Amchem Products, Inc. v. Windsor: the Supreme Court Defines the Standard for Settlement Class Action Certification - Jimmy White

• Citation: Vol. 49 No. 3
• Publication year: 1998

CASENOTES

Amchem Products, Inc. v. Windsor: The Supreme Court Defines the Standard for Settlement Class Action Certification

In Amchem Products, Inc. v. Windsor,¹ a case stemming from the asbestos litigation crisis of the 1970s and 1980s, the United States Supreme Court addressed the certification criteria for settlement-only class actions under rule 23 of the Federal Rules of Civil Procedure ("Rule 23").

I. Factual Background

Personal injury and wrongful death suits resulting from asbestos exposure began to appear in the 1960s.² Asbestos cases escalated in number throughout the 1970s and 1980s. In 1986 alone the filing rate of new asbestos cases in federal and state courts jumped from five hundred new cases per month to two thousand new cases per month.³ The enormous number of asbestos cases entering the judicial system resulted in (1) extreme financial burdens that threatened to completely bankrupt manufacturers; (2) excessive expansion of state and federal dockets, which created substantial delays in processing claims; (3) unwieldy transaction costs that made it impractical for plaintiffs to bring suits; and (4) erratic decisions issued by courts in different jurisdictions with similar fact patterns.⁴

Responding to the burden on the state and federal judicial systems, in 1987 the Federal Judicial Center convened a conference of judges and both plaintiff and defense counsel to discuss a means of resolving the asbestos litigation crisis.⁵ The report declared that a legislative response to the asbestos problem was necessary, but this prompting from the conference received no response. A second judicial conference was convened in 1990.⁶

As a result of continued efforts by the judiciary to find a global resolution to the crisis, all federal personal injury asbestos litigation pending in 1991 was transferred to the United States District Court for the Eastern District of Pennsylvania for coordinated and consolidated pretrial proceedings.⁷ Twenty defendant manufacturers represented by the Center for Claims Resolution ("CCR") entered into extensive negotiations with members of plaintiffs' steering committee.⁸ Negotiations focused on the development of a national "alternative resolution mechanism" that would provide a means of handling future asbestos claims against defendants.⁹ Once an agreement was reached between CCR and plaintiffs' attorneys, defendants proceeded to settle all pending claims.¹⁰

On January 15, 1993, a complaint, an answer, and a stipulation for settlement were filed simultaneously by plaintiffs and defendants.¹¹ On the same day, plaintiffs and defendants filed a joint motion for conditional class certification seeking temporary certification under Rule 23(b)(3) for the limited purpose of seeking approval of the proposed settlement.¹²

The proposed class consisted of all persons who had not filed an asbestos-related lawsuit against any of the named defendants as of the date the class action commenced but "who (1) had been ex- posed—occupationally or through the occupational exposure of a spouse or household member—to asbestos or products containing asbestos attributable to a [named] defendant, or (2) whose spouse or family member had been so exposed."¹³ The class would include persons who had already suffered injury as well as those who had been exposed to asbestos but had not yet been diagnosed with an asbestos-related injury.¹⁴ The class would number in the tens of thousands with members being given the option to voluntarily "opt-out" of the suit.¹⁵

The district court found that the settlement was fair, that the court's jurisdiction was properly invoked, and that representation and notice were adequate.¹⁶ In granting certification, the court noted that Rule 23 requirements for class certification were "often more readily satisfied in the settlement context because the issues for resolution by the court are more limited than in the litigation context."¹⁷

In reversing the district court, the Third Circuit Court of Appeals held that each of the Rule 23(a) requirements and the appropriate Rule 23(b) requirements must be satisfied "as if the action [was] going to be litigated."¹⁸ The court stated that the settlement agreement should not be taken into account in evaluating a class for certification.¹⁹ Applying this standard, the court ruled that the proposed class did not meet four of the Rule 23 requirements.²⁰

The Supreme Court affirmed the decision of the Third Circuit, holding that the proposed class did not meet the predominance or the adequacy of representation requirements of Rule 23.²¹ In affirming the Third Circuit, the Supreme Court stated that a settlement must be taken into account when determining the propriety of class certification but that taking the settlement into account does not relieve plaintiffs of their obligation to meet the Rule 23 requirements.²²

II. Legal Background

Rule 23, which governs the treatment of class actions in federal courts, sets out requirements that must be satisfied by parties seeking certification as a class.²³ Rule 23(a) lists four threshold requirements that must be met for a party to be certified as a class:

(1) numerosity (a "class [so large] that joinder of all members is impracticable"); (2) commonality ("questions of law or fact common to the class"); (3) typicality (named parties' claims or defenses "are typical... of the class"); and (4) adequacy of representation (representatives "will fairly and adequately protect the interests of the class").²⁴

In order to be certified as a class, a party must meet not only the requirements of Rule 23(a) but also the requirements of one of the categories under Rule 23(b). The Rule 23(b)(3) class action is designed to cover cases in which a class action would achieve economies of time, effort, and expense and promote "'uniformity of decisions as to persons similarly situated, without sacrificing procedural fairness or bringing about other undesirable results.'"²⁵ Rule 23(b)(3) creates a class action for plaintiffs seeking damages rather than injunctive or declaratory relief. The Rule 23(b)(3) class action is "designed to secure judgments binding on all class members" except those who voluntarily opt-out.²⁶

Rule 23(b)(3) states that a class action may be maintained if the prerequisites of Rule 23(a) are satisfied and if

the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy. The matters pertinent to the findings include: (A) the interest of members of the class in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; (D) the difficulties likely to be encountered in the management of a class action.²⁷

Among current applications of Rule 23(b)(3), the settlement-only class action has become a "stock device."²⁸ Unlike the traditional class action in which a party seeks certification so that an issue or claim may be litigated by a class of plaintiffs, a settlement class action is an action in which the plaintiffs and defendants move for class certification solely for the purpose of settlement.²⁹ No litigation is contemplated.³⁰ Settlement class actions have become particularly popular in the mass tort arena. This mechanism allows defendant manufacturers to negotiate with selected plaintiffs' attorneys to reach a settlement agreement, and to bring the settlement to the court for approval.³¹ In doing so, manufacturers are able to define the persons to whom they will be required to pay future damages.³² Furthermore, these manufacturers are able to limit future damages by narrowing the scope of causes of action that may be brought and by establishing a preset amount that may be awarded for each particular cause of action.³³

Rule 23(e) states: "A class action shall not be dismissed or compromised without the approval of the court, and notice of the proposed dismissal or compromise shall be given to all members of the class in such manner as the court directs."³⁴ Typically, application of Rule 23(e) takes place in a "fairness" hearing in which the court considering certification and the settlement will examine evidence provided by the parties and make a determination on the fairness of the settlement agreement.³⁵ Prior to Amchem, the debate in federal courts had been over whether the fairness of the settlement under Rule 23(e) should influence the decision to certify the class and, if so, how much weight the fairness of the settlement should be given.³⁶

In re Bendectin³⁷ represents the first time that a district court granted class certification for settlement purposes in a mass tort action.³⁸ In re Bendectin involved a proposed class of plaintiffs claiming injuries suffered from the use of the pharmaceutical Bendectin, which plaintiffs alleged caused birth defects and stillborn births in mothers ingesting the drug.³⁹ The district court certified the class, stating that the traditional court system was unequipped to handle...