Ortiz v. Fibreboard Corp

Brief Fact Summary. Defendants proposed a class action under Rule 23(b)(1)(B) of the Federal Rules of Civil Procedure in which Defendant’s insurers would put money into a trust to compensate future claimants for exposure to asbestos. The maximum amount of the fund was determined by Defendant’s insurance policy limits. The District Court approved the class action settlement as a limited fund class action and objectors appealed.

Synopsis of Rule of Law. Limited fund class actions are not meant for many unliquidated tort claims. In order for a “limited fund” to be present, the amount of the fund is determined by Defendants’ assets, not an amount proposed by Defendants. In addition, the adequacy of representation of potential class members must be scrutinized for any conflicts of interest in order to ensure fairness of the settlement.

Facts. Defendant Fibreboard Corp. was subject to many personal injury suits arising from injuries and exposure to its asbestos products. Defendant had already settled 45,000 claims and wanted to make a “Global Settlement” where they would pay $1.5 billion for claimants that would file a Rule 23(b)(1)(B) of the Federal Rules of Civil Procedure class action (limited fund class action). There is no way to opt out under this kind of class action. There was a lawsuit before a California court to determine how much Defendant’s insurers had to pay. The California Court’s ruling would be included in the settlement in the event that the settlement was approved. If the settlement was not approved, Defendant had another agreement drafted where it would pay $2 billion to claimants. Another lawsuit was brought in Texas, wherein claimants wanted Defendants to put the agreed amount in a trust. If no agreement was reached, the claimants had to settle the matter by mediation, arbitration, and a mandatory settlement conference. If nothing came out of it, the claimants could bring a claim against the trust with a limit of $500,000 cap on the amount recovered per claimant. Claimants who had already settled with Defendants and claimants who had pending suits were excluded from the settlement. The District Court found that the class action met the requirements of Rule 23(a) and (b)(1)(B) of the Federal Rules of Civil Procedure and that the class action settlement was “fair, adequate, and reasonable” under Rule 23(e).

Issue. Did the District Court err in certifying the class under the “limited fund class action” provision of Rule 23?

Held. Yes. Reversed and remanded. In order to sustain a limited fund class action, the fund must be inadequate to satisfy all the liquidated claims, most of the fund is for the big claims and claimants are treated equitably with respect to recovery. These requirements are necessary and not just sufficient. A limited fund class action was not meant for unliquidated tort claims. Rule 23(b)(1)(B) of the Federal Rules of Civil Procedure claims are traditionally used for a class action basis when it deals with a limited fund. This case is different because Defendants are not putting all the money available into the trust and Defendants have not shown that this is the best way to resolve claims. A mandatory settlement-only class action dealing with future claimants compromises those claimants’ Seventh Amendment rights to a trial by jury. Supreme Court precedent states that one is not bound by a judgment if they were not made a party through service of process. There was no opt out provision. The District Court did not demonstrate how the fund was limited except as to the agreements between the parties and it showed exclusions from the funds and allocations of assets that do not conform to limited fund treatment. The parties must not only present the agreement, but they also have to show that the fund is insufficient. The District Court only found the limit of the insurance policies and not Defendant’s assets. Not all class members that were included in the settlement are assured compensation for injuries (the fund may run out). There are no homogeneous subclasses as required in Amchem Products, Inc. v. Windsor, 521 U.S. 591, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997). In addition, class members exposed before and after Defendant’s biggest insurance policy expired are in the same class even though the “before” claims are more valuable than the “after” claims. These conflicts amongst the class must be remedied and separate counsel is needed for the different subclasses.

Dissent. Justice Rehnquist: The District Court and the Court of Appeals should determine fact specific and circumstance specific issues such as the applicability of the limited fund class action provision and whether the settlement was fair. The class could have been certified under Rule 23(b) of the Federal Rules of Civil Procedure. Justice Breyer: There was far more money available in this case if it was settled. More plaintiffs would have been compensated if the settlement was approved, which would result in less transaction costs. The majority should have deferred to the District Court in exercising their discretion.

Discussion. The majority’s analysis demonstrates that a “limited fund” class action for potential class members is unlikely to pass muster under the considerations articulated in the opinion. Because of the inherent conflict among class members in such a case as this, the Court did not feel that a “limited fund” class action would adequately compensate each member of the class. CHAPTER XI. Pretrial Devices Of Obtaining Information: Depositio