Pharmaceutical Expert

An attorney and his law firm appealed a judgment in favor of the plaintiff, on behalf of nine other former clients (“former clients”).  The former clients claimed that he improperly deducted certain expenses from their recoveries when they settled personal injury suits against a pharmaceuticals company.

The attorney represented the former clients in litigation for personal injuries from taking the prescription diet drugs fenfluramine and phentermine—commonly known as “fen-phen.”  A federal multidistrict litigation (MDL) court certified a nationwide class action and designed the procedures to be followed by litigants who wanted to opt out of that and pursue individual claims.  One of the requirements was that opt-out litigants had to establish their eligibility to sue by taking an echocardiogram which resulted in a “FDA-positive.”  The attorney involved set up a nationwide echocardiogram program supervised by a board-certified cardiologist at a cost of more than $20 million.  More than 40,000 potential clients were screened and roughly 8,000 of them had “FDA-positive” echocardiograms that allowed the attorney to pursue their individual. His clients signed written contingency fee agreements that allowed him to recover reasonable expenses from each client’s claim. The attorney ended up with fee agreements with 8,051 clients.

The law firm and the pharmaceutical company started settlement negotiations in 2005. The pharmaceutical company insisted on an aggregate settlement, to which 95% of the attorney’s clients consented. They agreed to $339 million, which included all of the attorney’s clients.  Each received a settlement packet.  The materials included the settlement sum for each individual.  The packets also included a settlement statement with deductions for expenses, attorneys’ fees, and other items.  More than 95% of his clients consented in writing to this, including the payment of a proportionate share of expenses.

One of the attorney’s clients filed this suit in 2008 and asserted that the attorney breached his fiduciary duty when he deducted from her fen-phen recovery a share of expenses attributable to echocardiograms performed on thousands of other potential clients who were eventually deemed not to be “FDA-positive” after screening.  More than 600 former clients sued the attorney in this case alleging breach of contract and fiduciary duty, fraud, conversion, statutory theft, and unjust enrichment. The trial court selected 10 plaintiffs from 600 for trial a pursuant to agreement.

At trial, the parties contested much of the settlement including the propriety of deducting expenses attributable to non-client echocardiograms from recoveries obtained for  the attorney’s 8,051 fen-phen clients.  The former clients contended that only echocardiogram costs attributable to an individual client’s own FDA-positive echocardiogram should have been deducted.   According to the former clients, the attorney’s decision to allocate a proportionate share of non-client echocardiogram costs to his 8,051 clients improperly boosted his fees from the $339 million aggregate settlement by more than $20 million at their expense.

According to the attorney, allocating a proportionate share of non-client expenses to his settling clients was reasonable because it created a sophisticated, selective, and scientifically sound screening program that was essential to demonstrate that his clients had compensable injuries and to convince the pharmaceutical company to settle. He said that the high percentage of potential clients whose cases were rejected bolstered the strength of cases that ultimately were accepted and filed.  As a result, in his view,  his clients’ interests were advanced by all of the echocardiograms that were conducted—not just by their own individual “FDA-positive” echocardiograms.

The former clients presented expert testimony at trial from attorney H. Her testimony included the opinions, such as:

Mr. F violated the fiduciary duties of candor and loyalty in two primary respects with the allocation issue. . . In essence, you started out with their individual contracts where you had individual representation, and all of a sudden in the settlement package you have a group representation with an allocation made specifically and only by Mr. F. And that breaches the duty of loyalty and it breaches the duty of candor, and that was not explained.

The attorney challenged the admissibility of the expert’s testimony.  However, the jury’s verdict awarded damages to each former client for unreasonable expenses. In addition, the final judgment ordered the attorney to give back 32% of the amount paid in attorney’s fees for each of the 10 trial plaintiffs.  The dollar value of these disgorged fees ranged from $2,379 to $251,262.  The trial court severed the 10 trial plaintiffs’ claims from those of the remaining former clients, and the attorney appealed the trial court verdict.

He raised several issues on appeal challenging the trial court’s final judgment. He contended that the trial court abused its discretion by admitting testimony from the former clients’ liability expert H.  He attacked her qualifications to testify regarding liability for breach of fiduciary duty in connection with an aggregate settlement.  He also contended that the substantive content of her opinions rendered them inadmissible on grounds that:

  1. “she is not qualified to address the issues in this case;”
  2. “her proposed testimony is not relevant and will not assist the trier of fact;”
  3. “her opinions are unsupported and unreliable;” and
  4. “any probative value her opinions may have is substantially outweighed by the danger of unfair prejudice, confusion of the issues, and misleading of the jury.”

The attorney’s challenge to H’s qualifications involved her testimony on compliance with the fiduciary duties that attorneys owe to clients in connection with charging litigation expenses as part of an aggregate settlement.  The attorney faulted H’s level of experience in dealing with settlements of this nature.

The Court of Appeals rejected the attorney’s challenge to H’s expert qualifications.  The extent of an expert’s practical experience may be a factor to be considered in assessing an expert’s qualifications depending on the circumstances, but that factor was not dispositive in this action.  H had a bachelor’s degree and a J.D., as well as a Ph.D., and was licensed to practice law in Texas for many years.  In private practice she worked on “mass action” litigation arising from rollover accidents involving Firestone tires and Ford Explorer vehicles, and supervised discovery for “mass action” and class action litigation involving homeowners claiming property damage from leaking polybutylene piping.

H served as a member of the committee of the State Bar that drafts and revises proposed language for the Texas Disciplinary Rules of Professional Conduct.  She served as an expert witness on behalf of lawyers against whom grievances were filed  for disciplinary rules violations, and was a co-author of a handbook of Texas lawyering and judicial ethics.  Based on this background and experience, Judge William J. Boyce of the Texas Court of Appeals wrote that the trial court acted within its discretion in concluding that H was qualified to testify as an expert with respect to compliance with the fiduciary duties that attorneys owe to clients in the context of charging litigation expenses as part of an aggregate settlement.

As far as what an acceptable expert witness many say, the judge said, “Mapping the contours of permissible testimony from an expert presents challenges because it is easier to explain what an expert cannot say than it is to explain what the expert can say.”  Past court decisions, he went on,  have held that an expert may state an opinion on a mixed question of law and fact if the opinion is limited to the relevant issues and is based on proper legal concepts.  Also, an issue involves a mixed question of law and fact when a standard or measure has been fixed by law, and the question is whether the person or conduct measures up to that standard.  Judge Boyce also quoted another case which said that an expert could not testify on pure questions of law,  “Thus, an expert is not allowed to testify directly to his understanding of the law, but may only apply legal terms to his understanding of the factual matters in issue.”  Judge Boyce said that it isn’t the function of the expert witness to define particular legal principles that are applicable to a case.  That is the role of the trial court:

The lawyers, the expert, and the judge begin trial with knowledge of the generally applicable duties and their potential scope; the jurors do not. In order for an expert to meaningfully “apply legal terms to his understanding of the factual matters in issue” in a way that assists the jury, the expert must have some leeway to reference the controlling “legal terms” and related concepts while testifying. Otherwise, a jury would not be able to make sense of the expert’s testimony or measure it against the charge’s requirements, and the sponsoring litigant could not meet a motion for directed verdict.

Judge Boyce explained that it was understood that the standards governing admission of expert testimony didn’t automatically prohibit every reference to legal terms or disciplinary rules by expert testimony on an attorney’s alleged breach of duties to a client.  This expert testimony, the judge continued, may include these references when the trial court sets appropriate limits.  The range of potentially relevant expert testimony varies depending on the specific facts legal standards in a specific case.

The judge wrote that expert witness attorney H testified properly on the general fiduciary duty concepts and her opinion that the attorney’s handling of non-client echocardiogram expenses violated the applicable duties.  However, she went much further. H’s testimony crossed “the border of inadmissibility” when she tried to undertake the following:

  1. explain to the jury the application of specific Disciplinary Rules of Professional Conduct, along with the asserted “interaction” between these rules and fiduciary duty standards;
  2. state that the attorney violated more than six specific disciplinary rules, identified by number; and then
  3. tell the jury that violating these rules “necessarily” established a breach of the fiduciary duty the attorney owed to his clients.

Testimony of this nature runs afoul of the reliability requirement, and of the prohibition against testimony concerning pure questions of law, the judge wrote in the appellate opinion.  H’s testimony was unreliable where she testified that a lawyer who violated the disciplinary rules “necessarily violated a fiduciary duty, the very fiduciary duty that underlies a particular rule.”  That testimony was unreliable because it contravened Texas law.

Because H’s testimony equating disciplinary rule violations with per se breaches of fiduciary duties was unreliable, the Court of Appeals held that the trial court abused its discretion in admitting this testimony.  And because H predicated her testimony from the outset on an asserted intertwining of and “interaction between the Texas [D]isciplinary [R]ules of [P]rofessional [C]onduct and attorney breach of fiduciary duty law in Texas,” this error impacted all of her testimony with respect to the asserted breaches of the fiduciary duty owed to the clients.

The record also showed that the error from admission of H’s testimony was harmful because it probably caused an improper judgment.  The impact of the expert’s testimony was underscored by closing arguments, and by events that occurred during the jury’s deliberations.  Based on these circumstances, the Court of Appeals concluded that the erroneous admission of H’s testimony warranted reversal of the trial court’s judgment.  It ruled on this issue in favor of the attorney.

Source: Fleming v. Kinney ex rel. Shelton, 395 S.W.3d 917 (Tex.App.–Houston [14 Dist.] April 9, 2013).

By: Kurt Mattson, J.D., L.L.M