IN RE ASBESTOS LITIGATION No. 95-40635.
134 F.3d 668 (1998)
IN RE ASBESTOS LITIGATION, James FLANAGAN, David H. Middleton, Edee Cochran, Esteban Yanez Ortiz, John R. Allgood, Henry William Evers, Lester Eugene Taylor and Safety National Casualty Corporation, Appellants, v. Gerald AHEARN, James McAdams Dennis, Charles W. Jeep, James Drake, Juanita Drake, James Ellison, Roland Dearborn, Judith Dearborn, Kerwin Butcher, Dir., Workers Comp., Director, Office of Workers' Compensation Programs, U.S. Dept. of Labor, Paul Cochran, Ida Beck, Marion Behee, Longshore Intervenor, William James Mitchell, Fibreboard Corporation, Bethlehem Steel Corporation, Continental Casualty Company, Pacific Indemnity, Francis McGovern, Owens-Illinois, Inc., Penn Mutual Life Insurance Company, Columbia Casualty Company, CNA Casualty Company of California, Celotex Corp., Daniel Herman Rudd Jr., on behalf of themselves and others similarly situated, John Hansel, on behalf of themselves and others similarly situated, Appellees.
United States Court of Appeals, Fifth Circuit.
January 27, 1998.
Andrew K. Epting, Jr., Wise, Pratt-Thomas, Pearce, Epting & Walker, Charleston, SC, Roy L. Stacy, Dennis D. Conder, Dallas, TX, for Safety Nat. Cas. Corp.
Before REAVLEY, DAVIS and SMITH, Circuit Judges.
In our prior opinion, we affirmed the judgment below, which approved class action settlements of asbestos-related claims involving Fibreboard Corporation. In re Asbestos Litigation,
There are two controlling differences between this case and Amchem. First, this class action proceeded under Rule 23(b)(1); Amchem was a Rule 23(b)(3) case. Second, there was no allocation or difference in
The district court made extensive findings and found, specifically, that separate actions by members of the class would create a risk of adjudications with respect to individual members of the class which would as a practical matter be dispositive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests. The language of the district court matches the language of Rule 23(b)(1)(B). No one has contested that finding of the district court, probably because it is incontestable.
The Supreme Court stated in Amchem that a settlement class action, like all federal class actions, cannot proceed unless the requirements of Rule 23(a) are met, irrespective of whether the proposed settlement is deemed fair under Rule 23(e). We detailed in our prior opinion our agreement with the thorough study and conclusions by the district court, satisfying the requirements of class certification under Rule 23(a). All members of the class, and all class representatives, share the common interests: suffering harm from asbestos exposure and seeking equitable distribution of compensation from limited funds. None of the uncommon questions, abounding in Amchem, exist in the present case.
The only conflict between members of the future claimant class could be competition for larger and earlier shares of available money, but that is precisely the reason for Rule 23(b)(1)(B) and the problem it is designed to solve where the money is limited. That conflict or competition is controlled for the benefit of all members of the class. It follows that the lawyer representing the class serves only common interests of the class.
The judgment of the district court is
JERRY E. SMITH, Circuit Judge, dissenting:
In a five-paragraph unsigned opinion, the panel majority states that "we can find nothing in the Amchem opinion that changes our prior decision."
Even if, arguendo, the law that informs this case was not plain before the Court decided Amchem Prods. v. Windsor, ___ U.S. ___, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997), that law is evident now. It is not surprising that the Court issued a "GVR"
Like the district court a quo, the district court in Amchem had approved a gigantic
___ U.S. at ___, 117 S.Ct. at 2252 (footnote and citation omitted, last three brackets in original).
The lesson is that, regardless of the benefits a particular settlement might seem to confer, in terms of "the greatest good for the greatest number" of parties, the niceties of statutory and constitutional constraints must be observed. Thus, while parties and district courts can be praised for their resourcefulness in formulating settlements that resolve mass tort litigation, the statutory and constitutional constraints, as the Amchem Court observed, "serve to inhibit appraisals of the chancellor's foot kind — class certifications dependent upon the court's gestalt judgment or overarching impression of the settlement's fairness." Amchem, ___ U.S. at ___, 117 S.Ct. at 2248.
This general theme, expressed forcefully in Amchem, is reinforced by the Court's discussion of specific issues, most of which are highly relevant to the instant case. While Amchem focuses on the issues of predominance and adequacy of representation, the Court emphasizes that these are not the only considerations a court must address when certifying a settlement class.
Before discussing the issues dealt with directly in Amchem, I note that this is not, as the majority would have it, a "limited fund" case. I will show, below, that the majority's analysis is fatally flawed even if we treat this matter as involving a limited fund — a question not present in Amchem — but I adhere to my previously-stated view that Fibreboard and its insurers do not collectively constitute a "limited fund" that would allow class certification under FED. R. CIV. P. 23(b)(1)(B). See Ahearn I, 90 F.3d at 1002 n. 17 (Smith, J., dissenting).
This issue alone should be dispositive of the matter, for if this class cannot go forward as a "limited fund" class, it would require certification under rule 23(b)(3) and would then be subject to the requirements of predominance and superiority. Amchem would specifically prevent class certification, for here, we have precisely the same disparities that destroyed cohesion in the Amchem class:
Amchem, ___ U.S. at ___, 117 S.Ct. at 2250 (quoting Georgine v. Amchem Prods.,
The panel majority concludes that the district court's finding that Fibreboard is a "limited fund" is "incontestable".
The panel majority gives great deference to the district court's factual finding that the maintenance of individual actions by class members might be dispositive of the interests of other parties. The majority accurately notes that "the language of the district court matches the language of Rule 23(b)(1)(B)," but the enunciation of these magic words cannot insulate the underlying legal determination from review, any more than would a trial court's factual finding that a defendant is liable. As a matter of law, this "finding," which is overtly conclusory, is incorrect.
The class proponents cite cases in which appellate courts have upheld "limited fund" class certifications under rule 23(b)(1)(B), but these cases invariably involve a "fund" that, unlike an ongoing concern, is necessarily limited.
1 NEWBERG ON CLASS ACTIONS § 4.09, at 4-33 (emphasis added). Here, there is neither a fixed asset nor property in which the putative class members have an interest. Their claims are made not against a "fund", but against Fibreboard itself.
It is fundamental that an injured party has an in personam claim against the person responsible for his injury.
Here, the panel majority has approved replacing the claimants' state law causes of action in personam with a claim against an artificially-imposed "limited fund." To be sure, the settlement does establish a limited fund: a res from which payment for all claims must be distributed. Indeed, for Fibreboard, the entire point of this settlement was to obtain a limit on liability that theretofore had been, quite literally, limitless. But that does not transform the plaintiffs' in personam claims against Fibreboard into in rem claims against the newly-established fund.
It is possible that the mounting costs of defending asbestos claims and paying asbestos judgments would have driven Fibreboard to take refuge in bankruptcy court.
This proposed settlement class is in fact "a self-evident evasion of the exclusive legal system established by Congress for debtors to seek relief."
The panel majority thus supplants the bankruptcy law with a judge-made system to extinguish the rights of tort creditors. And the panel ignores the obvious application of rule 23(b)(1)(B), which does not allow a defendant to limit its substantive liability through the creation of a limited fund — as was done here — but rather is a mechanism for the equitable distribution of a pre-existing fund.
But perhaps most striking is the panel's apparent disregard for principles of federalism and the limits of the Rules Enabling Act. Contrary to the Congressional mandate that the rules of civil procedure not "abridge, enlarge, or modify any substantive right," 28 U.S.C. § 2072, this court now takes away state law rights of those who have been damaged in tort and allows the asbestos victims only a pro-rata share in an artificially-limited settlement fund. As a matter of law, this class cannot be certified under rule 23(b)(1)(B).
Even assuming, arguendo, that rule 23(b)(1)(B) allows certification of a "limited fund" class of in personam claimants against a solvent ongoing concern and its solvent insurers, the panel majority erred in accepting the district court's factual decision that this is a limited fund. Fibreboard was recently acquired by Owens-Corning in a tender offer for about $515 million cash, plus $85 million of assumed debt. See Andrea Puchalsky, Owens-Corning to Buy Fibreboard for $515 million, WALL ST. J., May 29, 1997 at A4. This stands in contrast to the district court's finding, upheld by this court, that Fibreboard was worth no more than $235 million.
This discrepancy could indicate clear error, but at the very least it calls for a remand for new fact finding as to the value of Fibreboard as a potentially "limited fund." By issuing its new opinion, the majority declines, by implication, to permit the district court to reconsider that finding.
Although the Supreme Court's remand was specifically for reconsideration in light of Amchem, the instant matter has the procedural posture of an appeal from the entirety of the district court's judgment. In other words, the remand does not limit the scope of our review. Accordingly, I reiterate, briefly, some of the other points discussed in the original panel opinion and dissent, simply to indicate that these are still live issues important to our consideration.
For example, even if it were properly certified under rule 23(b)(1)(B), this class cannot proceed as a mandatory class in contravention of Phillips Petroleum Co. v. Shutts,
Even if these reasons were invalid, this class must fail under Amchem because of the lack of common issues and the inadequately-representative named plaintiffs. The Amchem settlement class, similarly, failed to meet the "adequacy of representation" requirement of rule 23(a). Amchem, ___ U.S. at ___, 117 S.Ct. at 2252. The Court stated:
___ U.S. at ___-___, 117 S.Ct. at 2250-51 (citations and internal quotation marks omitted).
The Amchem Court firmly established three principles of law with respect to rule 23(a)(4). Perhaps most importantly, adequacy of representation must be analyzed as a procedural safeguard — a "structural assurance" that the class members' interests are protected, irrespective of the fairness of the outcome.
The Amchem Court was presented with a factual "no conflict" finding similar to the district court's finding in this case. The same legal ethics expert who testified in Ahearn testified in Amchem that he perceived no intraclass conflict, or that if there was a small conflict it was overwhelmed by the commonalities. See Georgine v. Amchem Prods., Inc., 157 F.R.D. 246, 297-98 (E.D.Pa. 1994). The district court agreed. Id. In their briefs, the class proponents vigorously
But the Supreme Court disregarded the expert's testimony and the Amchem district court's extensive findings of fact on the issue of representativeness. Cf. Amchem, ___ U.S. at ___-___, 117 S.Ct. at 2250-52. Instead, from its own review of the various and potentially adverse interests among class members, the Court determined that conflicts existed — without regard to the conclusions of expert witnesses or of the district court. It is thus apparent from Amchem that the existence of conflicts is very much a question of law, not fact.
As did the Amchem district court, however, the district court and panel majority here incorrectly have treated the conflict inquiry as a factual one. In Ahearn I, the majority stated that "[j]ust what measure of representation is adequate is a question of fact that depends on each peculiar set of circumstances." 90 F.3d at 977 (quoting North Am. Acceptance Corp. v. Arnall, Golden & Gregory,
The Amchem court also emphasized the crucial distinction between the adequacy of the class representatives themselves, on the one hand, and the adequacy of class counsel, on the other hand. Thus, the Amchem Court, rather than looking at the plaintiffs' lawyers' competence or ethical conflicts of interest, questioned whether the named plaintiffs shared the same interests as did the class they purported to represent.
Throughout Amchem, the Court reminds us that the rule 23 class composition requirements are structural protections: prophylactic rules that must be applied even where a seemingly desirable result has been achieved without their help. Noting Congress's direction that the rules of procedure "shall not abridge any substantive right," 28 U.S.C. § 2072(b), the Court states that rule 23's "dominant concern" is whether "absent class members can fairly be bound by decisions of class representatives." Amchem, ___ U.S. at ___, 117 S.Ct. at 2248. The adequacy inquiry is ultimately designed to protect the members' due process rights, to keep them from being bound in absentia by someone who does not adequately protect their interests. See id.; see also Hansberry v. Lee,
Amchem thus specifically rejects any attempt to circumvent the structural safeguards of rule 23(a) by looking only to the substantive fairness of the outcome under
It is not enough that a named plaintiff in fact works for the overall good of the class. A representative must "possess the same interest and suffer the same injury as the class members" and must be aligned in interest such that no conflicts exist between the representative and any "discrete subclasses" within the broader class he purports to represent. Amchem, ___ U.S. at ___, 117 S.Ct. at 2251. Amchem demands a "structural assurance of fair and adequate representation for the diverse groups and individuals affected." Id. (emphasis added).
A corollary of rule 23(a)(4)'s mandate of unconflicted representation as a "structural assurance" is that any real conflict, even if minor when compared to interests held in common, will render the representation inadequate. Thus, Amchem did not weigh the myriad common interests within that class against the conflicts, in order to decide whether the conflicts were "de minimis" or were somehow overcome by the commonalties.
Rather, the analysis was explicitly focused on the mere existence of some intraclass conflict.
Amchem requires that the class representatives possess an identity of interest with the class they represent, and also that "the named plaintiffs operated under a proper understanding of their representational responsibilities." Id. Where discrete subclasses exist, each "separate constituency" must be represented as such:
Amchem, ___ U.S. at ___, 117 S.Ct. at 2251 (quoting In re Joint E. & S. Dist. Asbestos Litig., 982 F.2d at 742-43).
Therefore, in order for this class properly to be certified, exposure-only and pre-1959 representatives must have been representing the interests of their own subgroup, not the amorphous interest of the class as a whole. But there was no structural mechanism here to ensure that each discrete interest (such as the exposure-only claimants' interest in a lower damage cap) was given an advocate in the settlement negotiations. Rather, if these discrete interests were voiced at all, it would have been by someone perfectly willing — indeed, obligated by his duty to the class as a whole — to subordinate that discrete interest to his conception of the broader interests of the class.
Two important conflicts exist between certain class members and their representatives.
Furthermore, this class contains the additional conflict between the pre- and post-1959 claimants. These groups are treated alike under the settlement, even though their claims are worth vastly different amounts in the tort system.
Because the panel majority states that "there was no allocation or difference in the award, according to the nature or severity of injury," one is led to infer that the only interest that was ever in play here was the unitary interest of all the class members in receiving money. That inference is incorrect.
The settlement has two essential parts: a common fund and a mandatory process for distributing that fund. Even if all claimants are treated alike under the settlement — without regard to their status — this still reflects an allocation decision, with the various groups pitted against each other to receive parts of the fund.
In order to negotiate the settlement fund and establish the distribution process, the parties engaged in a series of compromises, attempting to balance the interests of the various subgroups in order to arrive at a settlement to the benefit of all. Thus, individual claims are capped at $500,000, regardless of the nature of the claim or when it
But perhaps the most salient allocation was the decision to treat the pre- and post-1959 claimants alike. It is true that the class as a whole benefited from this, and perhaps from each of the other compromises.
The settlement forced the pre-1959 claimants to give up something of value that is legally their due — their cause of action against an insured Fibreboard — in order to benefit a group of claimants to whom they owe nothing. To deprive them of that right requires that the absent class members have been protected by rule 23(a)(4)'s structural safeguard of due process through representation.
It is immaterial that, arguably, the settlement might not have been different had it been negotiated with representatives of the subclasses. Likewise irrelevant is whether the settlement was fair and in everyone's best interest. The gravamen of prophylactic rules is that they must be followed even where they seem burdensome and inconsequential.
The panel majority apparently believes the adequacy inquiry in this case to be distinguishable from that in Amchem, for this is a rule 23(b)(1)(B) action, while Amchem was not. That distinction is relevant, but it cuts against certification. Here, in a limited fund action, it is even more true that the class members were pitted against one another, and that their interests needed to be aligned with those of their loyal representatives.
In Amchem, the Court stated that "[a]lthough this is not a `limited fund' case certified under Rule 23(b)(1)(B), the terms of the settlement reflect essential allocation decisions designed to confine compensation and to limit defendants' liability." ___ U.S. at ___, 117 S.Ct. at 2251. Thus, even though the Amchem defendants had a theoretically unlimited supply of dollars with which to pay future claimants — so that the allocation of dollars was not a zero-sum game, and class members' potentially conflicting interests were thus arguably not pitted against one another — still, that settlement made "essential allocation decisions" by which some class members won and some lost. Thus, the Court worried that the settlement had chosen winners and losers "with no structural assurance of fair and adequate representation for the diverse groups and individuals affected." Id.
Here, there is no question that the settlement makes "essential allocation decisions." This is, after all, a "limited fund" class, in the view of the panel majority. If that is so,
The settlement's terms reveal its intergroup allocative effect. The high cap on damages hurts latent claimants (who would prefer a lower cap to ensure that there is some money left when their injuries finally become manifest), while patent claimants benefit. The ban on punitive damages hurts claimants from jurisdictions where such awards are generally available, saving a larger slice of the apple for those for whom punitives would not be available. Perhaps most egregiously, the settlement eliminates the privileged status of the pre-1959 claimants (who were covered by Fibreboard's insurance policy) and places them on equal footing with the post-1959 claimants (whose claims were largely uninsured). This settlement undeniably picks winners and losers.
A limited fund only increases the potential of intraclass conflicts. If the settlement in Amchem was legally flawed, this one is even more so. Where, as here, there are significant and potentially adverse subgroups within a class, their interests must be protected by representation as such.
Although recognizing that the class representatives might have thought the settlement in the best interests of the class as a whole, the Court in Amchem demanded a "structural assurance of fair and adequate representation for the diverse groups and individuals affected." Id. at ___, 117 S.Ct. at 2251. This case demands no less.
The Amchem class was rejected also, in part, because common questions of law or fact did not predominate over questions affecting only individual class members. See id. at ___, 117 S.Ct. at 2249 (citing rule 23(b)(3)). That analysis does not directly control the instant supposed "limited fund" class, for rule 23(b)(1)(B) imposes no such predominance requirement, but calls only for rule 23(a)(2) commonality. And, noting that for rule 23(b)(3) classes the test of commonality is subsumed under or superseded by the more stringent predominance inquiry, the Court declined to address commonality as such. Id. at ___, 117 S.Ct. at 2243.
Here, where common issues need only exist, not predominate, Amchem's ultimate conclusion has no bearing on the type and relative significance of the issues necessary to pass muster under rule 23(a)(2). The Amchem analysis is still pertinent, however, for Amchem speaks directly to the relevance of the settlement to either inquiry. Amchem tells us what sort of common issues may be considered: whether they must preexist the settlement, or whether an interest in the settlement itself may provide the common issues in satisfaction of rule 23(a)(2) or rule 23(b)(3).
Amchem tells us that, although a settlement is "a factor in the calculus," ___ U.S. at ___, 117 S.Ct. at 2249,
The class proponents would object that by its terms, this rule speaks only of "predominance,"
That there is a settlement, or that it is fair, does not eliminate or modify the other requirements of rule 23. Id. at ___, 117 S.Ct. at 2248. The plain text of rule 23 requires the putative class to meet its requirements by reference to the intrinsic features of the class members' claims, not to the settlement. Amchem reminds us that courts "lack authority to substitute for rule 23's certification criteria a standard never adopted — that if a settlement is `fair,' then certification is proper." Id. at ___, 117 S.Ct. at 2249. A court must apply the "criteria the rulemakers set." Id.
A settlement cannot itself be used to establish commonality, because to do so would cripple the settlement process from its inception; a putative class unable to meet the requirement of rule 23(a)(2) without the "commonality" established by a settlement could never be certified for litigation. And if settlement were allowed despite the impossibility of litigation, class counsel "could not use the threat of litigation to press for a better offer," and the resulting settlement would be a one-sided deal that sells out the plaintiff class for a pittance and works only in the true interest of the defendant and its insurers and the attorneys for both sides. See id. at ___-___, 117 S.Ct. at 2248-49. For policy reasons as well as adherence to the text of the rule, then, Amchem mandates that every class meet the rule 23 certification requirements independently of any common interest they might share in obtaining or maximizing the proposed settlement.
In its original opinion, the panel majority relied exclusively on the common interest of the class members in the settlement, citing Adams Extract Co. v. Pleasure Hours, Inc. (In re Corrugated Container Antitrust Litig.),
Id. at 975-76. This passage makes apparent that the panel majority based its finding of commonality solely on the now-discredited theory that the class members' interest in the settlement itself is sufficient to fulfill rule 23's commonality requirement.
In its latest opinion, the majority addresses this point in one sentence: "All members of the class, and all class representatives, share the common interests: suffering from asbestos exposure and seeking equitable distribution of compensation from limited funds." As I have said, the latter "interest" in the settlement fund, because it does not preexist the settlement, cannot establish commonality. And the putative interest in "suffering from asbestos exposure" is simply inadequate.
To begin with, it is factually incorrect to say that all the class members have "suffered from asbestos exposure."
Presumably the majority means that by the time their claims ripen and become justiciable, every class member will have a common interest in that he will deserve some compensation from Fibreboard that in some way stems from Fibreboard's manufacture of asbestos. At such an extreme level of generality, the members of this class conceivably could possess some level of commonality. But this is not a justiciable common interest sufficient to maintain the class.
Consider a commercial airline that suffers several disasters: one in Oregon, one in Louisiana, and one off the coast of Brazil. The owners of property that is damaged when the plane crashed into it, the bystanders injured by flying debris, and the deceased passengers' and crewmembers' next of kin all have "suffered from" the crashes.
In such a case, then, the superficial commonality of having suffered some injury will not suffice. Instead, the common issue must be necessary to the theory of recovery: "[T]he individual's claim and the class claims [must] share common questions of law or fact." General Tel. Co. v. Falcon,
Id. at 158 n. 13, 102 S.Ct. at 2371 n. 13. It is not enough for some general sort of commonality to exist. The commonality must be justiciable: It must derive from a substantial
It might be that the members of the putative Ahearn class do have issues in common, issues preexisting and apart from the settlement. It might also be that these issues would suffice to establish rule 23(a) commonality. The district court and the panel majority did not cite any such common issues, however.
In fact, the gist of this class is that the driving commonality was the class members' interest in the settlement itself: that in order to keep the defendants from going bankrupt and to forestall a possibly disadvantageous result in the insurance litigation, the plaintiff class members found it in their common interest to settle. Amchem tells us this is not enough.
In sum, this class cannot go forward. It cannot be certified as a "limited fund" class under rule 23(b)(1)(B), because it does not concern such a "limited fund," but rather is an aggregation of claims against a solvent, ongoing concern and its insurers.
But even if this class did involve a "limited fund" under rule 23(b)(1)(B), Amchem makes plain that it must still fail the requirements of rule 23(a). The pre- and post-1959 claimants and the patent and latent claimants are discrete and often adversarial subgroups. That the class structure fails to recognize these groups as such and to afford them proper representation causes the class to fail the adequacy requirement of rule 23(a). Further, because Amchem will not allow commonality to stem from a putative interest in the settlement itself, this class must also fail for want of common issues.
The panel majority embraces a settlement that it considers a triumph of practicality. In doing so, it casually dismisses the teaching of Amchem and blesses a class that falls far short of legal and constitutional requirements. I do not believe the Supreme Court spoke cryptically in vacating our earlier opinion while articulating, in Amchem, the specific standards for us to apply on remand. Because the majority adheres to an opinion that is foreclosed by the Court's reasoning, I respectfully dissent.
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