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I. Introduction
An attorney signs a retainer agreement to represent a Connecticut resident allegedly harmed by taking a new prescription drug manufactured by a New York drug company. The attorney will charge a 40% contingency fee according to the agreement. The attorney decides to bring the case in federal court in the Southern District of New York on the basis of diversity jurisdiction and files suit under New York state tort law. Given that the defendant's headquarters are in New York, the plaintiffworks full-time in New York, and the plaintiff's injury-a heart attack-happened in New York, the attorney believes New York law will apply to all substantive legal issues under New York choice-of-law rules.
Just weeks later, upon the defendant's motion in this case and in 500 other cases filed nationwide involving the same drug, the Judicial Panel on Multidistrict Litigation approves the transfer of all 501 cases to the federal district court in Connecticut for consolidated multidistrict litigation (MDL) proceedings. In a matter of months, the defendant settles almost all of its pending claims with the MDL plaintiffs in a single settlement, while the case is still pending before the MDL transferee court.1 The original Connecticut plaintiffsettles for $800,000, and the attorney keeps 40% ($320,000) as her contingency fee. But the Connecticut plaintiffwants the benefit of New York state law, which caps contingency fees for this size settlement at 25%,2 or $200,000 in this case. Can the Connecticut plaintiffenforce the state contingency fee caps?
Stated differently, the question posed by this hypothetical is whether state laws capping contingency fees apply to settlements of federal diversity cases pending before MDL transferee courts. Because several state laws broadly cap contingency fee awards, this question will continue to arise in cases consolidated through the MDL process. This question also raises a plethora of interesting legal issues, including the application of state law in federal courts, the possibility of forum shopping between state and federal forums, and the equities among plaintiffs and their counsel, all consolidated in the same MDL court.
This Note ultimately argues that state contingency fee caps should apply to settlements of federal diversity cases pending before MDL courts. Part II of this Note begins by giving background on state contingency fee caps and the...