pay claims of women with intrauterine devices manufactured by A.H. Robins; (6) the Manville Personal Injury Trust, established as a consequence of Chapter 11 reorganization to pay asbestos victims, chiefly workers, who were exposed on the job to asbestos manufactured by the Manville Corporation; (7) the Dow Corning Silicone Gel Implant Trust, established as a result of Chapter 11 reorganization to pay people with silicone gel implants manufactured by Dow Corning or with raw material manufactured by Dow Corning; (8) the Polybutylene (PB) Pipes facility, established by a settlement of class action litigation to pay property damage claims of people whose properties were damaged by leaky PB pipes; (9) and the Prudential claims facility, established by a settlement of class action litigation to pay claims of Prudential's customers that they had been fraudulently induced to purchase certain financial instruments. (10) To my knowledge, no one has attempted to count the number of such claims resolution facilities that have been established over the past decade, the total number of claims that have been submitted to these facilities, the amounts of money that have been paid out in total, or the total amount of money that has been spent to administer these facilities. Given the number of high profile mass property damage, personal injury, and financial torts that have resulted in the establishment of such facilities, they likely number in the dozens and have paid out billions of dollars in compensation and expenses.
As the number of such facilities increases, it seems reasonable to ask whether it would not be more efficient to create a single administrative entity, or perhaps a few different sorts of entities, to deliver compensation. By centralizing claims resolution, rather than assigning the responsibility to myriad stand-alone entities, each of which is built from the bottom up, it seems as if it ought to be possible to realize economies of scale, increase the slope of the learning curve, and avoid past mistakes. Assigning mass tort claims resolution to one or a few entities also might draw more attention to the claims resolution facility phenomenon and provoke broader debate about the proper design of such facilities. But to date, there has only been a bit of movement in this direction, pertaining to the asbestos bankruptcies. (11)
It is tempting to think that the failure to centralize claims resolution facilities is a product of the self-serving incentives of program designers. But I suspect the truth is more complicated. The designers of any compensation program face (at least) twelve key decisions:
(1) What are the criteria for obtaining compensation for the program? For example, will asbestos personal injury trusts created under a Chapter 11 reorganization plan pay only individuals who show evidence of mesothelioma and other cancers associated with asbestos exposure, or will the trust pay claimants with nondisabling, noncancerous claims as well?
(2) What evidence is required to demonstrate eligibility under the chosen eligibility requirements? For example, would the Dalkon Shield Claimants' Trust pay women who were unable to produce medical records showing that they had been fitted with a Dalkon Shield in the past?
(3) How should claims be valued? For reasons of efficiency and equity, all claims might be valued alike. Alternatively, compensation may be distributed proportionately, according to the severity of injury, magnitude of property damage, or financial loss; or according to the litigation value of the claims, which may reflect values other than loss, such as the claimant's age, reasons for using a product, or the quality of legal representation.
(4) What...
