Amicus News

No. 9. August 28, 1996

FIFTH CIRCUIT UPHOLDS ASBESTOS CLASS ACTION SETTLEMENT

The U.S. Court of Appeals for the Fifth Circuit has affirmed a federal district court decision to approve a class action settlement for future victims of asbestos-related disease. Flanagan v. Ahearn, No. 95-40635 (July 26, 1996).

The class action was designed to effect a global resolution of all claims against Fibreboard Corp., which manufactured asbestos-containing products from 1920 to 1971. Following protracted negotiation with plaintiffs attorneys and litigation concerning i nsurance coverage, the action was filed in federal district court for the Eastern District of Texas on behalf of future claimants -- asbestos victims who had not filed tort claims as of Aug. 27, 1993. On that date, the parties informed the court that th ey had reached a settlement agreement.

The agreement established a trust, funded by over $1.5 billion, which would compensate injured class members. Claimants who were dissatisfied with the amount offered by the trust could proceed with mediation, and then to non-binding arbitration. At that point, a claimant could reject the arbitration award and file a tort action against the trust, with the right to trial by jury. Recovery in tort actions, however, would be limited to $500,000, and punitive damages would be unavailable.

The district court certified the class as a mandatory, non-opt-out class action under Fed. R. Civ. Pro. 23 and determined that the terms of the settlement were fair, adequate and reasonable. Several members of the class who had intervened to challenge t he class certification and the settlement appealed.

AAJ filed an amicus curiae brief addressing the certification as a mandatory class action. AAJ argued that depriving future claimants of the opportunity to opt out of the class violated the Seventh Amendment right to trial by jury. That right could be preserved by modifying the settlement agreement to allow a claimant to file a tort suit within a reasonable time after discovery of the injury.

In a 2-1 decision, the Fifth Circuit panel affirmed the district court, parting company with the Third Circuit, which had disallowed a massive asbestos class action settlement earlier this year. Georgine v. Amchem Products, Inc. , 83 F.3d 610 (3rd Cir. 1996). The court stated that it is appropriate to consider the settlement agreement in determining whether the class action satisfies the requirements of Rule 23. In this respect, the court rejected the position of the Third Circuit that judges shou ld apply the Rule 23 criteria as if the class action would go to trial. The court concluded that the class action satisfied the requirements of commonality, typicality, and adequacy of representation, rejecting assertions of conflicting interests within t he class. The court notes that, unlike Georgine, where the settlement prescribed the amount of compensation for various injuries, the settlement here only established an equitable distribution process.

The court also dismissed intervenors arguments that the attempt to resolve future claims was beyond the federal courts subject matter jurisdiction and violated due process. The court did not address the trial by jury issue. Dissenting Judge Jerre E. Sm ith, however, termed the settlement a novel tort reform proposal thinly disguised as the settlement of a lawsuit. Specifically quoting the AAJ brief, Judge Smith stated:

Class members causes of action are repealed in favor of the equivalent of a workers compensation regime. The American Association for Justice summed up this point nicely in an amicus brief opposing the settlement: The alchemy of the class action settlement . . . had the effect of transforming the common law damage claims of asbestos victims, which were clearly safeguarded by the right to trial by jury, into administrative claims without that right.

For further information, plea se contact Jeffrey White.

Phone: 202-965-3500 x310
FAX: 202-955-0920
E-Mail: jeffrey.white@justice.org