Ortiz v. Fibreboard Corp. - Opinion Announcement

Argument of Speaker

Mr. Speaker: The opinion of the Court in No. 97-1704, Ortiz vresus Fiberboard Corporation will be announced by Justice Souter.

Argument of Justice Souter

Mr. Souter: This case comes to us on writ of certiorari the United States Court Appeals for the Fifth Circuit.

At a time when Plaintiffs were filling asbestos-related personal injury claims against the respondent Fibreboard.

Fibreboard was suing its insurers the respondents Continental Casualty Company and Pacific Indemnity Company to pay the claims.

In 1990, Fibreboard won the suits against the insurers and the insurers appealed.

While the appeal was pending Fibreboard approached to group of asbestos plaintiffs’ lawyers and eventually settled all the Fibreboard’s futures asbestos liability in an agreement called a Global Settlement Agreement.

They created a $1.535 billion trust to pay claimants all but a tiny fraction which was to come from the insurers.

As agreed a group of named plaintiffs’ then filed a class action in District Court seeking certification of the settlement only non-opt-out class comprising asbestos-related tort claimants who had not yet sued Fibreboard, claimants who had settled while retaining the right to sue in the future for an asbestos-related malignancy, and relegates of claimants.

The District Court certified the class under Federal Rule of Civil Procedure 23(b)(1)(B) concluding that the disputed insurance asset liquidated by the global settlement and alternatively Fibreboard’s equity plus the value of its insurance coverage, were limited funds.

Over petitioner's objection, the District Court approved the settlement as fair.

The Fifth Circuit affirmed approving the settlement, the certification on a limited fund rationale.

We vacated that judgment in light of our decision in Amchem Products Incorporated v. Windsor, when on remand the Fifth Circuit again affirmed.

In an opinion filed with a Clerk of Court today, we reverse.

Rule 23(b)(1)(B) provides the certification of a class whose members have no right to withdraw, when the prosecution of separate actions would create a risk of adjudications with respect to individual class members which would as a practical matter be dispositive of the interests of absent members was substantially impair or impede their ability to protect their interests.

The risk that the rule refers to is understood to the present in cases where there is only a so-called limited fund.

Where limited fund class actions have traditionally been recognized there has been a fund inadequate to pay all claims against it.

All persons would claims based on common theory of liability have been included within the class and all of the fund has been distributed to satisfy all those claims on an equitable pro rata basis.

These historical characteristics we hold are presumptively necessary to justify mandatory class treatment on the limited fund theory relied upon by the Court of Appeals.

This view finds support and the understanding by the advisory committee that propose Rule 23, it minimizes conflict with the Rules Enabling Act and it avoids constitutional concerns.

The record here did not show that the three essential conditions for a mandatory limited fund class action were satisfied.

Firstly, was no adequate demonstration of the funds limit, hence instead of the independently evaluating the disputed insurance coverage the District Court and the Court of Appeals simply accepted the parties agreed upon figure.

It may well be, the settlement figure is never sufficient alone to demonstrate a limited fund but it clearly is insufficient here, due to conflicts on the part of some counsel in this case.

Some of the same lawyers representing the class also negotiated a separate settlement agreement covering 45000 pending claims, full payment of which depended impart on a successful global settlement.

Class counsel thus had great incentive to reach any global settlement that might survive a Rule 23(e) fairness hearing rather than the best arrangement for their class clients.

Next, the settlement certification fell short with respect to the inclusiveness of the class and fairness of distribution within it.

The class excluded myriad claimants with causes of action, or foreseeable causes of action arising from exposure to Fibreboard asbestos, and the District Court failed to insure fairness of the funds distribution among class members as it could only have done by certifying sub-classes as required by our decision in Amchem.

At the least there should have been separate representation for holders of present claims and future claims, as well as for those exposed to Fibreboard’s asbestos products before and after the expiration of the bulk of Fibreboard’s insurance coverage.

Finally, this class action departs markedly from the limited fund antecedents in its provision for a fund smaller than the assets understood to be available for payment of the class members claims.

Fibreboard listed its entire net worth as a component of the total and allegedly inadequate assets available, yet it retained all but a half a million dollars of that equity for itself.

It hardly appeared that such a regime was the best that could be provided for class members.

The Chief Justice has filed a concurring opinion which Justice Scalia and Justice Kennedy have joined; Justice Breyer has filed a dissenting opinion joined by Justice Stevens.