A Typology of Aggregate Settlements
43 Pages Posted: 15 Sep 2004
Date Written: September 14, 2004
Large-scale multiparty litigation often settles in clusters rather than one claim at a time. With or without the judicial imprimatur of class certification - indeed, with or without formal judicial aggregation of any sort - lawyers negotiate settlements of sizable portfolios of claims. Such settlements, in which multiple plaintiffs' claims against a common defendant are resolved together, are what lawyers variously call aggregate settlements, group settlements, block settlements, or similar terms that emphasize the collectiveness of the deals. The literature on aggregate settlements, however, is lacking any clear definition or articulation of what makes such settlements meaningfully collective. Group settlements in multiparty litigation vary significantly, and they vary in ways that make it difficult to determine whether certain deals ought to be understood as collective settlements or simply as groups of individual settlements bundled together. This article develops a typology of aggregate settlements. By defining settlements in terms of their essential attributes, it is possible to understand and describe multiplaintiff settlements with greater precision, and to develop a sounder approach to applying the special ethical duties that attend aggregate settlements.
Under the aggregate settlement rule, some version of which is in effect in every state, a lawyer may not make an aggregate settlement unless the lawyer obtains each client's informed consent after disclosing the full scope of the deal. The rule does not define "aggregate settlement." Cases, ethics opinions, and other authorities do not define the term with any precision, but some of them contain statements to the effect that an aggregate settlement is one in which a defendant pays an amount to settle an entire group of claims. They describe, in other words, a lump sum package deal, which is the most obvious form of aggregate settlement, but they do not consider what makes such a deal aggregate. Closer inspection reveals that a lump sum package deal has two key attributes, each of which independently would suffice to make the deal collective.
The attributes that combine to form such a deal are collective allocation and collective conditionality. Allocation refers to how settlement amounts are determined and allocated, the method for determining who gets how much. Conditionality refers to what conditions must be met for the settlement to stick, particularly the extent to which settlements are voidable by defendants for failure to obtain releases from all the plaintiffs. When authorities depict a deal in which the defendant pays an amount of money in exchange for releases of an entire group of claims, the allocation can be described as lump sum, and the conditionality can be described as all-or-nothing. When the lump sum package deal is understood as a combination of allocation and conditionality attributes, and when that understanding is combined with an awareness of the settlement structures actually in use in multiparty litigation, it becomes evident that each of these attributes appears in forms that range from purely collective to purely independent. Allocation and conditionality can be spread along two axes to form a grid of settlement structures. The resulting typology, by disaggregating the attributes of collective settlements, helps define which settlement structures should trigger the disclosure and informed consent requirements of the ethics rule, and offers an approach to describing both non-class aggregate settlements and class action settlements with greater precision.
Keywords: aggregate settlement, 1.8(g), class action, mass tort
JEL Classification: K40, K41
Suggested Citation: Suggested Citation