90 F.3d 963 (5th Cir. 1996)
Class actions date back to the English common law where chancery courts used bills of peace to bind entire classes. Chafee, Bills of Peace with Multiple Parties, 45 Harv.L.Rev. 1297 (1932). The traditional limited-fund class action is an equitable and unitary disposition of a fund too small to satisfy all claims. See Fed.R.Civ.P. 23 advisory committee's note. Unitary adjudication of a limited fund is crucial because allowing plaintiffs to sue individually would make the litigation "an unseemly race to the courtroom door with monetary prizes for a few winners and worthless judgments for the rest." Coburn v. 4-R Corp., 77 F.R.D. 43, 45 (E.D.Ky.1977). Limited-fund class actions effect a pro-rata reduction of all claims in order to treat all claimants fairly. Thus, they sound in equity even though the relief they provide necessarily affects the amount of money damages that claimants can ultimately receive. In re Joint Eastern & Southern Dist. Asbestos Litigation (Findley), 78 F.3d 764, 776-77 (2d Cir.1996); Newberg and Conte, 1 Newberg on Class Actions § 1.18.
Due process standards for suits seeking equitable relief are set forth in Hansberry v. Lee, 311 U.S. 32, 61 S.Ct. 115, 85 L.Ed. 22 (1940) where the Supreme Court stated:
this Court is justified in saying that there has been a failure of due process only in those cases where it cannot be said that the procedure adopted, fairly insures the protection of the interests of absent parties who are to be bound by it.
Id. at 42, 61 S.Ct. at 118. See also Shutts, 472 U.S. at 808, 105 S.Ct. at 2972-73 (citing Hansberry in its description of due process requirements for traditional class actions). The rule that adequate representation is all that due process requires for the traditional mandatory class action in equity was not challenged by Shutts. Subsequent decisions have made it clear that, consistent with due process, absent parties can be bound by a judgment where they were adequately represented in a prior action. Martin v. Wilks, 490 U.S. 755, 762 n. 2, 109 S.Ct. 2180, 2184 n. 2, 104 L.Ed.2d 835 (citing Hansberry and Fed.R.Civ.P. 23).
Actions under Rule 23(b)(1)(B) are precisely the type of limited circumstances noted by Martin where "equitable circumstances dictate the need for a unitary adjudication regardless of the individual consent of the parties affected." Newberg and Conte, 1 Newberg on Class Actions § 1.22 at 1-51. As a result, due process requires only that all parties bound by the Global Settlement Agreement were adequately represented. We have already concluded that they were.1
The intervenors object that some members of the class may not have minimum contacts with the Eastern District of Texas and have not otherwise consented to the district court's jurisdiction. They also claim that the Global Settlement Agreement is without authority to release future claims that have not yet accrued. These objections again ignore the equitable nature of this action.
Due process requires adequate representation in a 23(b)(1)(B) case but, as Shutts expressly cautioned, minimum contacts or consent to jurisdiction are not necessary in equitable class actions. Newberg and Conte, 1 Newberg on Class Actions, § 1.20 ("Minimum Contacts Jurisdiction Not Required for Members of Equitable Class Suits") and § 1.21 ("Opt-Out Rights or Implied Consent of Members Not Required for Jurisdictional Due Process in Equitable Class Suits"). It is also well settled that a unitary adjudication of a limited fund binds future, contingent, and unknown claimants who, by definition, could not give consent to jurisdiction. Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 70 S.Ct. 652, 94 L.Ed. 865 (1950).
Rule 23(b)(1)(B) actions closely resemble actions for interpleader, or for the accounting of a trustee. See Mullane, 339 U.S. at 311-13, 70 S.Ct. at 655-57; In re Joint Eastern and Southern Dist. Asbestos Litigation (Findley), 878 F.Supp. 473, 478, 562 (E. & S.D.N.Y.1995); In re Joint Eastern and Southern Dist. Asbestos Litigation (Eagle-Picher), 134 F.R.D. 32, 38 (E. & S.D.N.Y.1990). Cf. In re Federal Skywalk Cases, 680 F.2d 1175, 1182-83 (8th Cir.1982). This is because all claimants will recover from the fund or not at all. This view of a limited-fund class action as similar to an action in rem makes particular sense because, although limited-fund actions often involve unknown or unavailable claimants who cannot expressly consent to jurisdiction, the court in such an action has before it for disposition all the assets in which class members could claim an interest. See e.g., In re Drexel Burnham Lambert Group, Inc., 960 F.2d 285, 292 (2d Cir.1992); In re Joint Eastern and Southern Dist. Asbestos Litigation (Eagle-Picher), 134 F.R.D. 32, 38 (E. & S.D.N.Y.1990); Coburn v. 4-R Corp., 77 F.R.D. 43 (E.D.Ky.1977). The court can appropriately adjudicate all claims against the fund because of its jurisdiction over the fund and the fact that all potential claimants are adequately represented before it. Smith v. Swormstedt, 57 U.S. (16 Howard) 288, 302, 14 L.Ed. 942 (1853).
Finally, the intervenors complain that the Global Settlement Agreement purports to release claims which do not present "a case or controversy." This misconstrues the nature of the settlement which does not purport to make any determination of the validity or amount of individual personal injury claims against Fibreboard. What the settlement does is address the immediate and important controversy of whether future claimants will be able to receive compensation for their injuries before Fibreboard runs out of money. It resolves this controversy by settling the insurance coverage litigation, capping the amount recovered by individual plaintiffs at $500,000, prohibiting punitive damage awards, and limiting the amount that the Global Trust can pay out in any given year. These provisions are designed to ensure that latecomers do not find their claims impaired because the winners of the race to the courthouse have claimed all of Fibreboard's assets in the early rounds of individual litigation. The argument that plaintiffs who have already been exposed to asbestos have no justiciable interest in ensuring that funds remain available to compensate them when they contract asbestos-related diseases is not supportable and has been widely rejected. See In re Johns-Manville Corp., 36 B.R. 743, 749 (Bankr.S.D.N.Y.1984); Carlough v. Amchem Products, Inc., 10 F.3d 189, 196 n. 4 (3d Cir.1993). The intervenors' objection is meritless.
The district court properly found that Fibreboard is a limited fund which will be depleted to the detriment of latecomers if claims are litigated on an individual basis. Due process requires that class members in Ahearn, an equitable class action for a pro-rata distribution of a limited fund, receive adequate representation by class representatives with similar interests. The district court did not abuse its discretion in finding that these requirements were met and certifying this suit as a Rule 23(b)(1)(B) class action.
The intervenors assert that Ahearn was a collusive or "friendly" suit in contravention of the "case or controversy" requirement of Article III in the Constitution. Specifically, the intervenors allege that (1) there was no real conflict between the parties because the complaint and settlement were filed the same day and class representatives never intended to litigate the claims alleged in the complaint, and (2) the defendants handpicked the plaintiffs' attorneys. These arguments fail because they conflict with relevant caselaw and do not address the district court's findings of fact regarding the non-collusive nature of the settlement negotiations. The intervenors also ignore the adversarial positions which the parties occupied before settlement negotiations and the positions to which they will return if the settlement is not approved.
A "case or controversy" under Article III requires that the parties be truly adverse. United States v. Johnson, 319 U.S. 302, 63 S.Ct. 1075, 87 L.Ed. 1413 (1943). This requires a continuing controversy, Preiser v. Newkirk, 422 U.S. 395, 401, 95 S.Ct. 2330, 2334, 45 L.Ed.2d 272 (1975), and an "honest and actual antagonistic assertion of rights." Johnson, 319 U.S. at 305, 63 S.Ct. at 1076 (quoting Chicago & Grand Trunk Ry. Co. v. Wellman, 143 U.S. 339, 345, 12 S.Ct. 400, 402, 36 L.Ed. 176 (1892)).
The parties in Ahearn filed their proposed settlement agreement on the same day as the plaintiff class filed its complaint so they clearly did not intend to litigate the complaint. However, this does not change the adversarial nature of the disputes which the settlement resolves and does not contradict the district court's finding that settlement negotiations were heated, difficult and conducted at arm's length. The intervenors are apparently asking us to hold that the suit is either moot or collusive simply because it was filed at the same time as a settlement requiring court approval. Neither of these conclusions is supportable.
The Supreme Court has stated that the existence of a proposed settlement does not render an action moot where judicial approval of the settlement is required before the settlement will bind the parties. Havens Realty Corp. v. Coleman, 455 U.S. 363, 371 n. 10, 102 S.Ct. 1114, 1120 n. 10, 71 L.Ed.2d 214 (1982). Ahearn was a class action that could not be settled without court approval so the parties' agreement to settle the case did not make it moot.
The other finding suggested by the intervenors, that the suit is collusive simply because the parties have resolved their differences and seek only the judicial approval required by Rule 23(e), is equally unsupportable and has also been rejected. See Carlough v. Amchem Products, 10 F.3d 189, 201 (3d Cir.1993) (adopting the reasoning of the district court's October 6, 1993 opinion in Carlough v. Amchem Products, Inc., 834 F.Supp. 1437, 1465 (E.D.Penn.1993)); In re Joint Eastern and Southern District Asbestos Litigation (Findley), 982 F.2d 721, 728 (2d Cir.1992) (complaint and settlement filed the same day); S.E.C. v. Randolph, 736 F.2d 525 (9th Cir.1984) (controversy exists even though settlement and complaint were filed the same day).
The district court found that the Ahearn complaint and proposed settlement were not collusive. The intervenors' assertions to the contrary have no support in the record. The district court found that the negotiation process was slow, contentious and fraught with disagreements on serious issues. Its exhaustive findings of fact detail the parties' initial positions and their slow movement toward a settlement that offers a fair compromise of their various claims.
The complaint that Fibreboard handpicked the plaintiffs' attorneys is equally without merit and tells only part of the story. The record shows that Fibreboard did approach the attorneys to negotiate a global settlement but the intervenors fail to include important details such as (1) the plaintiffs' lawyers involved in the negotiations have extensive experience in asbestos litigation, and (2) the district court found that the plaintiffs' lawyers vigorously represented their clients' position. We have already concluded that the Global Health Claimant Class was adequately represented by qualified attorneys. The fact that Fibreboard initiated negotiations with a group of highly experienced, top-notch plaintiffs' attorneys in order to craft a global settlement suggests that Fibreboard wanted a fair settlement that a court was likely to approve.
The Flanagan intervenors appeal from Judge Steger's order in the district court denying their motion to recuse Judge Parker. They argue that Judge Parker should not have mediated the settlement and then conducted a fairness hearing on the same settlement. We review Judge Steger's decision for abuse of discretion. In re Hipp, 5 F.3d 109, 116 (5th Cir.1993).
A judge must disqualify himself under § 455 if his impartiality "might reasonably be questioned." 28 U.S.C. § 455. The standard for determining impartiality depends on the source of the judge's alleged prejudice. To the extent that a judge has become biased due to facts he has learned during a judicial proceeding, he must recuse himself only if fair judgment would be impossible. Liteky v. United States, 510 U.S. 540, ----, 114 S.Ct. 1147, 1157, 127 L.Ed.2d 474 (1994). If the alleged partiality stems from a source other than a judicial proceeding, a judge must recuse himself if "a reasonable and objective person, knowing all of the facts, would harbor doubts concerning the judge's partiality." United States v. Jordan, 49 F.3d 152, 155 (5th Cir.1995).
Judge Parker's role in the negotiating process was insubstantial and stemmed from three cases filed in his court. His actions were limited to appointing Judge Patrick E. Higginbotham of this court as a settlement facilitator, appointing class counsel for the Global Health Claimant Class at the recommendation of Judge Higginbotham, receiving regular reports of the negotiations and mediating the global settlement negotiations personally for part of one evening. After the parties agreed to a settlement, Judge Parker held an extensive fairness hearing and appointed an independent guardian ad litem to report on the fairness of the settlement to the futures class.
Judge Steger found that "[o]n the basis of the entire record and taking all of Mr. Jaques' allegations as true, ... no reasonable person would conclude that Judge Parker is biased and no reasonable person would harbor doubts about his impartiality."2 Our review of the record confirms that Judge Parker carefully avoided any appearance of impropriety. The district court did not abuse its discretion in denying the motion to recuse.
Plant Insulation Company, a member of the Global Third-Party Claimant Class, argues that its due process rights were violated because it was not allowed to opt out of that class. Plant did not attempt to intervene in the proceeding before the district court so it has no standing to appeal the district court's ruling. The Fifth Circuit has held that "non-named class members do not have standing to appeal the final judgment in a class action...." Walker v. City of Mesquite, 858 F.2d 1071, 1074 (5th Cir.1988). As a result, "we have no jurisdiction to consider an appeal by a class member who has not attempted to intervene as a named party." Loran v. Furr's/Bishop's Inc., 988 F.2d 554 (5th Cir.1993). See also, Edwards v. City of Houston, 78 F.3d 983 (5th Cir.1996) (en banc) (unions had no standing to appeal the court's final judgment because they never became named parties or intervenors in the suit). Accordingly we dismiss Plant's appeal for lack of standing.3
The Flanagan intervenors raise several more objections common to Ahearn and Rudd. They argue that merchant mariners are differently situated from other members of the Global Health Claimant Class because of differences between admiralty law and the tort law of some states. This argument ignores the fact that the Global Settlement Agreement allows claimants the same rights they would receive in the tort system (limiting only the amount of total damages and punitive damages). Admiralty law will provide the backdrop for any maritime plaintiff's settlement because that law will govern the trials of maritime plaintiffs who choose the back-end opt-out provision.
Finally, the Flanagan intervenors claim that the district court improperly used defendant classes. They argue that defendant classes are only appropriate in cases where defendants are guilty of egregious misconduct. This argument has no support in the language of Rule 23 and is contrary to a wide range of cases where courts have certified defendant classes without requiring a "widespread pattern of wrongful conduct." See e.g., Blake v. Arnett, 663 F.2d 906, 911-13 (9th Cir.1981) (defendant class of Yurok Indians on counterclaims seeking declaration eliminating alleged Indian treaty rights in land held by lumber and mining company); Board of Regents of University of Nebraska v. Dawes, 522 F.2d 380, 381 (8th Cir.1975) cert. denied, 424 U.S. 914, 96 S.Ct. 1112, 47 L.Ed.2d 318 (1976) (defendant class of employees allegedly discriminated against by plaintiffs); Garneau v. City of Seattle, 897 F.Supp. 1318, 1320 (W.D.Wa.1995) (defendant class of low-income tenants seeking relocation assistance from plaintiffs); Houston Chapter of the Int'l Ass'n of Black Professional Firefighters v. Houston, 1991 WL 340296, at * 3, * 28 (S.D.Tex. May 3, 1991) (defendant class of present and future non-black, non-Hispanic firefighters who will be eligible for certain ranks in the Houston Fire Department).4
In addition to the claims addressed above, the Flanagan intervenors make several objections specific only to Rudd.5
The Flanagan intervenors argue that the Rudd action must be dismissed for lack of an indispensable party, Fibreboard.6 Although they failed to raise this issue in the district court, we may still consider it on appeal. United States v. Sabine Shell, Inc., 674 F.2d 480, 482 (5th Cir.1982). However, "failure to raise the issue of joinder until this appeal mitigates against a finding in their favor." Id. at 483. We agree with the Ninth Circuit that "when the judgment appealed from does not in a practical sense prejudicially affect the interests of the absent parties, and those who are parties have failed to object to non-joinder in the trial court, the reviewing court will not dismiss an otherwise valid judgment." Sierra Club v. Hathaway, 579 F.2d 1162, 1166 (9th Cir.1978), cited with approval in McCulloch v. Glasgow, 620 F.2d 47, 51 (5th Cir.1980). See also Judwin Properties Inc. v. United States Fire Insurance Co., 973 F.2d 432, 434 (5th Cir.1992) and Sabine Shell, 674 F.2d at 483.
Both the Trilateral Health Claimant Class and the Trilateral Third-Party Claimant Class agreed to a consent judgment sought by the Insurers declaring approval of the Trilateral Settlement Agreement and the release of the Insurers. Because Fibreboard has already consented to entry of a similar release of the Insurers in Ahearn, the Rudd judgment does not prejudicially affect Fibreboard. Thus, Rudd should not be dismissed for want of an indispensable party.
The Flanagan intervenors argue that the Rudd complaint fails to state a cause of action or a "case or controversy." The Insurers in Rudd seek declaratory and injunctive relief determining that (1) the Trilateral Settlement Agreement is fair, reasonable, and negotiated at arm's length in good faith; (2) the defendant classes approve of the Trilateral Settlement Agreement and the release of the Insurers; and (3) the defendant classes be enjoined from asserting future claims against the Insurers.
The Declaratory Judgment Act does not expand the jurisdiction of the federal courts. See Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671-72, 70 S.Ct. 876, 878-79, 94 L.Ed. 1194 (1950). Similarly, it does not create substantive rights; it is only a procedural device that enhances the remedies available in the adjudication of a case or controversy. See Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240, 57 S.Ct. 461, 463-64, 81 L.Ed. 617 (1937).
A justiciable case or controversy exists as long as the court's ruling will affect "tangible legal rights." ASARCO Inc. v. Kadish, 490 U.S. 605, 619, 109 S.Ct. 2037, 2046-47, 104 L.Ed.2d 696 (1989). In Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 61 S.Ct. 510, 85 L.Ed. 826 (1941), the Supreme Court stated that "[b]asically, the question in each case is whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment." Id. at 273, 61 S.Ct. at 512.
In Rudd, the Insurers seek a declaratory judgment that because the Trilateral Settlement Agreement is fair and negotiated in good faith, it cuts off all rights of both Trilateral Health Claimants and Trilateral Third-party Claimants to payments under the policies. The Insurers were justifiably concerned that after they spend $2 billion on the Trilateral Settlement with Fibreboard, the settlement could be challenged by asbestos victims and third-party claimants, particularly if Fibreboard becomes insolvent. The Insurers in Rudd sought to cut off this potential challenge by obtaining the declaratory and injunctive relief described above.
Many states recognize that a tort victim injured during the policy period has sufficient legal interest in that policy to attack subsequent changes that affect the right to recover--i.e., reformation, cancellation, or settlement of the policy. See, e.g., Maryland Casualty Co., 312 U.S. at 273-74, 61 S.Ct. at 512-13 (a tort victim has a potential financial interest in the insurer's insurance policy, and the impairment of this interest is an injury that will support standing under Article III); Bankers Trust Co. v. Old Republic Insurance Co, 959 F.2d 677, 682 (7th Cir.1992) ("the victim of an insured's tort, even though he is not a third-party beneficiary of his insurer's insurance policy, has a legally protected interest in that policy before he has reduced his tort claim to judgment"). Some states even require the injured party to be included in any negotiations of policy changes that will affect their rights. See e.g., Smith & Wesson v. Birmingham Fire Ins. Co., 123 A.D.2d 135, 510 N.Y.S.2d 606, 608 (1st Dept.1987); Maryland Cas. Co. v. Wilson, 6 Ariz.App. 470, 433 P.2d 650, 652 (1967); Shapiro v. Republic Indem. Co., 52 Cal.2d 437, 341 P.2d 289, 290 (1959); Womack v. Allstate Ins. Co., 156 Tex. 467, 296 S.W.2d 233, 236 (1956). Thus, the Insurers faced a substantial threat of collateral attacks from members of both the Trilateral Health Claimant Class and the Trilateral Third-party Claimant Class asserting that the Trilateral Settlement was unfair or fraudulent. A true controversy existed.
The Flanagan intervenors also argue that the Trilateral Settlement Agreement is effective only if the Ahearn settlement is rejected. Flanagan argues that this contingency precludes a finding that Rudd is an adjudication of a "present right upon established facts." Brown & Root, Inc. v. Big Rock Corp., 383 F.2d 662, 665 (5th Cir.1967).
The Trilateral Settlement Agreement contains provisions that become operative regardless of whether the Global Settlement Agreement is ultimately approved or disapproved; for example, the parties agree in the Trilateral Settlement Agreement to compromise all Fibreboard's claims under the insurance policies not previously released, including claims for property damages. The Global Settlement Agreement only refers to personal injury claims filed against Fibreboard after August 27, 1993. Therefore, the effectiveness of the Trilateral Settlement Agreement is not wholly contingent on the outcome in Ahearn.
Moreover, the case would be ripe even if the effectiveness of the Trilateral Settlement Agreement were wholly contingent upon the disapproval of the Global Settlement Agreement. In Chevron U.S.A., Inc. v. Traillour Oil Co., 987 F.2d 1138 (5th Cir.1993), we found a case would be ripe for adjudication notwithstanding the existence of some contingency to the claim if either (1) there is "a substantial possibility" that the contingency will occur, or (2) the only questions being presented "are purely legal ones." Id. at 1154. We found judicial resolution of contingent claims is consistent with the purpose of the Declaratory Judgment Act which is "to settle actual controversies before they ripen into violations of law or breach of some contractual duty." Id. (quoting Hardware Mutual Casualty Co. v. Schantz, 178 F.2d 779, 780 (5th Cir.1949)).
In Rudd, the contingency that the global settlement might not receive court approval or might be successfully attacked was a substantial possibility; the global settlement was an innovative approach to unique circumstances. The parties to Ahearn had no assurance that a court would accept this settlement which is the reason the Ahearn plaintiffs insisted on a back-up agreement to settle the coverage issue. Thus, we agree with the district court that the Rudd complaint presented a justiciable claim.
Although appellants' arguments challenging the approval of the global settlement are not insubstantial, on the unique facts presented here they do not carry the day. The global settlement was driven by insurance coverage litigation between Fibreboard and the Insurers which would have been catastrophic for whomever was on the losing side. None of the parties was prepared to take the enormous risk inherent in that litigation. The global settlement offers all sides the best solution possible by eliminating costly disputes between Fibreboard, its insurers, and asbestos claimants and ensuring an equitable distribution to asbestos claimants. The $1.5 billion global settlement was a major accomplishment by all parties concerned and no one seriously challenges its adequacy or the desirability of avoiding another bankruptcy of a vigorous American company.
For the reasons stated above, we conclude that in this case none of the legal impediments argued by appellants precluded the district court from approving the global or trilateral settlements. Both settlements were legally sound resolutions of serious disagreements. The judgment of the district court is
AFFIRMED.
The district court and the majority undoubtedly are driven by a commendable desire to resolve voluminous personal injury claims against an otherwise strong American company and to ensure an orderly transfer of funds from the company's insurers to its victims. In order to accomplish this result, however, they have extinguished claims over which they have no jurisdiction and deprived thousands of asbestos victims of basic constitutional rights. The result is the first no-opt-out, mass-tort, settlement-only, futures-only class action ever attempted or approved.
Ironically, the willingness to jettison centuries-old legal precepts hurts the very victims they intend to help: The settlement forces asbestos victims to surrender their claims in exchange for a meager $10 million of Fibreboard's $225-250 million net worth. They also benefit from Fibreboard's settlement with its insurers, but Fibreboard and the insurers had powerful incentives to settle that dispute by themselves; in fact, they did so for $2 billion.
There was no need even to involve the class in those negotiations, much less to sacrifice its interests. "Thus, the class members appear to have traded Fibreboard's liability for nothing to which they did not already have a right."7
On the other hand, the district court and the majority have bailed Fibreboard's shareholders out of a mammoth liability and awarded $43.7 million to class counsel. This suit was supposedly brought on behalf of Fibreboard's victims, but of the four entities directly affected by the settlement--Fibreboard, class attorneys, courts, and asbestos victims--the victims were the only entity absent from the bargaining table. Perhaps for that reason, they also were the only losers.
How could well-intentioned judges sanction--indeed, compel--such an untoward result? Apparently this is simply a case of judges--both trial and appellate--trying too hard to solve the vexing problems posed by unending asbestos litigation. Having certified at least two other high-profile asbestos class actions,8 then-Chief District Judge Parker was acutely aware of the problems posed by asbestos litigation. In the end, he appears to have become too close to both the overall problem and the instant settlement to continue to act in a judicial capacity in this case.9
When Fibreboard and class counsel announced at a court hearing that they had reached a settlement, Chief Judge Parker referred to "extensive negotiations between counsel that the Court has participated in." Also at that time, and long before the fairness hearing, he said, "We will trust in the scholarship, the good judgment and common sense of the ... courts of appeal in the event this comes to their attention." In short, Chief Judge Parker tried his best to solve a perplexing problem, and it is our task to figure out whether that solution is legally sustainable.
There are two primary problems: (1) Fibreboard, class counsel, and Fibreboard's other creditors have combined to profit at the expense of absent class members; and (2) this case is an affront to the integrity of the judicial system. As we observed when reversing Chief Judge Parker's certification of another class action against Fibreboard: "The Judicial Branch can offer the trial of lawsuits. It has no power or competence to do more." Fibreboard, 893 F.2d at 712.
This case is extraordinarily important. Prior to the filing of this suit, no one had ever attempted a no-opt-out, mass-tort, settlement-only, futures-only class action. Ever since the district court's certification order, however, corporate America has been "anxiously awaiting" a decision in this case. Richard B. Schmitt, The Deal Makers: Some Firms Embrace the Widely Dreaded Class-Action Lawsuit, WALL ST.J., July 18, 1996, at A1. The majority's unequivocal approval of Fibreboard's litigation strategy undoubtedly will lead "other financially threatened companies throughout the nation [to] utilize it as a road map for sheltering their assets and improperly restricting the rights of their present and future victims." Amicus Br. of Trial Lawyers for Public Justice at 2-3.
Thus, the majority's reliance upon the "unique facts" of this case, see maj. op. at 993, is ironic: The unique fact of the insurance dispute is simply irrelevant, and the other unique facts--a corporate defendant's hand-picking class counsel, cutting a side deal, reaching a "global settlement" affecting only "future" plaintiffs, and choosing a sympathetic judge to approve the settlement--likely will become far too common now that the majority has approved of them. "[W]hat was meant to provide a remedy for those who would otherwise lack one, enabling them to pool their voices and finances, will become a device to take away remedies from those who could otherwise invoke them." John Leubsdorf, Co-Opting the Class Action, 80 CORNELL L.REV. 1222, 1223 (1995).
Two primary errors led the district court and the majority astray. These are, first, underestimating the importance of jurisdictional and procedural protections for absent class members, and second, departing from the judiciary's exclusive area of authority and competence--the resolution of lawsuits.
We must keep in mind that it was the defendant--Fibreboard--who selected the class that was to "sue" it and the class action lawyers who were to do the dirty work. Fibreboard hand-picked a class that was uniquely vulnerable to exploitation, class counsel who were widely reported to have sold out a similar class, and a court with a reputation for favoring a global settlement. Class counsel then cut a side deal with Fibreboard before agreeing to the class settlement, and the district judge presided at the fairness hearing on the very settlement he had helped to craft.
The settlement extinguishes claims of people over whom we lack jurisdiction, some of whom have not yet been injured and others of whom have not even been born. It also prevents such future claimants from opting out, because of a supposed need to divide a limited fund among a large number of claimants, but it grants automatic opt-outs to all those who already had filed suit. Coincidentally or not, this gerrymandered class definition includes those most vulnerable to abuse while excluding those most likely to intervene, to monitor class counsel, and to oppose the settlement.
It is fair to question for whom class counsel really worked. Fibreboard picked them, the district court approved them, the insurers paid them, and in exchange, they bailed out Fibreboard's shareholders and relieved district courts of potentially thousands of cases--at the expense of the absent asbestos victims whom class counsel purportedly represent.
If all that was at stake for individual class members was some nominal compensation for having been charged an extra five cents on a bag of potato chips, one might not be too concerned with how the courts enforced class counsel's duties to these people. But often much more is at stake, such as whether a plaintiff will recover for a fatal illness caused by a defective product, and if so, how much. Today, such a person may have her rights adjudicated by a court without actual notice of the action and before she even knows she has been injured.
Fantastic as this may seem ..., it is true.10
But it need not be. Even rudimentary constitutional protections--such as according absent class members adequate representation and adjudicating only their presently-existing, legally cognizable injuries--would have prevented Fibreboard from perpetuating this unfortunate miscarriage of justice.
The district court legislated a bold and novel tort reform proposal thinly disguised as the settlement of a lawsuit. Of course, there never was a lawsuit: Fibreboard and its hand-picked class counsel agreed to file a suit only if they already had settled it. Thus, Chief Judge Parker began his opinion by stating, "This action was filed to obtain judicial approval of a class settlement." Ahearn v. Fibreboard Corp., 162 F.R.D. 505, 507 (E.D.Tex.1995).
The class complaint alleges exposure-only claims for which the settlement provides no compensation. Class counsel even conceded that, as a matter of practice, they do not pursue such claims on behalf of their own clients; instead, they wait and file suit after a plaintiff actually has suffered an injury. The only reason to include those claims in the complaint was to manufacture jurisdiction over class members who have not yet manifested symptoms of asbestosis or otherwise suffered a legally cognizable injury. Even that attempt to trump up jurisdiction should fail, however, as many states do not recognize an exposure-only cause of action.
Moreover, the settlement does not resolve the rights of individual class members. The only genuinely judicial aspect of approving the settlement is the release of Fibreboard from liability to the class, or more specifically, the transfer, from Fibreboard's shareholders to its victims, of the risk that Fibreboard's insurance assets are inadequate.
The remainder of the settlement is purely legislative: Class members' causes of action are repealed in favor of the equivalent of a workers' compensation regime.11 The Association of Trial Lawyers of America summed up this point nicely in an amicus brief opposing the settlement: "The alchemy of the [instant] 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." Amicus br. at 9.
Even if exchanging state tort law for this private, alternative dispute resolution mechanism were the boon to class members that the majority holds it out to be--and I doubt that it is, see infra part IX--such a policy decision is "better addressed to the representative branches--Congress and the State Legislature." Fibreboard, 893 F.2d at 712. In addition, Fibreboard hardly deserves more than $200 million for drafting the legislation.
"[T]raditional ways of proceeding reflect far more than habit." Fibreboard, 893 F.2d at 710. As judges are trained and equipped to adjudicate, not legislate, it is understandable that the courts have fallen prey to powerful special interest groups--a wealthy defendant and the class action bar--and unwittingly disserved the very victims the courts were intended to help.
Nor does Fibreboard's "constructive bankruptcy" justify abridgment of absent class members' substantive state law rights. In bankruptcy, the claims of all of Fibreboard's creditors, not just its "future" personal injury victims, would be crammed-down. Permitting Fibreboard to effect a reorganization bankruptcy proceeding in the guise of a futures-only class action circumvents the detailed protections of the Bankruptcy Code for the express purpose of imposing the entire cost of the bailout on Fibreboard's most vulnerable creditors, to the betterment of its shareholders.
The Second Circuit decertified a similar settlement class for precisely that reason:
Evasion of bankruptcy is ... not without costs or other perils.... [C]lass members in cases such as this would have no say in the conduct of the court-appointed class representatives and, unlike creditors in bankruptcy, are not able to vote on a settlement. For them, it would be "cram-down" from start to finish.
Keene Corp. v. Fiorelli (In re Joint E. & S. Dist. Asbestos Litig.), 14 F.3d 726, 732 (2d Cir.1993) (citation omitted). The amicus brief of the Trial Lawyers for Public Justice puts the point more forcefully: "[I]nstead of protecting class members from the risk that their ability to obtain relief from Fibreboard will be 'substantially impaired,' certification of the proposed settlement class here ensures that the class members' ability to obtain relief from Fibreboard will be totally eliminated." Amicus br. at 6.
Our sister circuits have rejected all other actions that came even close to attempting what Fibreboard has done here. The Ninth Circuit has squarely held that opt-out rights are available in all class actions seeking predominantly monetary damages, regardless of the subsection under which they were certified. See Brown v. Ticor Title Ins. Co., 982 F.2d 386, 392 (9th Cir.1992), cert. dismissed, 511 U.S. 117, 114 S.Ct. 1359, 128 L.Ed.2d 33 (1994). Two other circuits appear to agree with the Ninth, and none has expressly disagreed. See infra note 16. Without even citing that authority, however, the majority arbitrarily limits opt-out rights to actions certified under FED.R.CIV.P. 23(b)(3), see maj. op. at 987 n. 16, exalting an irrelevant technicality over the underlying reality and creating a circuit split in the process.
Earlier this year, the Third Circuit firmly held that class counsel cannot adequately represent both extant and latent claimants in a futures-only asbestos class action. Georgine v. Amchem Prods., 83 F.3d 610, 630-31 (3d Cir.1996). The court explained that while extant claimants--those who have already incurred injuries--desire immediate, unlimited recovery from the trust, latent claimants--those who have yet to suffer an injury--desire that recovery be capped or delayed to ensure that extant claimants will not deplete the fund. Id.
The majority mentions Georgine only in a brief footnote, distinguishing it on the ground that the Georgine settlement provides a detailed claims resolution schedule, while the Ahearn settlement does not. See maj. op. at 976 n. 8. Class counsel still served conflicting interests, however, and postponing some distributional issues until after certification and appeal hardly makes them disappear. The majority may prefer the devil it does not know to the devil it does, but I am loath to make that decision for an entire class of people who are not even aware that we are "adjudicating" their rights.
On the other hand, the majority is correct that Keene is easy to distinguish, for the defendant in that action was forthright: Instead of retaining plaintiffs' counsel and having them file a complaint asserting claims they had no intention of pursuing (as occurred here), the asbestos manufacturer asked the court to oversee the negotiation of a settlement. See Keene, 14 F.3d at 728-29. The Second Circuit dismissed the action, finding that "it is a self-evident evasion" of the Bankruptcy Code, "the exclusive legal system established by Congress for debtors to seek relief." Id. at 732. Future defendants presumably will draw one of two conclusions: Involve the court as little as possible in settlement class actions, or file in the Fifth Circuit.
In sum, the settlement fails either a customary legal analysis or a common-sense smell test. I respectfully but vehemently dissent from all but part III of the majority opinion.
Though the background to this case is somewhat complicated, the key facts are hard to overlook. Fibreboard approached four plaintiffs' lawyers, including Ron Motley and Joe Rice, and suggested that they negotiate a "global settlement" of all of Fibreboard's asbestos liabilities. The negotiations initially failed, perhaps because of the massive scope of the undertaking.
Fibreboard then adopted a risky strategy of assigning claims against its insurers in settlement of individual suits. The danger was that these settlements arguably violated the insurance policies. Fortunately for Fibreboard, a California court approved the deals.
Then something odd happened: Fibreboard settled a large number of cases with Ness Motley--Motley and Rice's law firm--by assigning insurance assets, and brought an action in the Eastern District of Texas seeking approval of the settlement. Why would Fibreboard, a California company, roll the dice in Texas when it had already won in California? Because something important had happened in Pennsylvania.
The Judicial Panel on Multidistrict Litigation had transferred all pending asbestos cases not yet on trial to a district court in Pennsylvania. See Georgine v. Amchem Prods., 83 F.3d 610, 619 (3d Cir.1996). Then-Chief Judge Robert Parker of the Eastern District of Texas wrote a letter to the transferee judge, telling him that he (the Pennsylvania judge) was "the Eisenhower of this D-Day operation" and encouraging him to prod the parties to a global settlement. See Coffee, supra note 1, at 1390.
When the plaintiffs' steering committee rejected such a proposal, twenty defendants approached a minority faction of the committee--Motley and Gene Locks--and reached a global settlement with them. See id. at 1391-92, 1457. Actually, they made a series of deals: a class action settlement for future asbestos victim claimants and separate settlements for the lawyers' pre-existing, individual clients.
The separate settlements were significantly more lucrative than the class one. See id. at 1392-93; Koniak, Feasting, supra note 4, at 1052. In fact, Motley received fifty percent more for his own clients than he did for those in the class. See Coffee, supra note 1, at 1397; Koniak, Feasting, supra note 4, at 1067. The Third Circuit rejected the settlement, finding that class counsel--including Motley--were hopelessly conflicted. See Georgine, 83 F.3d at 630-31.
As the Georgine negotiations concluded, Fibreboard and Ness Motley settled a number of cases and, as noted above, filed an action in Chief Judge Parker's court. Fibreboard thereby secured class counsel with a track record of making global settlements and a judge with a demonstrated commitment to them.
Following the Georgine pattern, class negotiations reached an impasse over the future of Ness Motley's remaining cases against Fibreboard. The court-appointed "Settlement Facilitator," Judge Patrick Higginbotham, then suggested that they settle those cases before attempting further negotiation of a global settlement. After concluding the Ness Motley deal--which settled the individual claims for higher-than-average amounts, contingent upon successful completion of a global settlement--Fibreboard and class counsel resumed negotiation of such a settlement.
As those negotiations drew to a close, Chief Judge Parker intervened, taking counsel to his house for a final mediation session. It appears that he was successful, for defense counsel eventually increased their offer to an amount that class counsel later accepted.
Class counsel then filed a complaint in Chief Judge Parker's court, along with motions to certify the class and approve the settlement. The judge certified the class and found that the settlement was fair.
And Fibreboard's stock soared.12
The majority commits two fundamental errors: first, treating justiciability, due process rights, and certification criteria as mere annoyances to be brushed aside in pursuit of what it believes to be the greater good; and second, failing to assess the aggregate effect of its restrictions on asbestos victims' due process rights.
Justiciability and certification requirements are indispensable in any class action. Justiciability looks, among other things, to whether a person has suffered a legally cognizable injury. If an individual has not been legally injured, it is unlikely that he would receive notice of the action or realize that he is a member of the class. Even if he became aware of the action's potential effect on his legal rights, he would likely remain apathetic: Any effect on him is remote in time and contingent on the future development of a disease or other damage or injury. Thus, such class members are especially vulnerable to abuse by class counsel.
Similarly, certification criteria such as commonality, typicality, and adequacy of representation ensure that representative litigation is truly representative. If class counsel stand to gain from selling out the class or from benefiting one subgroup of claimants over another, some or all class members are deprived of a meaningful opportunity to be heard--one of the most fundamental of all due process rights.
The majority addresses each class protection device in isolation, always finding that the protection does not apply because of a legal rule developed in a different context or an historical analogy that fails to recognize the novelty of this action. Such tunnel vision obscures the fact that while a particular protection might not always be necessary, some combination of protections is. When courts remove all meaningful safeguards--as the majority does here--class members suffer dramatically.
"It is a principle of general application in Anglo-American jurisprudence that one is not bound by a judgment in personam in a litigation in which he is not designated as a party...." Hansberry v. Lee, 311 U.S. 32, 40, 61 S.Ct. 115, 117, 85 L.Ed. 22 (1940). This "deep-rooted historic tradition that everyone should have his own day in court," 18 CHARLES A. WRIGHT, ARTHUR R. MILLER, EDWARD H. COOPER, FEDERAL PRACTICE AND PROCEDURE (hereinafter "WRIGHT & MILLER") § 4449, at 417 (1981), creates the core of due process: the rights to notice, to control one's own case, and to an opportunity to be heard.
The class action device is an equitable exception to this bedrock principle. See Hansberry, 311 U.S. at 41, 61 S.Ct. at 117-18. Not surprisingly, such a "fundamental departure from the traditional pattern in Anglo-American litigation generates a host of problems." Mars Steel Corp. v. Continental Ill. Nat'l Bank & Trust Co., 834 F.2d 677, 678 (7th Cir.1987). More bluntly, "class actions are extraordinary proceedings with extraordinary potential for abuse." General Motors Corp. v. Bloyed, 916 S.W.2d 949, 953 (Tex.1996).
Accordingly, the Constitution's guarantee of due process requires us to use this joinder device carefully: In exchange for losing the right to prosecute his own action, a class member must receive a variety of substitute protections. See Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 811-12, 105 S.Ct. 2965, 2974-75, 86 L.Ed.2d 628 (1985); Hansberry, 311 U.S. at 45, 61 S.Ct. at 119-20. Though the Supreme Court has largely refrained from determining the scope of those protections, its scant jurisprudence establishes two related principles: First, the extent to which due process requires procedural protections necessarily depends upon the extent to which class members' interests are infringed;13 and second, we must meet new uses of the device with new protections.14
In short, the safeguards required by due process necessarily differ according to the type of action, and when confronted with a new animal, we must analyze those safeguards anew. Reliance on strained analogies to inapposite traditional actions leaves us in what one commentator has aptly labeled a "due process quandary."15 Thus the irony: The majority eviscerates well-established due process protections because of the "unique facts" of the case, see maj. op. at 993, but fails to recognize that those novel facts may actually call for enhanced, not lessened, protections for vulnerable asbestos victims.16
This case is indeed such a new animal. The district court certified a class
(1) including people who have not yet been injured or do not yet know that they have been injured;
(2) excluding all present claimants;
(3) for settlement purposes only;
(4) in a mandatory action seeking predominately monetary damages.
Certification of futures-only actions creates a massive potential for abuse. Many putative future claimants have manifested no symptoms and do not even know they were exposed. Others are the future spouses and children of asbestos victims, most of whom either do not exist or could not possibly know that they are class members. Thus, the due process standbys--notice and an opportunity to be heard--are meaningless to countless future claimants.17
Moreover, future claimants are, by definition, persons who have not yet developed a sufficient interest in their claims to file suit; thus, they are likely to be passive and particularly vulnerable to exploitation.18 Finally, courts have a rotten track record with futures-only actions: Of the two largest such actions, one is Georgine, and the other settlement fell apart because the parties radically underestimated the number of claimants. See Coffee, supra note 1, at 1417-18 (discussing failure of Dow Corning settlement).
These concerns are mitigated somewhat by the breadth of the "futures" class. Some members are presently injured and aware of their injuries, and some have even spoken with lawyers. While most of these claimants might not have retained counsel for the sole purpose of intervening, some might have, and others at least might have chosen to opt out, had that protection not been removed as well.19 Of course, any such intervenors protect only their own interests, which differ dramatically from those of class members who are not presently injured. See infra part VI.A.2. Thus, futures-only classes are still highly vulnerable to abuse.
This case also presents a radical extension of the mandatory class action. The class complaint seeks, and the settlement provides, predominately monetary relief. While historically we have permitted mandatory actions when a class sought to litigate joint rights regarding a common fund, the only common fund in this case is the settlement proceeds. To the extent that there is a limited fund, it is a contrived one, created by the litigation and settlement strategies of Fibreboard and its insurers. See infra note 17.
The concept of a futures-only mandatory action is also self-contradictory. If we must bind victims in the class in order to protect their rights and ensure an equitable distribution, then we must bind all such victims, not just some. Limiting the class to future claimants grants the equivalent of an automatic opt-out to present claimants, and there is simply no principled way of distinguishing the one group from the other.20
Arbitrariness in the class definition might not present a problem by itself, but future claimants, unlike present claimants, are particularly vulnerable. Exclusion of all present claimants has the effect (if not the purpose) of excluding all those who are likely to receive notice, monitor the class action, and oppose the class attorneys' conflicts and other inadequacies.21
Finally, this is a settlement class action. Permitting such actions creates an unparalleled opportunity for collusion between defendants and class counsel, as both stand to gain from negotiating a deal providing generous fees for counsel and meager recovery for the class. See In re Gen. Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 788 (3d Cir.), cert. denied, --- U.S. ----, 116 S.Ct. 88, 133 L.Ed.2d 45 (1995); Crampton, supra note 4, at 826-27. Moreover, a defendant may pick his opposing counsel and then negotiate with absolutely nothing to lose from walking away from the deal; class counsel, on the other hand, work pro bono unless they consent to a settlement.
If nothing else, use of a mandatory settlement action with an automatic opt-out for all those likely to intervene, and no opt-out for anyone else, raises a red flag. To the best of my knowledge, no one has ever attempted to do such a thing before: Even the now-discredited Georgine settlement permitted opt-outs.
A novel action laden with such an extreme potential for abuse certainly demands a close look, but the majority accepts the settling parties' distortion of that background reality and actually ratchets down the degree of protection accorded absent class members.
The Ahearn settlement is really two agreements: one between Fibreboard and the insurers to settle their policy disputes for $1.525 billion, and another between the futures class and Fibreboard to limit the class's recovery to insurance proceeds plus $10 million of Fibreboard's $225-250 million net worth. Fibreboard and the insurers did not need class proceedings to reach the first agreement. Avoiding an all-or-nothing judgment in the California coverage litigation gave them a powerful incentive to settle, regardless of whether they could extinguish future claims at the same time. As the majority observes, "None of the parties was prepared to take the enormous risk inherent in that litigation." Maj. op. at 993 (emphasis added). In fact, Fibreboard and the insurers did reach such a settlement. See maj. op. part III (unanimously approving that agreement).
With that cloak removed, the second half of the Ahearn settlement is wholly baseless. The class members surrendered their claims against Fibreboard, submitted to an arbitration procedure, and agreed to a total cap on damages, individual caps on damages, an absolute ban on punitive damages, and other restrictive provisions. In exchange, Fibreboard gave the class a mere $10 million--less than five percent of its net worth. Fibreboard sought certification based upon a constructive bankruptcy theory, but it walked away with barely a scratch. Not surprisingly, Fibreboard's stock skyrocketed when the settlement was announced. See Coffee, supra note 1, at 1402 & n. 232.
Even accepting the settling parties' mischaracterization of the settlement does little to justify certification, however, for traditional class protections still prevent it.
The majority's treatment of opt-out rights is a paradigmatic example of its erroneous reasoning. Though the Court plainly held in Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 812, 105 S.Ct. 2965, 2974-75, 86 L.Ed.2d 628 (1985), that class members have a right to opt out of actions (such as this) seeking primarily monetary relief, the majority refuses to recognize that right, on the ground that it was not historically available in traditional "common fund" litigation.
The majority's holding that all rule 23(b)(1) class actions are immune from Shutts is in direct conflict with the holding of a sister circuit.22 Moreover, this case presents anything but a traditional common fund,23 and the majority's attempt to analogize it to an action to settle a trust is entirely unjustified: Far from adjudicating equitable rights in a preexisting fund, the settlement creates a common fund by extinguishing personal rights of action. In short, the majority rationalizes its evisceration of a right that we have already recognized with a call to historical rigidity.
Shutts could not be more unambiguous:
[W]e hold that due process requires at a minimum that an absent plaintiff be provided with an opportunity to remove himself from the class by executing and returning an "opt out" or "request for exclusion" form to the court.
472 U.S. at 812, 105 S.Ct. at 2974-75 (citations and footnotes omitted). The Court, however, specifically limited its holding to claims "for money damages or similar relief at law," as opposed to actions seeking "equitable relief."24 Thus, Shutts teaches that in an action seeking money damages, an absent plaintiff is entitled to the right to opt out.25
Following Shutts, a mandatory class action is viable in two cases: (1) where the court has jurisdiction over all the plaintiffs or (2) where the plaintiffs seek equitable relief. Unlike the majority, I believe that whether a class action seeks equitable relief or money damages can be determined only by focusing on the underlying remedy the plaintiffs seek. See, e.g., Findley I, 982 F.2d at 735 (affirming certification of a mandatory class action but noting that it would violate due process if the request for relief were for money damages rather than division of a trust).
If one focuses on the plaintiffs' remedy, the Ahearn class cannot be characterized as one "seeking equitable relief." The complaint alleges only personal causes of action against Fibreboard for money damages.26 The prayer for relief seeks general and special compensatory damages, punitive damages, costs of the suit, appropriate declarations and orders, and other relief as may be deemed just and proper. These remedies represent paradigmatic legal remedies.27 1 DAN B. DOBBS, DOBBS LAW OF REMEDIES (hereinafter "LAW OF REMEDIES") §§ 3.1-3.2 (2d ed. 1993). The majority, maj. op. at 976, agrees: "The central remedial and legal theory of each of the named plaintiffs [is] that Fibreboard is liable in tort for damages incurred due to exposure to Fibreboard asbestos."
The majority circumvents Shutts by calling Ahearn an equitable action.28 Instead of focusing on the plaintiffs' remedies, the majority characterizes the action based on which subsection of rule 23 the court invoked to certify the class. From the historical fact that rule 23(b)(1)(B) originated in courts of equity, the majority concludes that all actions certified under rule 23(b)(1)(B) are equitable and thus immune from Shutts.
The majority's holding is in direct conflict with decisions of the Third and Ninth Circuits. See Brown; In re Real Estate Title. The Ninth Circuit has directly held that Shutts applies to rule 23(b)(1)-(b)(2) actions when the plaintiffs' underlying claims are for money damages. Brown, 982 F.2d at 392. The Third Circuit also has recognized that a mandatory class action does not have a res judicata effect on absent class members when the underlying claims are for money damages and the court did not have personal jurisdiction over the plaintiffs. In re Real Estate Title, 869 F.2d at 768-69. The majority fails to discuss either case.
Both cases arose out of the same antitrust class action. See Brown, 982 F.2d at 388-89. The original class complaint sought money damages and injunctive relief and was certified under rule 23(b)(1) & (b)(2). In re Real Estate Title, 869 F.2d at 760, 763. The action settled on terms favorable to the defendant, and a number of absent plaintiffs were left without a settlement check.
The first case challenging the no-opt-out class action arose by way of injunction in the Third Circuit. Following settlement of the class action, a number of absent plaintiffs filed a new suit against the same defendants for the same activity. The defendants asked the district court that heard the original class action to enjoin the Arizona state court suit. In re Real Estate, 869 F.2d at 762. The district court granted the injunction, but the Third Circuit reversed, classifying the original class action as a hybrid suit seeking both money damages and equitable relief. Id. at 768-69. The court applied Shutts and held that the district court did not have personal jurisdiction over the absent plaintiffs in the original action and that it would violate due process for the court to enjoin a collateral attack on the class action. Id.
The other shoe dropped in a subsequent action filed in federal court in Arizona. The defendants raised a res judicata defense to the plaintiffs' claim, pointing to the class action settlement. The Ninth Circuit rejected the defendants' arguments, holding that the class action did not have a res judicata effect on absent plaintiffs over whom the district court in the original class action did not have personal jurisdiction. Brown, 982 F.2d at 392. The court relied on Shutts and held that the absent plaintiffs' money damage claims could not be foreclosed by a rule 23(b)(1) class action, because the action did not include a right to opt out. Id.29
The majority's approach to classifying this action is also fundamentally at odds with the approach used by the Shutts Court. The exception in Shutts is for actions seeking "equitable relief," not for class actions that have their origins in equity.30 The Court explicitly recognized that class actions originated as an equitable joinder device, and all class actions are "equitable" in that limited sense. Shutts, 472 U.S. at 808, 105 S.Ct. at 2972-73. See also Hansberry v. Lee, 311 U.S. 32, 41, 61 S.Ct. 115, 118, 85 L.Ed. 22 (1940) ("The class suit was an invention of equity...."); 7A WRIGHT & MILLER § 1751, at 7. Despite that fact, the Court classified the action in Shutts as one for money damages. 472 U.S. at 811, 105 S.Ct. at 2974.
The only possible conclusion that can be drawn from the Court's reasoning is that the distinction between damage remedies and equitable remedies turns on what remedies the plaintiff seeks, not on his choice of joinder devices. To hold otherwise, as the majority does in this case, would create an internal inconsistency in Shutts: If the origin of the class action is determinative of the classification of an action, then every class action, including the one in Shutts, would be an equitable action.
The majority's assertion that rule 23(b)(1)(B) actions are unique in that they involve only equitable claims is based on an apparent misunderstanding of "equitable remedies" and the history of the class action. Prior to the merger of law and equity, the majority would have been correct in classifying all rule 23(b)(1)(B) class actions (or more appropriately their historical antecedents) as equitable actions, but for reasons different from those the majority offers.
Before law and equity were merged, every class action would have been equitable, as the class action was a procedural device that was available only in courts of equity.31 As a result, every class action aggregated claims seeking equitable remedies or applying equitable substantive law. The fact that the device was once used exclusively by equity courts does not foreclose the possibility, however, that the device currently is used in conjunction with legal remedies.32
Even the majority's own authorities recognize that class actions are now used to aggregate both legal and equitable claims. See 1 NEWBERG ON CLASS ACTIONS § 1.18, at 1-46 (recognizing that suits certified under rule 23(b)(1) "predominately (but not exclusively) involve suits seeking equitable relief"). When Professor Newberg posits that Shutts will not apply to classic limited fund cases, he does so because those cases aggregate equitable claims, not because the device had its origins in equity.
It is unlikely that Shutts will be construed to change the highly focused nature of the equitable relief addressed in these limited fund class actions by requiring opt-out rights which might serve to frustrate the equitable ends of these suits. There are other types of equitable class actions, such as suits to declare a dividend or suits for injunctive relief against a defendant who has acted generally against a class, which similarly ... will not be challenged.
Id. § 1.21, at 1-49 (emphasis added, footnotes omitted).
The majority's unyielding mantra that rule 23(b)(1) actions are equitable actions makes due process turn on an untenable formalistic distinction between rule 23(b)(1) and rule 23(b)(3), whereunder class actions under rule 23(b)(3) are subject to Shutts, and those certified under rule 23(b)(1) are not. The distinction finds no support in Shutts, which involved a state equivalent of rule 23(b)(3) and not the federal rule itself. The Court's analysis, which centered on the need to protect an absent plaintiff from the inherent dangers of representative actions, did not focus on what type of class action was involved, for relying on such a distinction ignores the fact that many class actions can be certified under more than one subsection of rule 23. 1 NEWBERG ON CLASS ACTIONS § 4.01, at 4-4 through 4-5; 3B J.W. MOORE ET AL., MOORE'S FEDERAL PRACTICE p 23.31, at 236-37 (2d ed. 1995); 7A WRIGHT & MILLER § 1772, at 425. In fact, a vast majority of classes that meet the requirements of rule 23(b)(1)(B) inevitably will satisfy the rule 23(b)(3) requirements. 1 NEWBERG ON CLASS ACTIONS § 4.01, at 4-5. Due process does not turn on such formalistic distinctions.33
The majority's argument that applying Shutts to rule 23(b)(1) would render all mandatory class actions unconstitutional, is also premised on a faulty understanding of the distinction between law and equity. See maj. op. at 987 n. 16. What the majority fails to acknowledge is that the distinction between money damages and equitable remedies preserves mandatory class actions in the vast majority of cases, including traditional common fund cases from equity. See NEWBERG ON CLASS ACTIONS § 1.18, at 1-46 (recognizing that the majority of actions that meet the requirements of rule 23(b)(1) seek equitable relief). The only cases affected by Shutts are modern cases, such as Ahearn, that fall within the broad scope of the rule but do not involve a true common fund.
Take for example Smith v. Swormstedt, 57 U.S. (16 How.) 288, 14 L.Ed. 942 (1853), and Hartford Life Ins. Co. v. Ibs, 237 U.S. 662, 35 S.Ct. 692, 59 L.Ed. 1165 (1914), two cases that represent the paradigmatic mandatory class action. Both survive Shutts because neither involved money damages. In Smith, the class representatives filed a bill in chancery for the division of a trust, a traditional equitable remedy. 57 U.S. (16 How.) at 312. See 1 LAW OF REMEDIES § 2.3(1), at 75. In Ibs, the mandatory class action at issue also involved distributions from a trust. 237 U.S. at 671, 35 S.Ct. at 695. Although both actions resulted in a distribution of money, neither involved a legal claim for money damages. See 1 LAW OF REMEDIES § 3.1 (discussing money awards available in equity, but distinguishing between money damages and equitable remedies that award money).
The difference between legal and equitable actions, while subtle, is important. In an equitable action such as an action by the beneficiary of a trust, a plaintiff's pro rata rights to the trust corpus are already established. Whether the action proceeds individually or as a class action is irrelevant to absent plaintiffs, because in both cases their rights in the corpus of the trust will be affected. See In Re Joint E. & S. Dist. Asbestos Litig. ("Findley II"), 878 F.Supp. 473, 530-33 (E. & S.D.N.Y.1995) (explaining why the already severe limitations on a trust beneficiary mean that a representative action will do little to diminish a beneficiary's rights). In fact, in some cases the class device enhances an absent plaintiff's rights by providing him a voice; the classic limited fund is such a case. The same is not true in a case for money damages.
The decision to proceed individually or as a class makes all the difference in a case for money damages, because only in a class action are a plaintiff's rights controlled by another party. The most obvious consequence of such control is that class representatives may settle to the detriment of absent class members in order to benefit themselves. The inherent risk of such a result is exactly what drove the Court to adopt due process protections in such cases. See Shutts, 472 U.S. at 809-11, 105 S.Ct. at 2973-74.
Finally, the majority's reliance on the strong presumption of constitutionality that the Federal Rules of Civil Procedure receive is misplaced. The novelty in this case is not the insistence on opt-out rights but on the extension of class actions, particularly rule 23(b)(1)(B) class actions, to mass torts and the expansion of rule (b)(1)(B) to "constructive bankruptcy." Such a use of the federal rules is novel, and in particular the rise of mass torts was unforeseen by the drafters of the rule. Castano v. American Tobacco Co., 84 F.3d 734, 746 & n. 23 (5th Cir.1996).
The majority's attempt to hide behind the traditional acceptance of mandatory class actions is unavailing in this extension of rule 23(b)(1), for the presumption of constitutionality enjoyed by the Federal Rules of Civil Procedure disappears when the rules are applied in a way unanticipated by their drafters. See 19 WRIGHT & MILLER § 4509. In short, while this action falls within the broad scope of rule 23(b)(1)(B), that fact does not immunize it from due process protections, including opt-out rights.34
The majority is correct that our precedents preclude us from decertifying the class for lack of commonality and typicality. The majority's discussion of these criteria is misleading, however, and its readiness to skip over the protections without considering the consequences is yet another manifestation of its tunnel vision.
Long before defense attorneys even dreamed of mandatory, mass-tort, futures-only class actions, we held that "tentative or temporary settlement classes are favored when there is little or no likelihood of abuse, and the settlement is fair and reasonable and under the scrutiny of the trial judge." Meat Price Investigators Ass'n v. Iowa Beef Processors (In re Beef Indus. Antitrust Litig.), 607 F.2d 167, 174 (5th Cir.1979), cert. denied, 452 U.S. 905, 101 S.Ct. 3029, 69 L.Ed.2d 405 (1981). We even went so far as to "agree" with Professor Newberg that parties may "compromise their differences, including class action issues, through this means." Id. at 177-78 (quoting 3 NEWBERG ON CLASS ACTIONS § 5570c, at 476). We took Beef Industry to its logical conclusion two years later, finding that evaluation of the fairness of a settlement entails a consideration of "the strength of plaintiffs' case on the merits," including "the risks of class decertification." Adams Extract Co. v. Pleasure Hours, Inc. (In re Corrugated Container Antitrust Litig.), 643 F.2d 195, 216 (5th Cir.1981).
Note the bizarre effect of these opinions: Certification criteria are designed in part to protect the class against inadequate representatives, but Beef Industry permits those very representatives to compromise the requirements. Corrugated Container compounds the effect by holding that certification criteria are part of the merits of a class action. Thus, when it is less likely that certification is proper, and therefore more likely that an individual plaintiff has a right to prosecute his own action, a smaller settlement is necessary to extinguish that right.
The majority is more subtle, finding that all class members have a common interest in reaching a settlement that includes certain terms. See maj. op. at 975. Even so, a generalized common interest is not a "question[] of law or fact common to the class." FED.R.CIV.P. 23(a)(2) (emphasis added).
Similarly, the majority finds that the legal and remedial theories of the class representatives are typical of those of the class because all class members (1) claim that "Fibreboard is liable in tort for damages incurred due to exposure to Fibreboard asbestos" and (2) possess a common interest in settling for a large amount. See maj. op. at 975-76. Once again, the latter category of "interests" has nothing to do with the underlying legal theories.
The majority's characterization of the plaintiffs' claims is also true only at an extreme level of generality. If a man raped a woman in California and exposed himself to another in Texas, both women might claim that he is "liable in tort for damages incurred due to [sexual misconduct]," but no one would seriously claim that the legal theory of battery is similar to that for, say, intentional infliction of emotional distress.
Nor have the settling parties even attempted to bootstrap themselves into typicality by crafting a settlement that postpones resolution of non-typical issues. The settlement's prohibition on punitive damages affects plaintiffs from different states differently; its caps on individual recovery discriminate against the most seriously injured class members; and its spendthrift provisions alter the distribution of funds between extant and latent claimants. Thus, the settling parties have negotiated an alteration of the class members' substantive rights vis-a-vis one another. In short, the majority dutifully follows our precedent by treating commonality and typicality as mere procedural obstacles to be cleared out of the way.
Three factors make our duty to follow Beef Industry and Corrugated Container a regrettable one. First, rule 23(a) has a purpose: to protect the due process rights of absent class members.35 Compliance with the rule might prevent us from lumping people with divergent interests into a single class, but the rule is meant to do just that.36