Mass tort class actions: will Amchem spawn creative solutions?

• Author: O'Leary, Leslie W.

Settlement class actions as known in the past probably are dead, and courts must now look for other ways to handle mass torts than under Rule 23

LAST YEAR the U.S. Supreme decided Amchem Products Inc. v. Windsor,(1) a case that could signal the demise of the "settlement class action," a novel procedural device recently used to achieve quick global settlements in mass tort actions. The Court invalidated a class action settlement agreed to by individuals exposed to asbestos products and asbestos manufacturers, holding that the proposed class did not meet the strict requirements of Rule 23(b)(3) of the Federal Rules of Civil Procedure. The decision halted and may have reversed a growing trend among federal district court judges simultaneously to certify large class actions and approve settlements already negotiated.

THE AMCHEM DECISION

1. Proposed Settlement

   In Amchem, the proposed settlement class consisted of individuals exposed to asbestos products manufactured by 20 defendant companies. Pursuant to a recommendation of the U.S. Judicial Conference Ad Hoc Committee on Asbestos Litigation, the Multidistrict Litigation Panel consolidated pending but untried asbestos cases in the Eastern District of Pennsylvania.(2) There, Judge Weiner presided over pretrial proceedings.

   Prior to the filing of a separate class action, counsel for the plaintiffs and the defendants formed separate steering committees, and counsel for the Center for Claims Resolution (CCR), a consortium of 20 former asbestos manufacturers participated in the defendants' steering committee. The attorneys began negotiations and eventually reached a mass settlement agreement as to existing "inventories" of cases. The CCR agreed to settle existing claims for more than $200 million, but as a condition the defendants wanted closure on future claims.

   During these negotiations, there were no separate counsel present to represent the interests of future claimants; counsel for the present claimants purported to represent future claimants.

   The settling plaintiffs and the CCR defendants simultaneously filed a complaint, answer, a proposed settlement agreement and a joint motion for conditional class certification. Based on the pleadings, it was clear that the parties never intended to litigate. In the complaint, some of the lead plaintiffs alleged that they had already been injured from exposure to asbestos, while others claimed they had been exposed but had not yet suffered asbestos-related injuries. There were no pleaded subclasses.

   Present claimants were defined as class members who had manifested symptoms and illnesses but had not filed their claims before January 15, 1993. They were to be compensated according to a "grid" of disease categories, with a settlement cap of $200,000. Although some claimants may have qualified for additional compensation in "exceptional cases," a maximum of only 1 to 3 percent of present claimants could actually qualify. Moreover, the provisions imposed an annual aggregate cap, or "case flow maximums," on these amounts. Some types of claims, such as loss of consortium, were not covered, even if state law would otherwise allow them. Only 1 percent of the current claimants had the right to opt out of the class. Opt-out claimants could not seek punitive damages, "fear of cancer" claims or future injury claims at trial.

   Future claimants were defined as class members who had been exposed to asbestos but had not yet manifested disease ("exposure-only" claimants) or class members who had experienced pleural thickening but were not yet ill. They received no compensation under the agreements, but they could qualify for minimal benefits in the future once they developed a compensable disease and met certain disease criteria under a procedure managed directly by the CCR defendants.(3) The criteria future claimants would have to meet were much more strict than under tort law. Only about half of the victims normally diagnosed with asbestos-related lung cancer would meet the settlement's qualifying medical criteria.

   The settlement provided no adjustments for inflation. Future claimants and their families were precluded from bringing lawsuits against the defendants. The settlement agreement gave CCR defendants the right to withdraw from the settlement after ten years.

2. Certification by District Court

   The district court conditionally certified the class pursuant to Rule 23(b)(3) and appointed the settling parties' attorneys as class counsel.(4) Next, Judge Weiner appointed Federal District Court Judge Reed to conduct hearings to assess the fairness of the class settlement.

   Several class members, known as the Windsor Group, objected to the settlement. Composed of "exposure-only" future claimants, they raised five issues: (1) the settlement did not provide inflation adjustments for future claimants; (2) the compensation structure did not account for changes in the defendants' knowledge of science over time; (3) the compensation levels were much lower than the awards class members would receive in individual trials and substantially lower than the amounts current claimants received for the same diseases; (4) class members received no medical monitoring; and (5) the representation of future claimants was inadequate in that it was collusive because the same claimants with asbestos-related lung cancer would meet the settlement's qualifying medical criteria.

   Judge Reed disagreed with the objectors, finding the action met Rule 23 requirements. First, the numerosity requirement was satisfied by the sheer number of claimants. Second, commonality was satisfied because all class members were exposed to asbestos supplied by the defendants, and all members shared an interest in receiving fast and fair compensation and minimizing risks and transaction costs. Third, common issues predominated--the common issue being whether the settlement was fair, reasonable and adequate. Fourth, the class representatives were "typical" of the class. Fifth, the settlement met the "superiority" requirement. Finally, the class settlement satisfied the "adequacy of representation" prerequisite under Rule 23(a)(4). Specifically, the court found that the settlement negotiators had everyone's best interests at heart and no material conflict of interests existed between the present and future claimants. In addition, creating subclasses would be needlessly costly and confusing to class members.

3. Third Circuit Decision

   On appeal, the Windsor Group raised both Rule 23 and constitutional challenges, including Article III justiciability, standing, and adequacy of notice under the due process clause. The Third Circuit invalidated the certification.(5)

   Writing for the majority, Judge Becker declined to consider the constitutional issues since they "would not exist but for certification," but he acknowledged they were a serious problem. Focusing on Rule 23, the court held that the class did not meet the rule's requirements, relying on its assessment in General Motors Corp. Pickup Truck Fuel Tanks Products Liability Litigation(6) of whether a class action may be certified for settlement purposes only. That case stated that the Rule 23(a) requirements must be satisfied as if the case were going to be litigated and that Rule 23(a) and 23(b)(3) must be met without taking into account the settlement. It is ironic that the court did scrutinize the settlement and found that the class failed to meet the commonality, typicality, adequacy of representation, predominance, and superiority conditions of those sections of Rule 23.

   A concurring opinion added that the future claimants had no standing to sue, since the record showed they had no existing injury or damages.

4. Supreme Court Analysis

   Before the U.S. Supreme Court, the Windsor Group again raised three jurisdictional arguments. First, they argued, there was no case or controversy under Article III of the federal Constitution, since the settlement-only class sought to use non-adversarial means to bind an indeterminate number of individuals whose claims were not yet ripe. Second, the future claimants lacked standing, either because they had not yet suffered any legally cognizable injury or because the settlement did not adequately redress their injuries, since there was no relief for emotional distress, medical monitoring, future disease. Third, future claimants did not satisfy the $50,000 minimum amount-in-controversy required for diversity jurisdiction.

   Like the Third Circuit, the majority of the Supreme Court also declined to reach the constitutional issues on the ground that class certification was "logically antecedent" to any Article III issues. However, writing for the majority, Justice Ginsburg noted that Rule 23 must be interpreted consistently both with Article III and the Rules Enabling Act (28 U.S.C. [sections] 2072(b)), which mandates that rules of procedure "shall not abridge, enlarge or modify any substantive right."

   The Court focused extensively on the evolution and prerequisites for actions for damages under Rule 23(b)(3). In addition to the Rule 23(a) prerequisites for numerosity, commonality, typicality, and adequacy of representation, a 23(b)(3) class must meet two additional requirements: predominance of common issues and superiority of the class action device over other available methods for fair and efficient adjudication of the controversy. It noted the Advisory Committee's cautious treatment of 23(b)(3) certifications--the statement that they were intended for situations in which "class action treatment is not as clearly called for" as it is in 23(b)(1) and 23(b)(2) situations, but where it is "convenient and desirable" to do so.

   Citing Advisory Committee member Benjamin Kaplan's writings on Rule 23(b)(3),(7) Justice Ginsburg found that the rule strikes a balance between individual autonomy and systemic efficiency by requiring a "close look" at the case before it is accepted as a class action, and she added...