Killer Show: The Station Nightclub Fire (47 page)

One advantage of a point system, the professor explained, is that it can be applied where the ultimate amount of the settlement fund is unknown. The points only establish relative values of injuries, not their absolute dollar values. This feature was important in the Station case, because at the time of his meetings, there was still only $13.5 million dollars in tentative settlements from a few defendants.

The consensus of victim families attending the McGovern meetings was that a point system of some kind would best serve the dual objectives of efficiency and fairness, particularly because the final amount of the fund was unknown. That was the easy part. The devil, however, would truly be in the details. The unseemly calculus of attaching points to one person’s death versus another’s, to one person’s burns versus another’s — would test the patience and understanding of several hundred families in the months to come. Securing unanimous approval of a distribution plan required all the families to accept some unpleasant legal principles — and many just weren’t buying.

McGovern necessarily based his distribution plan on the law of torts and, particularly, Rhode Island’s law establishing who has standing to claim tort damages, and how those damages are calculated. For example, ninety-seven of the Station cases alleged that defendants negligently caused a loved one’s
death. They are called “wrongful death” cases. Few laymen appreciate that the right to sue another for wrongful death is entirely a legislative creation of each state (indeed, before Lord Campbell’s Act in 1846, there existed no cause of action whatsoever for wrongful death at English common law), and that wrongful death statutes strictly limit who can sue, and how damages are calculated. McGovern would have to explain to several skeptical Station families how tort law values deaths of young married persons, or people with children, more highly than those of single, childless adults. To parents who lost an unmarried adult child in the fire, such legal concepts were anathema. “My daughter never even had the
chance
to marry or have children! Why is her death worth less?” demanded one bereaved mother.

Apparent inequities abound in the law — and would have to be accepted by all plaintiffs. They needed to understand that the law necessarily distinguishes among classes of persons who may, and may not, recover when someone dies. A surviving spouse has a claim for loss of her dead husband’s society and companionship, but a longtime unmarried companion does not. In 2003, children of a decedent had a claim for loss of their parent’s companionship — but only if they were under eighteen at the time of the parent’s death. If a young man killed in the Station fire had fathered a child and never married, or divorced its mother, that child would be the
only
beneficiary of his wrongful death claim. (One unmarried man who was killed in the fire actually left a surprise sole heir — later confirmed by
DNA
testing —
in utero
at the time of his death. Imagine explaining
that
to the man’s parents, who, as a result of their unexpected grandchild, had no legal standing to sue for their son’s death.)

Perhaps most difficult for families to accept was that, generally, the law of wrongful death damages in Rhode Island does not compensate families for their understandable grief; rather, it is a purely economic calculation, intended to replace the decedent’s lost net earnings and services to his dependents.

From his many meetings with victims’ families and plaintiffs’ attorneys, McGovern developed a proposed plan of distribution, which he readily admitted was not perfect, but which, in his view, did rough justice for all. Under that plan, death claims started with a base award of one hundred points, for the decedent’s pain and suffering, loss of earning capacity, and funeral expenses. To that figure were added points for each year that a victim was younger than the median age of persons killed in the fire, in order to reflect additional lost wages and life expectancy. If a decedent left behind
a spouse, additional points were added; if he left minor children, yet more points. If he had unusually high earning capacity or education, there was further upward point adjustment.

Valuing personal injury cases was more difficult. From the outset, families of the dead had trouble accepting that catastrophic injuries have higher value in tort cases than do deaths. This apparent dichotomy reflects both the statutory limit on how death damages are calculated, and the practical fact that the appearance of a seriously burn-scarred survivor can translate into a mammoth jury award.

When McGovern initially set out, with the assistance of plaintiffs’ counsel, to establish criteria for injury point awards, his early drafts attempted to take into account location of burns, degree of burns, percentage of body involvement, number of grafting operations, days of hospitalization, and character of permanent scarring. The result was an unworkably complex matrix with too much room for subjective opinion. Was a burned hand worth more than a scarred scalp? What if it were the victim’s dominant hand? Is facial scarring on a single woman worth more than similar disfigurement of a married man? Is loss of a hand worth more than loss of an eye? (The entire exercise called to mind the silly insurance policies peddled to schoolchildren in the 1950s, in which loss of “one eye and one finger” had a different payoff from “one ear and one hand.” Beyond their value as deterrents to playing with explosives and machetes, the policy pamphlets made for ghoulishly fascinating third-grade reading.)

What plaintiffs’ counsel and their clients came to realize after several draft injury point plans had been considered, and rejected, was that the total amount of a victim’s medical expenses bore a rough correlation to the severity and permanence of their injuries. Expensive hospital time directly mirrored the pain and suffering of burn debridement and skin grafting procedures. Rehabilitation stints closely paralleled residual disability and deformity. For this reason, the final McGovern plan came to value personal injuries by awarding one point for every $2,000 of medical expense incurred by the victim. All notions of suffering, scarring, and disability would be subsumed under the single measure of medical expenses. It was not perfect, but it was objectively verifiable and generally fair.

Verification of each victim’s medical expenses would be performed under the McGovern plan by a court-appointed neutral verification expert, whose team of nurse-consultants was to examine each victim’s completed claim form and supporting medical records. The appointed verification expert, Jeffrey Dahl of Minneapolis, Minnesota, was not to engage in subjective
valuation; rather, he would simply determine how many points were supported by each claimant’s medical records and verified family facts. Appeals from the Dahl calculations were limited under the McGovern plan to calculation errors only.

This unseemly translation of death and suffering into point values was performed with cold, mathematical accuracy by the Dahl team. But someone had to do it. The upshot of McGovern’s and Dahl’s work was a plan that finally, and objectively, attached relative values to each Station fire claim (including derivative claims of children and spouses). These values, expressed as percentages of the total of all points awarded to all claimants, could then be applied to whatever settlement fund the plaintiffs’ counsel were able to amass at the case’s conclusion.

Claimants may not have completely agreed with the legal concepts that determined their share, or with the relative valuations of various injuries and deaths. But to their credit, with $176 million in play, even victims who disagreed with their share under the plan ultimately yielded their own self-interest to the common good. As a result, the McGovern plan was eventually approved by all plaintiffs and adopted by the court in 2008.

In his final report to the court, special master McGovern described how hard the process had been for the victims — and how well they conducted themselves in the end: “The meetings have been difficult for everyone,” explained McGovern, “because of a realization that no amount of money could possibly be adequate compensation for the horrors caused by The Station Fire. It has taken great fortitude for the beneficiaries and their families to even attend these meetings.” He concluded that, despite these difficulties, “they have comported themselves with poise, fortitude and united purpose.”

However, even after settlement had been struck in principle with every defendant, and the McGovern plan of distribution adopted, the consolidated Station fire cases could not be wrapped up without executed settlement agreements. Negotiations on a form of Master Release and Settlement Agreement to be signed by every plaintiff and defendant began in early 2009. A document acceptable to all parties did not emerge until November of that year.

Try getting two lawyers to agree on the provisions of a twenty-seven-page document addressing timing of payments, case dismissals, indemnifications for Medicare and other liens, and possible complications like a constitutional challenge to Rhode Island’s newly modified (and retroactively applied) joint tortfeasor contribution statute. Then, try getting
fifty
lawyers to agree to it — particularly when forty of them well know that final agreement means their defense billing juggernaut will soon chug to a halt. That the process
only
took eleven months is perhaps more surprising than the fact that it took that long.

As the seven-year anniversary of the fire approached, and an end to the litigation appeared possible, the victims still hadn’t received any money. Several had been seriously burned. Many had lost family breadwinners. All had conducted themselves admirably in agreeing to a distribution plan that may not have been as generous as they wished. But still they persevered. And waited.

The last thing they needed was to be further victimized.

Yet, that is exactly what happened to some. With settlements in principle announced long before any monies could actually be disbursed to victims, a relatively new breed of shark smelled blood in the water and began to circle. They were the “litigation funding companies,” or “
LFCS
.” The genesis of the
LFC
business tells all one needs to know about the industry.

In the mid-1990s, Perry Walton was lending money at high interest rates out of his Nevada home through a business he called Wild West Funding. An undercover detective assigned to investigate complaints that the company threatened late-paying customers quoted Walton as telling him that he “worked for loan sharks,” and “if you fuck with these people, you’ll end up in the desert, dead.” Walton denied ever threatening anyone, but, in 1997, he pleaded guilty to a charge of “extortionate collection of debt,” and was sentenced to eighteen months’ probation.

By 1999, Walton was back operating under a different business model. Called Future Settlement Funding Corp., it advanced money to plaintiffs in lawsuits at stratospheric rates, characterizing the transaction as an “advance” or “assignment of future proceeds” rather than a loan, in order to skirt state usury laws. The advance would only be collectible from the proceeds of the lawsuit; theoretically, if there were none, the “funding company” would not be repaid. Walton also hosted two-day seminars, charging as much as $12,400 to teach would-be litigation financiers the ropes of the game. As of 2000, he had trained four hundred people in its finer points.

A present-day Google search under “litigation financing company” garners over 100,000 hits. The industry is unregulated in almost all states, and there are virtually no barriers to its entry, particularly since the advent of Internet advertising. The Wild West of funding now includes all points of the compass rose.

Typical contracts with
LFCS
provide for effective annual interest rates between 48 and 120 percent, depending upon whether minimum payment
terms are enforced. Spokesmen for
LFCS
publicly justify such abusive rates by citing the supposed “high risk” of litigation funding; however, because the industry is largely unregulated, no one knows just how risky it is — or isn’t. The
CEOS
of two
LFCS
have been quoted as admitting to 4 percent and 2 percent default rates, respectively — far below that of credit-card or other unsecured lending. One thing is certain —
LFCS
prefer “sure things.” They tend to target lawsuits in the “mid-resolution” stage, according to Harvey Hirschfeld, president of LawCash and chairman of an
LFC
industry trade group. They keep attorneys on staff to evaluate (and minimize) the risk of every case they get involved in.

Lawyers are barred by ethical rules from lending money to clients for their personal use. But the dirty secret of
LFCS
is that attorneys may be heavily involved in them, perhaps as silent investors, but definitely as case evaluators and contract enforcers. If lawyers enable lending, at usurious rates, to vulnerable litigants, then the spirit, if not the letter, of the ethical rule has been violated. What is needed, at a minimum, is for states to bring
LFCS
within the ambit of their usury laws, creating transparency and capping interest rates. When an industry that collects a 60 percent annual percentage rate from desperate victims has a mere 2–4 percent default rate, then there is something very wrong with the equation. Yes, the business is barely legal (a testament to the lobbying clout of this kind of money); but just because something
can
be done, does not mean that it
should
be done.