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AcroMed Limited Fund Class Action

Topic(s): Class Actions – Objections to Proposed Settlements
Citation: 176 F.R.D. 158 (E.D. Pa. 1997)



Description: Since the early 1990's, a large number of personal-injury actions have been filed against makers of bone screws and the surgeons who surgically implanted them. The plaintiffs alleged that the bone screws were improperly marketed for use in the spine (pedicle), although they are only medically appropriate for use in long bones (arms, legs). The plaintiffs alleged severe and debilitating back injuries. Among other proof, plaintiffs point to the fact that the FDA generally refused to approve these devices for use in the spine.

The federal cases were consolidated by the Judicial Panel on Multidistrict Litigation and sent to Senior Judge Louis Bechtle in Philadelphia. The plaintiffs' lawyers, known as the Plaintiffs' Legal Committee ("PLC"), apparently believed that one of the defendants, AcroMed Corporation, a closely-held corporation, was financially at risk because of the onslaught of litigation. In January 1997, AcroMed and the PLC entered into a "limited fund" class action settlement, and sought to certify the case on a non-opt-out basis. Without getting into all the details, the settlement provided that the class members would split $100 million cash, plus the value of AcroMed's liability insurance policies (probably worth another $10 million, but in dispute). Class members would submit proof of their injuries and other information and individual cash awards by a neutral administrator. AcroMed escrowed $10 million and promised to raise the bulk of the remainder of the $100 million by unsecured borrowing on its cash flow (i.e., its future business). (Approximately, 4500 AcroMed bone screw recipients and some of their spouses made claims on the settlement fund).

As noted above, some plaintiffs also alleged claims against their surgeons on the ground that the surgeons should have warned them of the bone screw's FDA regulatory status. Plaintiffs also claimed that surgeons took money or stock from AcroMed and put those financial interests ahead of their patients, and had other conflicts of interest. The class action settlement purported to bar such claims against doctors. The settlement release went so far as to bar claims against doctors who told their patients that the device was FDA approved when they knew it was not. The release also barred certain claims against hospitals where the surgeries took place. Neither the doctors nor the hospitals were defendants in the class action or in the multi-district proceedings, nor had they made any financial contribution to the settlement. AcroMed defended the release of the surgeons and hospitals on the ground that it needed to maintain good relations with its customers to insure future profitability.

C. Public Citizen Involvement: We represented 33 objectors, mostly from Tennessee, who had substantial claims against their doctor and the hospital at which the surgery took place. We took no position on the settlement against AcroMed, but argued that the release of the health care providers, especially on a non-opt-out basis, was unfair and violated Rule 23 and due process.

We filed comprehensive briefs and participated in the first stage of the district court fairness hearing on April 23 and 24, 1997, briefly cross-examining some of the settling parties' witnesses and commenting on the settling parties' arguments. The fairness hearing reconvened on June 3, 1997, at which time we presented oral argument on the legal issues. We also took some discovery designed to prove exactly the types of claims that were barred by the settlement's release of health care providers.

The district court approved the settlement on October 17, 1997. As to AcroMed, the district court found that the company's net worth, absent the litigation, was $104 million and that the litigation costs and potential liability was far greater, thus justifying "limited fund" non-opt-out class certification. The court also found that the settlement was fair to the class. Finally, the court approved the release of doctors and hospitals with almost no analysis, thus rejecting our clients' position. (It is now clear that the settlement, even as to AcroMed, would be impermissible under the Supreme Court's later decision in Ortiz v. Fibreboard Corp., 527 U.S. 815 (1999) (see #12 below)).

Our clients appealed. Thereafter, AcroMed approached our clients' local Tennessee counsel and "settled" our clients' claims on secretive terms without our knowledge. Other appeals filed by subrogating health care insurance providers were later settled as well, and the overall class settlement became final in April 1998.

One other development is noteworthy. About five months after the district court approved the settlement, and shortly after our clients' appeal was bought off, AcroMed was sold to a French firm, Depuy, for about four times the supposed $104 million value that the district court found based on the settling parties' contentions. (Depuy was later acquired by Johnson & Johnson). We do not know whether AcroMed was in negotiation with its prospective buyer during the class action settlement process or whether class counsel ever explored whether AcroMed was up for sale.

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