Appendix — Flanagan v. Ahearn

Suprerme Court, U.S.

FILED

961379 FEB 27 1997

No. rppee-oF-FHE_CLERK

Iu The

Supreme Court of the United States

* October Term, 1996 +

Nm A Rarer

JAMES FLANAGAN AND DAVID H. MIDDLETON,

Petitioners,

ve

GERALD AHEARN; JAMES McADAMS DENNIS; CHARLES

W. JEEP; JAMES DRAKE; JUANITA DRAKE; JAMES ELLISON;

ROLAND DEARBORN; JUDITH DEARBORN; KERWIN

BUTCHER; Dir., WORKERS Comp., DIRECTOR, OFFICE OF

WORKERS’ COMPENSATION PROGRAMS, U.S. DEPART-

MENT OF LABOR; PAUL COCHRAN; IDA BECK; MARION

BEHEE; LONGSHORE INTERVENOR; WILLIAM JAMES

MITCHELL; FIBREBOARD CORPORATION; BETHLEHEM

STEEL CORPORATION; CONTINENTAL CASUALTY COM-

PANY; PACIFIC INDEMNITY; FRANCIS McGOVERN; OWENS-

ILLINOIS, INC.; PENN MUTUAL LIFE INSURANCE COMPANY;

COLUMBIA CASUALTY COMPANY; CNA CASUALTY COM-

PANY OF CALIFORNIA; CELOTEX CORPORATION,

Respondents.

ON PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

APPENDIX

TO PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

LEONARD C. JAQUES

Counsel of Record

THE JAQUES ADMIRALTY LAW FIRM, PC.

1370 Penobscot Building ,

Detroit, Michigan 48226

(313) 961-1080

Counsel for Petitioners

Flanagan and Middleton

ST ST i ne te

Interstate Brief & Record Company, a division of North American Graphics. Lac.

1629 West Lafayette Boulevard, Detroit, MI 48216 (313) 962-6230

TABLE OF CONTENTS OF APPENDIX

PAGE

ORDER DENYING REHEARING EN BANC — United States

Court of Appeals for the Fifth Circuit (November

Sie STD: <cicsaceennscesesihdabeeschadddecentinataiajaitintaanpiaiintiabideidionoen A-l

OPINION — United States Court of Appeals for the

Pe UE CI BE, FEE) ccrewccnccesenescscnicrennneovincvtoone A-4

I GIIIT . cicncnnieciercicnmccetionrssnncsescsinweananions A-59

MEMORANDUM OPINION — United States District

Court, Eastern District of Texas, Tyler Division

IIE NUTEED haviobibiteinwiosicdnthepidiniabekoniedieditelesnsasibuctoess A-135

OPINION ON SUGGESTION FOR PANEL REHEARING —

United States Court of Appeals for the Fifth Cir-

BE | ee ree A-187

TRANSCRIPT OF PROCEEDINGS — United States District

Court, Eastern District of Texas, Tyler Division

SEE AINE IEE Siaiiiceieciocincetnnistsactnenindiatinintnens A-192

TRANSCRIPT OF PROCEEDINGS - United States District

Court, Eastern District of Texas, Tyler Division

IE IE. PRINT Reesiaccnwhcsssppibinditnbinncinisantehabereiionts A-213

|g SRE Eas ies arias a mares ee A-221

FEDERAL RULES OF CIVIL PROCEDURE 23 ......:sccssssseee A-224

No.

Iu The

Supreme Court of the United States

* @®ctober Term, 1996 +

lp tt Alt

JAMES FLANAGAN AND DAVID H. MIDDLETON,

Petitioners,

Vv.

GERALD AHEARN; JAMES McADAMS DENNIS; CHARLES

W. Jeep; JAMES DRAKE; JUANITA DRAKE; JAMES ELLISON;

ROLAND DEARBORN; JUDITH DEARBORN; KERWIN

BUTCHER; Dir., WoRKERS Comp., DIRECTOR, OFFICE OF

WORKERS’ COMPENSATION PROGRAMS, U.S. DEPART-

MENT OF LABOR; PAUL COCHRAN; IDA BECK; MARION

BEHEE; LONGSHORE INTERVENOR; WILLIAM JAMES

MITCHELL; FIBREBOARD CORPORATION; BETHLEHEM

STEEL CORPORATION; CONTINENTAL CASUALTY COM-

PANY; PACIFIC INDEMNITY; FRANCIS MCGOVERN; OWENS-

ILLINOIS, INC.; PENN MUTUAL LIFE INSURANCE COMPANY;

COLUMBIA CASUALTY COMPANY; CNA CASUALTY COoM-

PANY OF CALIFORNIA; CELOTEX CORPORATION,

Respondents.

ar AG 2 pps

ON PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

APPENDIX

TO PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

ON SUGGESTIONS FOR REHEARING EN BANC

(United States Court of Appeals — Fifth Circuit)

(Filed November 26, 1996)

(In re: ASBESTOS LITIGATION — JAMES FLANAGAN, et al.,

Appellants, versus GERALD AHEARN, et al., Appellees —

No. 95-40635; Appeal from the United States District

A-2

Court for the Eastern District of Texas, Opinion July 26,

1996, 5 Cir., 96 F3d 963)

Before REAVLEY, DAVIS and SMITH, Circuit Judges.*

PER CURIAM:

The Court having been polled at the request of one of -

its members and a majority of the judges who are in

regular active service not having voted in favor (FRAP

35 and Local Ruie 35), the suggestions for rehearing en

banc are DENIED.

* Judges King, Higginbotham, Barksdale, Benavides, and Parker

are recused and did not participate in the consideration of the

suggestions for rehearing en banc. Judge Dennis also did not

participate.

JERRY E. SMITH, Circuit Judge with whom GARWOOD,

JOLLY, JONES, EMILIO M. GARZA, and DeMOSS, Circuit

Judges join, dissenting:

I respectfully dissent from the failure of the court to

grant rehearing en banc. The result of this litigation, as im-

plemented by the district court and affirmed by the panel

majority, is the first no-opt-out, mass-tort, settlement-

only, futures-only class action ever attempted or

approved. The issues presented are worthy of consider-

ation beyond the level of circuit panel review.

Five of the active judges are disqualified from partici-

pating in this matter, and a sixth judge has elected not

to participate in the consideration for rehearing en

banc. Accordingly, it is not possible to determine

whether, if all active judges were voting, a majority

would decide to rehear this case en banc.

The applicable statute and rules require the affirma-

tive vote of a majority of the active judges — here, nine

of the seventeen active judges — for en banc considera-

Nallereas

eee

Reh 2 Bo. DAP Pes ee Oe re Pan es Sl

Peat ent a Rl St,

A-3

tion, as recused and non-participating judges are

counted as members of the court for purposes of the

calculation.’ The effect in this case is to require not a

simple majority, but a supermajority of 82% — nine of the

eleven participating judges — to favor zeconsideration.

That onerous requirement has not been met. Accord-

ingly, the appellants’ only recourse, in order to obtain

review of the difficult and novel issues presented, is to

petition the Supreme Court for writ of certiorari.

1 “Judges in regular active service who are disqualified for any

reason or who cannot participate in the decision of an en banc case

nevertheless shall be counted as j in regular active service.”

57H Cir. R. 35.6. Under 28 U.S.C. § 46(c), rehearing en banc is

“ordered by a majority of the circuit judges of the circuit who are

in regular active service.” See Fep. R. App. P. 35(a); Shenker v. Balti-

more & Ohio R.R., 374 U.S. 1, 4-5 (1963); Western P.R.R. v. Western

P.R.R., 345 U.S. 247, 250 (1953); Variable Annuity Life Ins. Co. v.

Clark{[e], 998 F.2d 1295 (5th Cir. 1993), for rehearing en

banc denied, 13 F.3d 833, 834 (5th Cir. 1994) (Smith, J., dissenting),

rev'd sub nom. NationsBank v. Variable Annuity Life Ins. Co., 115 S. Ct.

810 (1995).

A-4

OPINION

[CITE AS: 90 F.3p 963}

(United States Court of Appeals — Fifth Circuit)

(Filed July 26, 1996)

(In re ASBESTOS LITIGATION — James FLANAGAN; David

H. Middleton; Kenneth Smith; Edee Cochran; Esteban

Yanez Ortiz; John R. Allgood; Henry William Evers;

Lester Eugene Taylor; Plant Insulation Company; Safety

National Casualty Corporation, Appellants, v. Gerald

AHEARN; James McAdams Dennis; Charles W. Jeep;

James Drake; James Ellison; Roland Dearborn; Judith

Dearborn; Kerwin Butcher; Dir., Workers Comp.,

Director, Office of Workers’ Compensation Programs,

U.S. Dept. of Labor; Longshore Intervenor; William

James Mitchell; Fibreboard Corporation; Bethlehem

Steel Corporation; Continental Casualty Company;

Pacific Indemnity; Francis McGovern; Owens-lilinois, Inc.;

Penn Mutual Life Insurance Company; Columbia Casu-

alty Company; CNA Casualty Company of California;

Celotex Corp., Daniel Herman Rudd, Jr., on behalf of

themselves and others similarly situated; Beverly White,

on behalf of themselves and others similarly situated;

John Hansel, on behalf of themselves and others simi-

larly situated; Appellees — Nos. 95-40635, 95-40694;

Appeals from the United States District Court for the

Eastern District of Texas)

Before: REAVLEY, DAVIS and SMITH,

Circuit Judges.

W. EUGENE DAVIS, Circuit Judge.

In this consolidated appeal, we consider a number of

challenges to the district court’s approval of a class

settlement of future asbestos victims with Fibreboard

along with several related settlements. For the reasons

that follow, we affirm the district court's judgment.

A-5

I

BACKGROUND

A. PROCEDURAL AND FACTUAL HISTORY

Fibreboard, primarily engaged in the timber business,

also manufactured asbestos-containing products from

1920 until 1971. By the late 1980's, asbestos-related per-

sonal injury and death claims against Fibreboard num-

bered in the tens of thousands. At that time Fibreboard

had approximately $100 million in hard insurance

assets available to pay these claims. It also had dis-

puted coverage claims against two of its insurers, Conti-

nental Casualty Company and Pacific Indemnity. These

coverage claims ultimately played a key role in the class

settlement.

Continental issued a general liability policy to Fibre-

board in 1957 which remained in force for two years.

Although the policy had no aggregate limit, it had a per-

occurrence limit of $1 million and a per-person limit of

$500,000. Fibreboard contended that Continental's

policy replaced a similar Pacific policy with a per-claim

limit of $500,000 but no aggregate limit.

Fibreboard contended that these two policies pro-

vided coverage to Fibreboard for thousands of claim-

ants. This argument rested on Fibreboard’s “continuous

trigger” theory which maintained that the policies cov-

ered Fibreboard if the claimant had been exposed to

asbestos at any time before or during the time the poli-

cies were in force, provided the claimant at some time

was exposed to Fibreboard’s asbestos product.

In 1979, Fibreboard and other insureds filed a massive

multi-party insurance coverage case in California state

court against a number of insurers, including Pacific

and Continental. Following years of litigation, including

a trial extending over four years, Fibreboard prevailed

in the trial court. In its 1990 opinion, the trial court

accepted Fibreboard’s continuous trigger theory as well

A-6

as Fibreboard’s argument that the insurer was required

to pay the full cost of defense for each claim covered.

The insurers appealed to a California intermediate

appellate court. Argument was held in August 1993

while the settling parties in this case were attempting

to reach a final agreement.

By 1988, Fibreboard had largely exhausted its cov-

erage from insurers other than Pacific and Continental.

It was unable to pay asbestos judgments and settle-

ments as they occurred and also pay the continuing

mounting defense costs. After the trial court in the cov-

erage case issued several rulings in favor of Fibreboard,

Fibreboard was able to develop a “structured settle-

ment” program where payments to settle claims were

deferred until resolution of the coverage case. Under

this plan, most plaintiffs agreed to accept 40% cash up

front with the balance due upon resolution of the cov-

erage dispute. Additionally, Fibreboard agreed not to

dissipate its assets and, in effect, to give the company

to the plaintiffs if it lost its coverage case.

By mid-1990, Fibreboard’s defense costs and settle-

ment payments had mounted and Fibreboard looked for

additional insurance resources. It proposed to both

Continental and Pacific that they negotiate a complete

settlement of its coverage claims. Continental declined

to negotiate. Pacific, however, negotiated with Fibre-

board and ultimately agreed to a settlement, “the Pacific

Agreement.” By this settlement, which was subject to a

number of contingencies, Pacific’s coverage was made

available for claimants exposed to Fibreboard’s asbes-

tos products after 1959. The Pacific Agreement also pur-

ported to extinguish Continental’s right to seek

contribution from Pacific. Continental challenged this

agreement in the District Court for the Eastern District

of Texas in April 1993.

Even with the Pacific Agreement, Fibreboard faced

acute problems with increased large-scale asbestos liti-

a

A-7

gation. In early 1991 it proposed an “assignment settle-

ment” plan to plaintiffs’ counsel. Unlike the earlier pro-

gram, this plan allowed asbestos claimants to settle

their claims against Fibreboard for an agreed sum,

receive no cash up front but rather receive an assign-

ment of Fibreboard’s rights (to the extent of the settle-

ment) against Continental. Fibreboard agreed to pay the

settlement sum if the court ultimately exonerated Conti-

nental. Under this plan, the settlement was also contin-

gent upon Fibreboard obtaining court orders validating

its right to make an assignment in the face of an insur-

ance policy provision barring Fibreboard from settling

claims without Continental’s consent. Plaintiffs’ counsel

recognized the risk that their clients would never

receive the agreed-upon settlements under the assign-

ment plan and pressed for higher settlement amounts

for accepting this risk. Fibreboard, using Continental

dollars, was willing to pay more. As a result, the average

per-case settlement amount under the assignment plan

more than doubled the average amount of the earlier

structured settlements. Continental strongly disputed

Fibreboard’s right to make these assignments. This dis-

pute led to further costly litigation.

In June 1992, a California trial court in Andrus v. Fibre-

board' ruled in favor of Fibreboard and upheld Fibre-

board's right to make the assignment settlements. The

California intermediate appellate court denied writs,

relegating Continental to review under the ordinary

appellate process.”

in 1990 and 1991 Fibreboard broached the subject of a

global settlement with Ron Motley, Joe Rice, Steven

1 No. 614747-3 (Alameda Cty. Sup. Ct. June 1, 1992) reversed by

Fibreboard Corp. v. Continental Casualty Co., No. A059716 (Cal. App.,

October 19, 1994).

2 The trial court’s decision in Andrus was reversed by the Cali-

fornia appellate court in October 1994 after the Global Settlement

Agreement was reached but before the fairness hearing was held.

AB

Kazan and Harry Wartnick, all of whom were leading plain-

tiffs’ asbestos counsel. Fibreboard proposed to use an

assignment plan to accomplish the global settlement. Fibre-

board sought to structure the settlement so that claimants

would look only to its insurance assets if it won the cov-

erage case and Fibreboard would give the company to

claimants if it lost the coverage case. As Fibreboard's

counsel later admitted at the fairness hearing, this

approach was designed in part to “bring the [asbestos]

litigation closer to Continental; it was important that

Continental feel as threatened as Fibreboard did.”

Fibreboard was not successful in negotiating a global

settlement with plaintiffs’ counsel. Fibreboard and the

Ness Motley firm did, however, agree to settle at least

20,000 present asbestos claims with the possibility of

expanding that number to a higher figure. Fibreboard

again agreed to assign rights under the Continental

policy instead of paying cash to fund this settlement.

The higher settlement amounts necessary to accom-

plish these assignment settlements caused a further

inflation of settlement values. With the conclusion of

this Ness Motley settlement agreement, Fibreboard had

entered into $943 million in assignment settlements

during 1992 and had deferred settlement obligations at

the end of that year aggregating over $1.2 billion, a sum

that greatly exceeded its net worth.

As called for under this latest settlement, Fibreboard

brought suit in the Eastern District of Texas seeking a

determination that the assignment did not violate the

Continental policy. Plaintiffs’ counsel advised Conti-

nental that they had bound themselves contractually

with Fibreboard to refrain from negotiating directly with

Continental without Fibreboard’s consent. Continental

knew that Fibreboard and plaintiffs’ counsel were

actively engaged in negotiating a global settlement to be

funded with Continental's money.

Thus, at the beginning of 1993, Continental was under

intense pressure to join the settlement talks:

A-9

*Continental had been unable to obtain immediate

review of the California trial court judgment in Andrus

approving the unilateral assignment settlements.

*Fibreboard continued to close more and more

assignment settlements at amounts Continental con-

sidered grossly excessive.

*Fibreboard and plaintiffs’ counsel were seriously

negotiating a multi-billion dollar settlement which

Continental would be called upon to fund. And Con-

tinental was barred from the table.

*A new proceeding, in a forum Continental probably

considered unfriendly, had been filed seeking valida-

tion of Fibreboard’s assignment settlements.

In February 1993, Continental announced that it

would seek a global resolution of its asbestos exposure

under its Fibreboard policies. With the approval of the

parties, Judge Parker named Judge Patrick E. Higgin-

botham of this court to serve as settlement facilitator.

In the settlement discussions with Judge Higgin-

botham, Continental made it clear from the beginning

that it would only entertain a global settlement if the

settlement brought “total peace.” Continental was

unwilling to pay billions in settlement and forego its

substantial arguments against coverage without the

assurance that it did not face unknown liabilities in the

future. Thus, Continental was only interested in

exploring a mandatory, non-opt-out settlement. Conti-

nental considered that an opt-out class presented it

with a number of insurmountable problems:

*Because the deadline for opting out would likely

come after a decision in the coverage appeal, plain-

tiffs would enjoy a one-way option: they could opt

out if Continental lost the appeal bu’ remain in if

Fibreboard lost

*Claimants with the most serious injuries were likely

to opt out in disproportionate rumbers.

A-10

*Accurate predictions of Continental's exposure to

opt outs were extremely difficult, if not impossible,

to make.

Skirmishes between Continental and Fibreboard ini-

tially prevented fruitful discussion. Fibreboard argued

that Continental was barred contractually from direct

discussions with plaintiffs’ counsel. Fibreboard also

threatened to continue its assignment settlements.

With Judge Higginbotham’s help, the parties agreed to

put these impediments behind them in an agreement

signed on April 9, 1993. Fibreboard agreed to allow Con-

tinental a place at the negotiating table and to stop the

assignment settlements. Continental agreed to fund

100% of any global settlement (Continental reserved the

right to get whatever contribution it could from Pacific)

and to use its best efforts to work with Fibreboard to

reach a global settlement.

From April until July the parties attempted to nego-

tiate a global settlement but these efforts met with little

success. For a number of reasons Judge Higginbotham

recommended and the parties agreed that they should

first attempt to settle the Ness Motley inventory of

some 45,000 present claims. On August 5, the parties

reached the “Substitute Ness Motley Agreement” which

was approved by the court on August 9.°

With the Ness Motley settlement behind them, the

parties intensified their efforts to reach a global settle-

ment. The August 27 date for oral argument in the Cali-

fornia Court of Appeal in the coverage case injected a

sense of urgency into these discussions. Plaintiffs’

counsel realized that if Fibreboard lost the coverage

3 In the Substitute Ness Motley Agreement, Continental

to pay a higher-than-average value per claim with one-half due at

closing and the remainder contingent on the outcome of the cov-

erage case or on the existence of a settlement. This agreement was

used as a model to settle inventory claims of other law firms.

A-11

case, Coritinental’s funds, essential to any settiement,

would be lost. Fibreboard faced immediate bankruptcy

if it lost the coverage case. Continental and Pacific faced

staggering liability in an unquantifiable amount if they

lost the coverage case. The parties had reason to

believe that the California appellate court would render

a decision promptly after argument and perhaps give

signals at argument on how it would rule. For these rea-

sons all parties were driven to reach a settlement

before the California court reached a decision in the

coverage case.

At Judge Higginbotham’s request, Judge Parker desig-

nated Messrs. Rice, Cox, Kazan, and Wartnick to “nego-

tiate ... the prospect of a Rule 23(b)(1)(B) settiement

class composed of future plaintiffs with claims against

Fibreboard.”

A series of intense negotiating sessions followed. The

absence of Pacific at the table remained a serious

impediment and little progress was made. Over the

weekend of August 21-22, faced with an impending trial

on Continental's claims to invalidate the Pacific Agree-

ment, Pacific agreed to share responsibility with Conti-

nental on a 35.29% to 64.71% ratio. This was the same

ratio established by the trial court in the coverage case.

This proved to be the iast impediment to an agree-

ment. Continental and Pacific were now negotiating

jointly. By August 23, Continental and Pacific (the

Insurers) had offered $1.5 billion and plaintiffs’ counsel

demanded $1.7 billion. The parties asked Judge Parker

to assist in a last-ditch effort to reach agreement before

August 27.

Judge Parker and counsel spent the afternoon of

August 26 in intensive negotiating sessions in an attempt

to resolve the remaining differences between the parties.

Late in the afternoon when settiement had not been

reached, Judge Parker invited a core group of attorneys

to his home outside of Tyler to continue the discussion.

A-12

After several hours of negotiations in this more informal

setting, Continental agreed to contribute an additional

$25,000,000 and Fibreboard agreed to contribute

$ 10,000,000. Plaintiffs’ counsel refused at this point to

accept the $ 1.535 billion pot. But later, the key parties,

by coincidence, met around midnight at a Tyler coffee

shop. Plaintiffs’ counsel, at that time, agreed to accept

the tendered $ 1.535 billion global settlement offer.

On the morning of August 27, plaintiffs’ counsel

renewed a demand that there be a separate, back-up

settlement between Fibreboard and the Insurers for the

settlement of the coverage case if, for any reason, a

court declined to approve the global settlement. The

parties negotiated the entire day on August 27. Near the

end of the day a settlement (termed the “Trilateral Set-

tlement”) among Continental, Pacific and Fibreboard

was reached. These negotiations were undoubtedly

shortened because the coverage case appeal was

argued on the morning of August 27. The negotiating

representatives received word after the argument that

the court had announced that it intended to decide the

case expeditiously.

Upon announcement of the settlement agreement in

open court in Tyler on August 27, the parties directed

communication to the California Court of Appeals

advising the court of the agreement in principle. The

parties asked the California court to defer a ruling on

the issues relating to Fibreboard’s dispute with Conti-

nental and Pacific pending completion of the necessary

settlement documentation. The California Court of

Appeals has continued to withhold a rul*- 4 pending

final approval of the Trilateral Settlement.‘

4 After oral ment, the court granted a motion to sever

issues unique to Fibreboard, Pacific and Continental in order to

A-13

The parties then set out to convert the Global and

Trilateral Settlements into formal written agreements.

They first addressed the Trilateral Settlement. Disputes

arose over critical features of this agreement and it was

not until October that Continental, Pacific and Fibre-

board were able to reduce it to writing.

On September 9th, the Ahearn class action was com-

menced by the Global Health Claimant Class against

Fibreboard. The Global Health Claimant Class consists

of all persons with personal injury claims against Fibre-

board for asbestos exposure whose claims had not

been brought in a lawsuit, settled or included in a set-

tlement agreement before August 27, 1993. Shortly after

Ahearn was filed, Judge Parker entered a number of

orders: Continental and Pacific were granted leave to

intervene as party defendants; provisional class certifi-

cation was granted; a TRO against commencement of

further separate litigation against Fibreboard by puta-

tive class members was entered; and the court

appointed as counsel to the plaintiff class, Rice, Cox,

Kazan and Wartnick, and appointed Caplin & Drysdale

as counsel to plaintiffs’ counsel.

In October, Judge Parker appointed Professor Eric

Green of the Boston University School of Law to serve

as guardian ad litem for the class. Judge Parker noted

that it would be desirable that there be the

appointment of {a guardian] ad litem who is fully

knowledgeable in asbestos mass tort matters but

does not actively represent asbestos claimants.

The function of the [guardian] ad litem is to

review the settlement from the point of view of

members of the class and thereby to afford the

class additional assurance that their interest will

be adequately protected.

Professor Green was directed to render a report to the

court analyzing the fairness, reasonableness and adequacy

of the settlement from the point of view of the members

of the provisionally certified Global Health Claimant Class.

A-14

Plaintiffs’ counsel then turned to documenting the

Global Settlement Agreement. The parties did not

resolve the hundreds of details necessary to complete

this document until December 23. As Judge Parker

noted, it was not until that date when the Global Settle-

ment Agreement was signed that it became “clear that a

final agreement would actually be reached.”

B. TERMS OF THE SETTLEMENTS

1. The Global Settlement Agreement

The Global Settlement Agreement provides for the

establishment of a trust, funded with $ 1.535 billion — the

proceeds of the settlement. The trust is charged with

administering and paying all of the Global Health Claimant

Class members’ asbestos-related personal injury and

death claims against Fibreboard and the Insurers. Once

the global settlement receives judicial approval, and the

trust is fully funded, the Class members’ claims against

Fibreboard and the Insurers will be directed to the trust

for processing and payment according to the procedures

provided in the trust distribution process. The trust is to

be managed by three trustees and subject to the general

supervision of the court.

The Global Settlement Agreement seeks to provide,

through the trust, a simple process for injured persons

to quickly obtain a fair resolution of their claims and at

the same time safeguard their ultimate right to resort to

the tort system. The settlement further seeks, through

spendthrift provisions, to limit the amount of the trust

assets that can be paid out in any given year. This will

protect assets so that they will be available to compen-

sate injured class members whose claims develop far in

the future. If a shortfall occurs in any year, payments

during that year are prioritized so that the sickest

claimants are paid first.

Under the Global Settlement Agreement, a claimant

must first seek to settle with the trust after providing

A-15

requisite information to allow for evaluation of his

claim. If no settlement is reached, the claimant will next

proceed to mediation to attempt to resolve his differ-

ences with the trust. If the mediation fails, the claim

will be submitted to arbitration, either binding or non-

binding at the claimant's choice. If non-binding arbitra-

tion does not result in a resolution of the claim, a judge

or judge’s designee from the Eastern District of Texas

will hold a settlement conference. If this does not pro-

duce a settlement, the claimant may proceed against

the trust in the tort system, complete with a jury trial if

requested. The recovery of the claimant in the tort

system, however, is subject to a cap of $500,000 per

claim and recovery of punitive damages is precluded.

Attorneys’ fees for claimant’s counsel are limited to 25%

of the compensation paid to the claimant. Any resulting

judgment will be paid out over a period of years

depending upon the financial condition of the trust at

the time.

As consideration for their $1.535 billion payment,

Fibreboard and the Insurers receive full releases from

the Global Health Claimant Class for their asbestos-

related claims. Fibreboard and the Insurers also release

each other from all claims.

2. The Global Third-Party Claimant

Class Settlement

This settlement is between representatives of Fibre-

board's major co-defendants on the one hand and Fibre-

board and its Insurers on the other. The settlement

preserves credit rights for co-defendant third parties

under the law of the forum. Where the claimant liqui-

dates his claim against the trust before proceeding to

judgment against the co-defendant third party, the third

party receives whatever credit local law allows against

the judgment. Any third-party co-defendant who suffers

a judgment before the trust settles with the plaintiff and

pays a Fibreboard share, succeeds to the plaintiff's

rights against the trust, except for exit to the tort

A-16

system. The Global Third-Party Claimant Class releases

Fibreboard and the Insurers as to all third-party claims

for contribution and indemnity arising from the claims

of Global Health Claimant Class members and agrees

that approval of the Global Settlement Agreement will

bar and enjoin Global Third-Party Claimant Class mem-

bers from prosecuting any such claims against Fibre-

board or the Insurers. Fibreboard and the Insurers in

turn, release the Global Third-Party Claimant Class from

any and all contribution and indemnity claims.

3. The Trilateral Settlement Agreement

The Trilateral Settlement Agreement compromises the

longstanding coverage disputes between Fibreboard and

the Insurers, Continental and Pacific. This settlement is

to remain effective even if the Global Settlement Agree-

ment ultimately fails to obtain judicial approval. With

limited exceptions, the Trilateral Settlement fully dis-

charges the Insurers from all of their Fibreboard policy

obligations — both personal injury and non-personal

injury claims. The Trilateral Settlement is not designed

to settle any asbestos claims against Fibreboard. If the

global settlement for some reason fails, the asbestos

claimants may pursue Fibreboard in the tort system. If

the Global Settlement Agreement is not finally approved

but the Trilateral Settlement Agreement is, the Insurers

will make available to Fibreboard a total of $2 billion to

enable Fibreboard to defend and resolve asbestos-

related claims filed against it.

C. Notice AND HEARING

After a comprehensive campaign designed to give

notice of the proposed settlements, the district court

allowed wide-ranging discovery. The court allowed the

Ortiz and Flanagan appellants to intervene to assist in

making the record “relating to the fairness, reasonable-

ness and adequacy of the proposed settlement — to

assist the court in its ultimate decision in this case.”

A-17

Thereafter the court held a comprehensive eight-day

fairness hearing. In addition to issues relating directly

to the adequacy of the settlement fund, the court heard

expert testimony on the potential outcome of the cov-

erage case appeal. Two experts, retired California

Supreme Court Justice Marcus Kaufman and Yale Law

Professor, George Priest, gave opinions that Fibre-

board's trial court victory on coverage would be

reversed by the California appellate courts. These wit-

nesses testified that Fibreboard faced a substantial risk

that its extensive assignment settlement program con-

stituted a massive breach of the policy.5

Following the hearing, the court made detailed find-

_ ings and concluded that the Global Settlement Agree-

ment was fair, adequate and reasonable to the class and

that the requirements for mandatory class certification

under Federal Rules of Civil Procedure 23(b)(1)(A),

(b)(1)(B) and (b)(2) were met.

D. Rupp

After the Trilateral Settlement between Fibreboard

and the Insurers was reached, the Insurers insisted

upon a judicial determination that the settlement was

fair, reasonable and non-collusive and operated to ter-

minate any rights claimants might otherwise have

against the Insurers arising out of the policies. The

Rudd action was filed to accomplish this purpose. The

Insurers thus brought a declaratory and injunctive

action in the Eastern District of Texas against two

mandatory (non-opt-out) defendant classes: (1) the Tri-

lateral Health Claimant Class — substantially the same

as the Ahearn futures class, and (2) the Trilateral Third-

Party Claimant Class, comprised of third parties with

asbestos-related claims against Fibreboard. The district

court appointed experienced counsel to represent each

5 See discussion of Andrus at note 2 and accompanying text.

A-18

class.* Notice was then given to the classes informing

them of the pendency of the action. Broad discovery

was conducted and trial was held on February 13, 1995.

Following trial, the class representatives and counsel

for both of the defendant classes advised the district

court that they had concluded that it was in the best

interest of these classes to consent to the relief the

Insurers were seeking. Counsel filed position papers

explaining their reasons. Notice of the class representa-

tives’ consent to the terms of the Trilateral Settlement

was sent to the members of the two classes. Following a

fairness hearing, the district court issued findings of

fact and conclusions of law approving the classes’ con-

sent and certifying both classes as mandatory non-opt-

out defendant classes pursuant to Rules 23(b)(1)(A),

(b)(1)(B) and (b)(2) of the Federal Rules of Civil Proce-

dure. Only two individuals represented by Leonard C.

Jaques, Esq., challenge the district court's orders in this

appeal. No member of the Trilateral Third-Party Claim-

ant Class and none of the other intervening parties in

Ahearn have lodged objections to Rudd.

M1.

AHEARN

Appellants challenge Ahearn on a number of grounds

which we consider below. The Ortiz intervenors are

members of the Global Health Claimant Class who chal-

lenge certification of the class and the approval of the

settlement. The Flanagan interver >rs, also members of

the Global Health Claimant Class, challenge certification

in Ahearn and raise several objections specific to Rudd.

We will refer to both groups of appellants collectively as

“the intervenors.”

6 Class counsel for the Trilateral Health Claimant Class was

James E. Coleman, Jr., of the law firm Carrington, Coleman,

Sloman & Blumenthal, L.L.P. Class counse! for the Trilateral Third-

Party Claimant Class were the same attorneys that represented the

Global Third-Party Claimant Class.

A-19

A. RULE 23(A)

Rule 23(a) lists four prerequisites to a class action:

(1) numerosity, (2) commonality, (3) typicality and

(4) adequacy of representation. The district court found

that all four of these prerequisites were satisfied. The

intervenors do not dispute the district court's finding of

numerosity, but argue that the Global Health Claimant

Class meets none of the other prerequisites to a class

action.

The intervenors argue that the district court erred by

considering the circumstances surrounding the settle-

ment and the evidence adduced at the fairness hearing

in making findings under Rule 2¥(a). This argument is

contrary to Fifth Circuit precedent and would require a

court to ignore important and relevant information that

sits squarely in front of it when deciding whether to

certify a settlement class. In /n re Corrugated Container

Antitrust Litigation (Container I), we held that the dis-

trict court should consider the settlement in deciding

whether the settlement class satisfied the prerequisites

of Rule 23. 643 E2d 195, 211 (Sth Cir.), aff'd, 659 F2d 1322

(Sth Cir. 1981), cert. denied, 456 US. 998, 102 S.Ct. 2283,

73 L.Ed.2d 1294, and cert. denied, 456 US. 1012, 102 S.Ct.

2308, 73 L.Ed.2d 1309 (1982). We rejected a challenge to

the district court's finding that the class was adequately

represented as required by 23(a)(4) and found that the

terms of the settlement were vitally important to the

determination that certification was appropriate. /d.

Most circuits to decide the issue have held that

courts should consider the settlement in determin-

ing whether Rule 23 prerequisites are satisfied. See

Malchman v. Davis, 761 F.2d 893, 900 (2d Cir. 1985) (cer-

tification appropriate because “the interests of the

broadened class in the settlement were commonly

held”) (emphasis added); White v. National Football

League, 41 F.3d 402, 408 (8th Cir. 1994) cert. denied __

US, _, 115 S.Ct. 2569, 132 L.Ed.2d 821 (1995) (“adequacy

A-20

of class representation ... is ultimately determined by

the settlement itself”); Jn re Dennis Greenman Securities

Litigation, 829 F.2d 1539, 1543 (1lth Cir. 1987) (“in

assessing the propriety of class certification, the courts

evaluate the negotiation process and the settlement

itself”); In re A.H. Robins Co., Inc., 880 F2d 709, 740 (4th

Cir.) cert. denied, 493 US. 959, 110 S.Ct. 377, 107 L.Ed.2d

362 (1989) (“if not a ground for certification per se, cer-

tainly settlement should be a factor, and an important

factor to be considered when determining certifica-

tion”). Only the Third Circuit has refused to look at set-

tlements before it when deciding class certification

issues and even that court admits that taking the settle-

ment into account may be “the better policy.” Georgine

v. Amchem Products, Inc., 83 F.3d 610, 617-18 (3d Cir.

1996). The rule that a court should consider a proposed

settlement, if one is before it, when deciding certifica-

tion issues makes good sense. Settlements and the

events leading up to them add a great deal of informa-

tion to the court's inquiry and will often expose

diverging interests or common issues that were not evi-

dent or clear from the complaint. See Herbert Newberg

& Alba Conte, 2 Newberg on Class Actions § 11.28 at 11-58

(3d ed. 1992) (in settlement class context, common

issues arise from the settlement itself).

We are bound to follow Container I's holding that the

district court can and should look at the terms of a set-

tlement in front of it as part of its certification inquiry.

We would adopt this rule even if we were not bound by

precedent because it enhances the ability of district

courts to make informed certification decisions.

1. Commonality and typicality

The district court, in its findings of fact, found that

the entire Global Health Claimant Class had the fol-

lowing issues in common:

(i) avoiding the potentially disastrous results of a

loss by Fibreboard in the Coverage Case appeal;

eee

A-21

(ii) maximizing the total settlement contribution

from Fibreboard and the Insurers; (iii) stream-

lining the procedures for the filing, processing

and resolution of claims, and thereby reducing

transactions costs and delays in compensation;

(iv) minimizing the percentage of their compen-

sation diverted from them to pay attorneys’ fees;

and (v) adopting procedures that provide for

payments to claimants in an equitable manner.

The intervenors do not disagree that the settlement

class holds these issues in common. Instead, they argue

that these issues do not support a finding of common-

ality because they are derived from the settlement

rather than from the Ahearn complaint. As we noted

above, this argument has no merit and is foreclosed by

our holding in Container /. Because the evidence is over-

whelming that the class holds the above issues in

common under the settlement (even the intervenors

concede this point), we agree with the district court

that the Ahearn action and the Global Settlement Agree-

ment presented it with questions of law and fact

common to the entire Global Health Claimant Class.

Typicality focuses on the similarity between the

named plaintiffs’ legal and remedial theories and the

legal and remedial theories of those whom they purport

to represent. Jenkins v. Raymark Indus. Inc., 782 F2d 468,

472 (5th Cir. 1986). The district court found that the

legal and remedial theories of the representative plain-

tiffs were typical of the class because all members of

the Global Health Claimant Class presented claims

based on exposure to Fibreboard asbestos. The district

court also found that the named plaintiffs’ interests in

maximizing recovery for the class and eliminating the

risk posed by the insurance coverage litigation were

identical to interests held by all members of the class.

The intervenors do not argue that the named plain-

tiffs’ claims rest on theories different from those of the

other class members. Instead, in their attempt to show

ae

A-22

that the class is too diverse to meet the typicality

requirement, they point to individual issues such as

varying family situations, separate histories of cigarette

smoking, differences in medical expenses and differ-

ences in state law. These differences will certainly result

in significant differences in the amount of damages that

each claimant recovers but do not affect the settlement

in the least. The Global Settlement Agreement does not

award damages to individual victims:’ it provides money

and an equitable distribution process to pay victims.*

The central remedial and legal theory of each of the

named plaintiffs, that Fibreboard is liable in tort for

damages incurred due to exposure to Fibreboard

asbestos, is typical of the entire class. Even the defini-

tion of the class makes this clear.’ Further, the issues

that brought the named plaintiffs to settle Ahearn are

the same issues that the district court found common

7 Determinations of individual damage awards will be made by

the trust and the plaintiff's attorney in settlement negotiations or in

a full trial on the merits. The back-end opt out provision will force

the trust and plaintiffs to consider state law and individual circum-

stances, such as smoking history, when negotiating damages because

the alternative to agreement is a full trial by jury under relevant

state law.

8 an eS See oe 0 eee oe ree oe Oa

ae ee ee damages to class members based on the

Seely eee injuries alone, sae, 88 Sd 610 (Sd Cir. 1996), We would

agree with the Third Circuit that a class action requesting

individeal damages for members of a global class of asbestos

claimants would not satisfy the typicality requirements due to the

huge number ef individuals and their varying medical expenses,

smoking histories, and family situations. In Ahearn, only commonly

held questions regarding insurance coverage for the class’ injuries

and establishment of an equitable distribution process to insure

that all class members receive com were decided. As a

result, this settlement is unaffected by the typicality and common-

ality problems cited in Georgine.

9 The Global Health Claimant Class consists of persons who

ne ee ee ee

for which Fibreboard may bear legal liability . .

A-23

to the entire class. The named plaintiffs settled Ahearn

because of their desire to avoid the risks of insurance

coverage litigation and to insure that money remains

available to pay their claims when they make it through

the settlement and/or tria! process to final judgment.

These same concerns affect each member of the Global

Health Claimant Class. We are satisfied that the district

court did not abuse its discretion by finding that the

issues of }aw and fact faced by the named plaintiffs

were typical of the Global Health Claimant Class.

2. Adequacy of representation

The intervenors argue that the district court should

not have certified the Global Health Claimant Class

because of impermissible conflicts of interests by class

counsel.” Rule 23(a)(4) states that a class action may

be maintained only if “the representative parties will

fairly and adequately protect the interests of the class.”

This requirement for fair and adequate representation

encompasses both class representatives and class

counsel. North American Acceptance Corp. v. Arnall,

Golden & Gregory, 593 F2d 642, 644 n.4 (5th Cir. 1979).

However, “[jjust what measure of representation is ade-

quate is a question of fact that depends on each pecu-

liar set of circumstances.” Guerine v. J/& W Investment,

Inc., 544 F.2d 863, 864 (5th Cir. 1977), citing Johnson v.

Georgia Highway Express Inc., 417 F.2d 1122 (Sth Cir.

1969). The district court has the continuing duty to see

that the class is adequately represented. Guerine, 544

F2d at 864.

A district court may not certify a class without con-

cluding that class counsel are “‘qualified, experienced,

and generally able to conduct the proposed litigation.’

Obviously, an attorney who should be disqualified

because of a conflict of interest will not meet this

10 intervenors do not challenge the adequacy of representation

of class representatives so we do not consider this issue.

A-24

requirement.” North Amer. Acceptance, 593 F.2d at 644

(quoting Johnson v. Georgia Hwy. Express, Inc., 417 F2d

1122, 1125 (Sth Cir. 1969)).

In August 1993, the district court, on the recommen-

dation of Judge Higginbotham, formally appointed four

counsel (Messrs. Rice, Cox, Kazan, and Wartnick) to rep-

resent the Global Health Claimant Class. Messrs. Rice

and Cox are partners with the Ness Motley firm, one of

the leading U.S. firms representing asbestos claimants.

Ness Motley has been engaged in litigation with Fibre-

board since 1990. Mr. Kazan is a partner with Kazan,

McClain, Edises, & Simon. He has handled asbestos-

related cases for about twenty years. Mr. Wartnick is a

member of the law firm of Wartnick, Chaber, Harowitz,

Smith & Tigerman. His practice has been devoted to

representing asbestos claimants since 1981. In addition

to their experience in asbestos litigation generally,

Messrs. Kazan and Wartnick were Fibreboard’s chief liti-

gation adversaries on the West Coast, where Fibreboard

is located. The appointed class counsel retained the

firm of Caplin & Drysdale to advise them in areas out-

side their own expertise.

The district court found that these counsel are

“prominent attorneys, highly respected for their know-

ledge, experience, skill and special competence in the

field of asbestos litigation” and that they provided “ade-

quate, professional and ethical representation” to the

class.

The intervenors do not question the skill, compe-

tence or experience of class counsel, but instead argue

the existence of impermissible conflicts that prevented

them from adequately representing the class. Both sides

agree that in determining the existence of a conflict, we

look to the ABA Model Rules of Professional Conduct

for guidance. Rule 1,7 states:

(b) A lawyer shall not represent a client if the

representation of that client may be mater

A-25

ally limited by the lawyer's responsibilities

to another client or to a third person, or by

the lawyer's own interests, unless:

(1) the lawyer reasonably believes the repre-

sentation will not be adversely affected;

and

(2) the client consents after consultation.

When representation of multiple clients

in a single matter is undertaken, the

consultation shall include explanation

of the implications of the common rep-

resentation and the advantages and

risks involved.

Model Rules of Professional Conduct, Rule 1.7(b).

At the fairness hearing, the intervenors and the set-

tling parties each called a legal ethics expert to express

an opinion on whether class counsel had conflicts.

The intervenors offered Professor John Leubsdorf, a

law professor at Rutgers University Law Schoo! who has

taught courses in civil procedure and legal responsi-

bility The district court qualified Professor Leubsdorf

as an expert on issues of legal ethics and professional

responsibility but found him lacking in practical experi-

ence in mass tort litigation.

The settling parties called Professor Geoffrey Hazard,

a law professor at the University of Pennsylvania Law

School and a recognized scholar in the field of legal

ethics and professional responsibility. Professor Hazard

was a member of the Rand Civil Justice Institute advi-

sory council for studies concerning asbestos litigation

and a reporter to the commission responsible for the

preparation of the ABA Model Rules of Professional

Conduct. Moreover, Professor Hazard has previously

testified in asbestos cases and has extensive experience

as a consultant in this type litigation.

A-26

After hearing the testimony of both the legal experts

and the negotiators, the district court credited Pro-

fessor Hazard’s testimony as “consistent with existing

federal legal principles and the underlying facts of this

case.” The court found that Professor Leubsdorf's testi-

mony in a number of areas was either not supported by

the factual record or contrary to settled federal law.

Also, the district court felt that Professor Leubsdorf's

conclusions and recommendations often were specula-

tive and impractical because of his insufficient experi-

ence in mass torts and asbestos litigation. The record

amply supports these findings.

The intervenors argue that class counsel for the

Global Health Claimant Ciass had impermissible con-

flicts due to concurrent representation both (1) of pre-

sent asbestos claimants and the Class of future

claimants and (2) of purported conflicting subgroups

within the class.

a. Alleged conflict between present claimants

and the class

The intervenors contend that class counsel by simul-

taneously representing both present claimants and the

class of future claimants represented clients who were

directly competing for Fibreboard’s limited resources.

The district court found that during the negotiations no

conflict existed that materially limited counsel's respon-

sibilities to the future claimant class.

In analyzing whether a conflict existed, both Pro-

fessor Hazard and the guardian ad litem appointed for

the futures class, Professor Eric D. Green, divided the

three-year negotiations period into smaller discrete time

periods: (1) Early 1991 throug): April 9, 1993; (2) April 9,

1993, through August 9, 1993; (3) August 9, 1993, through

August 27, 1993; (4) August 27, 1993, through October 12,

1993; and (5) October 12, 1993, through December 23,

1993.

A-27

(i) Early 1991 through late March 1993

Most of the settlement discussions until late March,

1993 were between only Fibreboard and class counsel.

The Insurers did not participate. These exploratory dis-

cussions focused on a possible settlement with both

present and future claimants combined in an opt-out

class. Fibreboard was stiil seeking to settle by assigning

its insurance rights to the class. During this time, Fibre-

board continued to settle various law firms’ “invento-

ries” of present claims, including claims with the law

firms of the four class counsel. Again, ribreboard

accomplished these settlements by assigning its insur-

ance rights against Continental and Pacific; thus, these

settlements were contingent on a favorable decision for

Fibreboard in the California coverage case.

During this period, Fibreboard executed the initial

Ness Motley agreement which settled approximately

20,000 inventory claims with the Ness Motley firm. This

agreement required Fibreboard to obtain Continental's

consent to this assignment of insurance rights or to

seek a court order approving the assignment. In Jan-

uary 1993, Fibreboard filed suit against Continental in

the Eastern District of Texas to obtain the court order.

Professor Hazard testified that during this time period

no conflict existed between the present and future

claimants because all discussions o{ a global settlement

included both groups and both groups shared the risk

of losing the coverage case. If coverage was found and if

assignment was not a breach of contract, then the

insurance policies of Continental and Pacific offered

potentially unlimited coverage.

(ii) April 1993 through August 9, 1993

In March 1993 Continental joined the negotiations and

Judge Parker appointed Judge Higginbotham as a settle-

ment facilitator. In an April 9, 1993 agreement, Fibre-

board agreed to stop executing assignment settlements

and Continental agreed to work toward a global settle-

A-28

ment of all present and future claimants, including both

pre- and post-1959 exposed claimants. But Continental

insisted that the settlement be a mandatory, non-opt-

out class and that Pacific contribute to the total settie-

ment fund. Class counsel began to consider a

mandatory class, but only if the settlement proceeds

were adequate to insure fair restitution to present and

future claimants and if a back-end opt-out provision was

included. During this period, Continental filed suit in

the Eastern District of Texas against both Pacific and

Fibreboard seeking a declaration that the Pacific Agree-

ment did not impair Continental's contribution rights

against Pacific.

Fibreboard, now joined by Continental, continued

negotiations on inventory claims. Specifically, Fibre-

board and Continental began negotiations with the Ness

Motley firm on a revised Ness Motley agreement. The

parties succeeded in reaching the Substitute Ness

Motley Agreement on August 5, 1993. Generally, Conti-

nental agreed to a higher-than-average value per claim

with one-half due at closing and the remainder con-

tingent on the outcome of the coverage case or on

the existence of a settlement. Other inventory settle-

ments were modeled after the Substitute Ness Motley

Agreement.

Now that Fibreboard’s suit against Continental con-

cerning the initial Ness Motley agreement was settled,

Continental sought an immediate trial of its suit against

Fibreboard and Pacific. Continental's primary objective

was to motivate Pacific to join the global settlement

negotiations.

The intervenors argue that an impermissible conflict

existed because the Ness Motley counsel were simulta-

neously negotiating for both present claimants (the

inventory claims) and the class of future claimants. Pro-

fessor Hazard testified that the present and future

claimants were not competing for the same funds. At

this stage of the negotiations, counsel were concen-

A-29

trating on the settlement of their inventory of present

claims. It is true that they were also discussing a global

settlement, but these discussions were in the prelimi-

nary exploratory stage. Certainly, at this time, counsel

had no well-formed notions of how much Continental

was willing to pay to settle the future claims." For this

reason, Professor Hazard explained that each attorney

in good faith was attempting to obtain the maximum

dollar amounts for present claimants he represented, as

well as for the future claimants. Counsel certainly knew

in a general way that there was a sum beyond which

Continentai would not pay. But because they did not

know that limit, they did not know that this limit would

be less than an amount they were willing to accept in

settlement for both classes of claimants.” As the dis-

trict court found, the Substitute Ness Motley Agreement

likely aided the global settlement by increasing the

average value per claim. We are persuaded that the

record supports the district court's conclusion that

class counsel vigorously represented both the present

claimants and their future claimant clients against the

same defendant.

ll As Professor Hazard testified:

Q. Well, to your knowledge, did the reality ever occur here

to the plaintiff's lawyers that there would not be

enough money to pay all future claimants?

A. They confronted a situation-in which there was an

external event creating a severe risk that that could

happen. If Fibreboard won the a. litigation

qualification as to the extent of ry

then there was enough money to the extent of the

insurance resources, which I take it for prac-

tical [sic] without limit; that is they would

have to policyholders to pay the money,

but presumably if they stayed in the business they

could do that.

12. Professor Hazard discussed the difference between the real-

world of conflict of interest with the imaginary concept of

ppronetheem 2h

(concluded on page A-30)

A-30

(iii) August 9, 1993, through August 27, 1993

On August 9, 1993, on the recommendation of Judge

Higginboth»™, the district court appointed Messrs.

Rice, Cox, Kazan, and Wartnick to negotiate the

prospect of a settlement class composed of future

claimants. The court knew that this settlement would

have to be reached before the decision in the coverage

case, which was expected on August 27, 1993. The court

felt compelled due to this severe deadline and to the

complexity of the issues to appoint only highly compe-

tent and experienced attorneys who understood

asbestos litigation. Professor Leubsdorf testified that

the court should have required all class counsel to

settle their present claims for cash or should have

appointed other counsel. The district court did not err

in concluding that this suggestion was impractical and

would have seriously impeded any settlement.

From August 9, 1993, to August 27, 1993, appointed

counsel negotiated a global settlement. On August 22,

1993, Continental and Pacific reached an agreement to

settle their dispute, vastly improving the odds of a

(continued from page A-29)

Q. That's your opinion, whether or not there’s an ethical

violation

him to say the circumstances. That is, the conflict of

A-31

global settlement. The district court found that all nego-

tiations during this time were vigorous, contentious,

and at arm's length. Professors Hazard and Green both

testified that the future claimants were not impaired by

counsel’s representation of present claimants during

this period. Indeed, they found that the present

claimants had a substantial interest in a global settle-

ment because such a settlement would secure their con-

tingent back-end payments under the Substitute Ness

Motley Agreement. Class counsel were also aware that

any class settlement must be approved by the court

and would face meticulous scrutiny. Thus, the present

and future claimants had two common interests in

reaching a settlement. First, they both wanted to avoid

the risk of Fibreboard losing the coverage case. Second,

they both wanted a diligently negotiated settlement: the

future claimants wanted the settlement that yielded

them maximum dollar recovery; the present claimants

wanted a settlement that would withstand intense judi-

cial scrutiny.

(iv) August 27, 1993, through October 12, 1993

From August 27, 1993, after announcing the Global Set-

tlement Agreement in principle in open court, until

October 12, 1993, when the Trilateral Settlement Agree-

ment was reached, class counsel conducted no negotia-

tions on the terms of the Global Settlement Agreement.

On October 12, 1993, the district court appointed Pro-

fessor Green as the guardian ad litem of the futurer

class.

(v) October 12, 1993, through December 23, 1993

From October 12 to December 23, 1993, when the

Globa! Settlement Agreement was executed, the settling

parties negotiated the specific terms of the agreement.

By this time, the Trilateral Settlement Agreement had

already been executed and would have triggered the

back-end payments for the present clients in the Ness

Motley or similar agreements even if the global settle-

A-32

ment failed. Thus, the present clients’ settlement was

secured and they no longer had an interest in a global

settlement. The record supports the district court's

finding that the negotiations during this period were

vigorous and that the class was adequately represented.

Thus, the district court considered the intervenors'

conflicts argument for the entire time the settlement

negotiations were underway and found that, at no time,

did a material limitation on the representation of the

class by class counsel exist due to concurrent represen-

tation of present and future claimants. The court did

not err in reaching this conclusion.

b. The aileged intraciass conflicts

On appeal, the intervenors assert only two claims of

intraclass conflict: (1) interests of class members who

presently have an asbestos-related illness (the “near”

futures) and members whose iliness will not be

apparent for many years (the “far” futures); and

(2) interests of class members exposed pre-1959 and

members having only post-1959 exposure.

Whether a conflict exists is governed by Rule 1.7(b)

as discussed above. Not every intraclass conflict, how-

ever, will preclude approval of the settlement for inade-

quate representation. See Container J, 643 F.2d at 207-08.

The district court found that neither subclasses nor

separate negotiating attorneys were required because

no material intraclass conflict existed. The court found

the common interests far outweighed any divergent

interests the intraclass groups might have. The court

enumerated those common interests as follows:

avoiding the catastrophic results of a loss by Fibre-

board in the coverage case appeal; maximizing the total

settlement contribution from Fibreboard and the

Insurers; streamlining the procedures for the filing, pro-

cessing, and resolution of claims, thereby reducing

transaction costs and delays in compensation; mini-

mizing the percentage of their compensation diverted

A-33

from the fund to pay attorney's fees; and adopting pro-

cedures that provide for payments to claimants in an

equitable manner.

Intervenors suggest two intraclass conflicts. First,

they argue that the “near” futures would prefer a settie-

ment agreement that places no limits on the amount an

individual may recover because these claimants do not

anticipate that Fibreboard’s assets will be depleted

before their claims mature. The “far” futures, on the

other hand, would prefer to limit individual claims to

conserve funds so that resources will be available to

pay for their future illnesses.

Professors Hazard and Green found no conflict

between these two groups that would materially impair

the performance of class counsel. Specifically, each

found that the common interest in avoiding a lack of

coverage vastly overwhelmed any differences between

these groups. The “near” futures have no assurance that

they would fare better in the absence of the Global Set-

tlement Agreement. These claimants would face the risk

that Fibreboard would live up to its pledge to actively

defend any claims and delay any recovery. These

claimants would also face the risk of attrition of avail-

able funds from increased legal fees. Under the Global

Settlement Agreement the entire class is benefited by

the greater likelihood that funds will be available to

compensate both “near” and “far” future claimants

under a less complicated system.

The intervenors rely on /n re Joint Eastern & Southern

District Asbestos Litigation (Findley), 982 F2d 721 (2d Cir.

1992) to support requiring subclasses for the “near” and

“far” futures. In a settlement trying to save the Manville

Trust from insolvency, the Second Circuit held that sub-

classes were required for a Rule 23(b)(1)(B) non-opt-out

class because of clear conflicts between class members.

More particularly, the Second Circuit did require sub-

classes for groups comparable to our “nwar” futures and

A-34

“far” futures. But the terms of the Manville Trust

required that conclusion: significantly, the Second Cir-

cuit opinion makes it clear that a “near” future claimant

was assured of recovery under the Manville Trust

instrument if the claim was filed before the Trust ran

out of money because the Trust operated on a strict

order-of-filing priority. The settlement abandoned this

priority to the prejudice of the near futures. Counsel, in

negotiating such a settlement, had a clear conflict

between the “near” futures whose recovery rights were

secure and the “far” futures who had no such security.

As explained above, our “near” future claimants without

the Global Settlement Agreement are not assured of a

priority payment and have no assurance that funds will

be available or when funds can be obtained if they are

required to litigate with Fibreboard.

Next, intervenors argue that counsel could not repre-

sent claimants who were exposed before 1959 and after

1959 in negotiating a global settlement. They contend

that this conflict exists because a pre-1959 exposure

claimant's case has a higher settlement value than a

post-1959 exposure claimant's. This is premised on the

argument that pre-1959 claimants have a greater likeli-

hood of available insurance coverage because both Con-

tinental and Pacific insurance policies covered only

pre-1959 asbestos exposure. The Intervenors recognize

that the Pacific Agreement gave Fibreboard $330 million

to use in post-1959 claims. They argue however that

Continental affords petential unlimited fund coverage to

the pre-1959 claimants.

Professors Hazard and Green both found no substan-

tial conflict between pre- and post-1959 claimants. Both

pre- and post-1959 claimants share the common class

interests recited above. Neither the Substitute Ness

Motley Agreement, the Trilateral Settlement Agreement,

nor the Global Settlement Agreement distinguish

between these two groups of claimants in any way. To

distinguish between the two groups in the Global Settle-

A-35

ment Agreement was impractical because the class had

no chance of persuading Fibreboard to agree to a settle-

ment that did not address the claims by both groups.

Also, to maintain the distinction in the Global Settle-

ment Agreement would have undermined the attempts

to provide maximum compensation and an efficient,

streamlined process to claimants.

The district court made the following findings of fact:

(1) all negotiations were vigorous and at arm’s length,

often conducted under the auspices of Judge Higgin-

botham; (2) common interests within the ciass over-

whelmed minimal conflicts; (3) the settlement treated

all class members the same; and (4) the Global Settle-

ment Agreement was fair and reasonable, a finding that

the intervenors have not appealed. The independent

guardian ad litem also found that class counsel had no

conflicts and that the Global Settlement Agreement was

fair and reasonable and was the best alternative avail-

able. The district court did not abuse its discretion in

finding that the class was adequately represented and

that subclasses were not required.

B. CERTIFICATION UNDER 23(B)(1)(B)

We turn next to the intervenors’ challenge to class

certification under 23(b)(1)(B).

Rule 23(b) states that where the prerequisites of

23(a) are met, a class action may be maintained if

(1) the prosecution of separate actions by or

against individual members of the class

would create a risk of

(B) adjudications with respect to indi-

vidual members of the class which

would as a practical matter be disposi-

tive of the interests of the other mem-

bers not parties to the adjudications

A-36

or substantially impair or impede their

ability to protect their interests.

Fed.R.Civ.P. 23(b).

The district court found that the prosecution of sepa-

rate actions by members of the Global Health Claimant

Class would substantially impair or impede the ability

of other members of the ciass to receive full payment

for their injuries from Fibreboard’s limited assets. This

finding has strong support in the record and is not

clearly erroneous. The district court heard expert testi-

mony on the probable number, mix and timing of future

asbestos personal injury claims against Fibreboard, the

anticipated costs of defense relating to such claims, and

the present value of Fibreboard's non-insurance assets.

The experts agreed that Fibreboard faced enormous lia-

bility and defense costs that would likely equal or

exceed the amount of damages paid out. More impor-

tantly, these experts testified that even under the Tri-

lateral Settlement Agreement where Fibreboard is given

$2 billion in insurance money to add to its own value of

approximately $235 million, Fibreboard would be

unable to pay all the valid claims against it within five

to nine years. The district court credited the testimony

of these experts and found that Fibreboard is a limited

fund.

I. Rule 23(b)(1)(B) and the Bankruptcy Code

The intervenors argue that if the reason Fibreboard is

a limited fund is because it will become insolvent

before it pays all claims, then the Global Settlement

Agreement is an impermissible attempt to circumvent

bankruptcy proceedings and bankruptcy's absolute pri-

ority rule.’ This argument fails to consider (1) deci-

sions of other courts which have certified 23(b)(1)(B)

13 The absolute priority rule requires that more senior creditors

(such as tort creditors) be paid in full before junior claimants (such

as shareholders) receive any distribution from an insolvent company.

A-37

classes because the claims of the class would bankrupt

the defendant, (2) the significance of Fibreboard’s settle-

ment with its insurers in driving the Global Settlement

Agreement, (3) the plain meaning of Rule 23, and (4) the

nonexclusivity of the Bankruptcy Code and its inferi-

ority to a 23(b)(1)(B) class action in the instant case.

Other courts have uniformly found that, in appro-

priate and limited circumstances, potential or probable

insolvency of a defendant can create a limited fund

appropriate for adjudication under Rule 23(b)(1)(B).

The Second Circuit, in /n re Joint Eastern and Southern

District Asbestos Litigation (Findley), upheld the district

court's conclusion that the likely insolvency of the

Manville Trust rendered it a limited fund and qualified it

for treatment under Rule 23(b)(1)(B). 982 F.2d 721, 739

(2d Cir. 1992) (cited with approval in /n re Joint Eastern

and Southern District Asbestos Litigation (Findley), 78

F3d 764, 777-79 (2d Cir. 1996)). In Jn re Drexel Burnham

Lambert Group, Inc., 960 F.2d 285 (2d Cir. 1992), the

Second Circuit approved a 23(b)(1)(B) class action on

the ground that individual litigation would reduce the

recovery for all plaintiffs from Drexel’s limited assets. /d.

at 292. See also, In re Joint Eastern and Southern District

Asbestos Litigation (Eagle-Picher Industries), 134 FR.D. 32,

34 (E. & S.D.N.Y. 1990); Coburn v. 4-R Corporation, 77

ER.D. 43 (E.D. Ky. 1977).

In fact, even courts that have refused to certify

23(b)(1)(B) classes have done so on the ground that

the parties seeking class certification have failed to pre-

sent sufficient evidence that the assets of the defendant

are insufficient to pay the claims against it. See /n re

Temple, 851 F2d 1269, 1272 (ilth Cir. 1988); /n re School

Asbestos Litigation, 789 F2d 996, 999 (3d Cir. 1986); In re

Bendectin Products Liability Litigation, 749 F2d 300, 305-

06 (6th Cir. 1984); In re Northern District of California

Datkon Shield IUD Products Liability Litigation, 693 F.2d

847, 852 (9th Cir. 1982); Green v. Occidental Petroleum

Co., 541 F2d 1335, 1340 n.9 (9th Cir. 1976); In re “Agent

A-38

Orange” Product Liability Litigation, 100 ER.D. 718 (E.D.

NY. 1983); Payton v. Abbott Labs, 83 F.R.D. 382, 389 (D.

Mass. 1979).

In support of their claim that any 23(b)(1)(B) limited-

fund action based on a defendant’s insolvency is an

improper circumvention of the Bankruptcy Code, the

intervenors can rely only on dicta from /n re Joint East-

ern and Southern District Asbestos Litigation (Keene), 14

F.3d 726 (2d Cir. 1993)." The intervenors’ conclusion is

contrary to the overwhelming majority of court deci-

sions on this issue, ignores crucial facts in both Ahearn

and Keene and reads Keene in a way that creates an

intra-circuit split in the Second Circuit.

Ahearn’s Global Settlement Agreement was undisput-

edly driven by insurance coverage litigation between

Fibreboard and its insurers which created a serious risk

for all parties to the agreement. The Global Health

Claimant Class and Fibreboard faced the real possibility

that Fibreboard would be insolvent simply on the basis

of claims already settled. The Insurers, on the other

hand, faced the possibility of virtually unlimited liability

for damage caused by Fibreboard asbestos. This pres-

sure, felt by all parties to the global settlement, is what

finally brought them together on the eve of the cov-

erage case appeal. The unique risks posed by the cov-

erage cases distinguish Ahearn from a blatant attempt

to circumvent the Bankruptcy Code such as occurred in

Keene.

The facts of Keene further distinguish it from our

case. First, an already weak Keene attempted to avoid

impending bankruptcy by asking the court to coerce its

tort victims to settle claims in a court where no claims

14 Notwithstanding the Keene court’s gratuitous discussion of its

concerns about use of a class action to circumvent bankruptcy laws,

the court’s holding is that the case was properly dismissed because

the plaintiff-manufacturer had no cognizable claim against the

defendant class members. Keene, 14 F.3d at 733.

A-39

were filed against Keene. Second, Keene attempted to

utilize the 23(b)(1)(B) injunction to halt pending actions

in other courts. Third, and most importantly, Keene's

complaint was dismissed on the ground that it failed to

present the court with any case or controversy because

it requested only that the court compel all plaintiffs in

suits against Keene to appear and negotiate.

Ahearn by comparison, presents us with claims

against a healthy company for personal injuries and a

proposed settlement of those claims. Ahearn presents

no danger that Fibreboard may simply be abusing this

proceeding to delay other actions or to improve its

negotiating position with present claimants because it

only enjoins future proceedings, not those already

pending. We agree with the Keene court that under the

facts presented to it, a 23(b)(1)(B) action was not

appropriate. We also agree that, in the vast majority of

cases, the Bankruptcy Code should govern the distribu-

tion of an insolvent entity's assets. However, where con-

cerns such as the risk of an adverse judgment in the

coverage litigation support an early resolution of the

claims against an entity and all parties can benefit from

a settlement under Rule 23(b)(1)(B), we see no legal or

policy reason to deny the parties this benefit. The

essential basis of any settlement is to avoid the uncer-

tainty, risks, and expense of ongoing litigation. In our

case, the risks facing Fibreboard, the Insurers, and the

health claimants as a result of the California coverage

litigation were real and enormous. Holding that the

bankruptcy laws require the parties to wait until cata-

strophe befalls one or more of them as a result of the

California litigation would be a denial of justice to the

parties before us and unwarranted by the law.

The intervenors’ argument that all 23(b)(1)(B) limited-

fund actions based on the insolvency of the defendant

are improper ignores the special circumstances pre-

sented by Ahearn and certifications by other courts. In

light of the Findley and Drexel decisions, also from the

AAO

Second Circuit, which allow 23(b)(1)(B) actions where

the defendant's insolvency creates a limited fund, we

decline to read Keene so broadly as to bar all such

23(b)(1)(B) settlements.

The plain meaning of Rule 23 also supports a finding

that the insolvency of a defendant can support a

23(b)(1)(B) class action. The rule clearly does not dis-

tinguish between limited funds which assume insol-

vency of the defendant and limited funds such as

proceeds of an insurance policy which constitute the

entire fund from which plaintiffs may recover. It allows

class actions whenever “the prosecution of separate

actions by or against individual members of the class

would create a risk of ... (B) adjudications with respect

to individual members of the class which would as a

practical matter ... substantially impair or impede their

ability to protect their interests.” Fed.R.Civ.P. 23(b)(1).

Insolvency of the defendant undoubtedly impairs the

ability of latecomers to receive full payment for their

claims and was explicitly considered by the Advisory

Committee in proposing the rule in its current form. In

its Note to the 1966 Amendment to Rule 23, the Advi-

sory Committee concludes that a limited-fund class

action is appropriate in actions by creditors “when the

debtor's assets are insufficient to pay all creditors’

claims.” Fed.R.Civ.P. advisory committee's note. This

explicit reference to use of a 23(b)(1)(B) action when

the debtor is insolvent offers further support for the

proposition that insolvency is an appropriate basis for a

limited-fund class action.

Further, the express language of the Rule compels a

flexible construction. Rule 23(b)(1)(B) authorizes class

certification where there is a “risk” that separate adjudi-

cations “as a practical matter” would “substantially

impair or impede” the interests of the class. The rule

does not require proof to a certainty that the defendant

faces insolvency.

AAl

The Bankruptcy Code allows courts to dismiss or sus-

pend bankruptcy proceedings where superior alterna-

tives to the code are available. See 11 USC. § 305(a)(1).

This concession to the possibility of other proceedings

to distribute an insolvent debtor's assets reveals that

Congress understood that, at least some of the time,

the terms and principles of the Bankruptcy Code would

be circumvented by debtors and creditors who found

superior methods of asset distribution. See also H.R.

Rep. No. 95-595, 95th Cong., Ist Sess. 325 (1977); S.Rep.

No. 95-989, 95th Cong., 2d Sess. 35 (1978), U.S. Code

Cong. & Admin.News 1978, pp. 5787, 6281.

Ahearn presented the district court with a superior

alternative to the Bankruptcy Code and did so long

before any bankruptcy court would have had jurisdic-

tion over Fibreboard’s assets. Indeed, one of the most

important facts of this case is that, in spite of the threat

posed by future personal injury litigation, Fibreboard is

currently solvent and healthy. In the short term, no

trade or tort creditor has the ability or the incentive to

force Fibreboard into a Chapter 11 reorganization. It is

also clear that shareholders and management, who

stand to lose equity and/or employment if Fibreboard

enters bankruptcy proceedings, will refuse to file a vol-

untary petition at least until the coverage dispute is

resolved against it. That, of course, would be too late

for the Global Health Claimant Class.

Even in the unlikely event that Fibreboard could be

persuaded to file a voluntary bankruptcy petition, the

Global Health Claimant Class would be worse off than it

is under the Global Settlement Agreement. Under the

Bankruptcy Code, representation for the class may not

be available at all and courts that have allowed repre-

sentation of future tort claimants have left them in an

uncertain position that falls short of full “creditor”

status. Additionally, full-blown bankruptcy proceedings

15 See In re Amatex Corp., 755 F.2d 1034, 1042 (3d Cir. 1985); in

re Johns-Manville Corp., 36 B.R. 743 (Bankr. S.D.N.Y. 1984); In re

(concluded on page A42)

A-A2

would bring in all of Fibreboard’s other creditors and

impose large transactions costs on Fibreboard that, ulti-

mately, would come out of any distribution. See Edward

I. Altman, A Further Empirical Investigation of the Bank-

ruptcy Cost Question, 39 J.Fin. 1067, 1077 (1984). In stark

contrast to the uncertain and weak position afforded

future tort claimants under the Bankruptcy Code, the

plaintiff class and its representatives in Ahearn had center

stage and ran no risk of encountering a cram-down reorga-

nization approved only by trade creditors and rammed

through over the objections of class representatives.

To the extent intervenors are arguing that certifica-

tion is improper because Fibreboard fares better under

the class action settlement than under a bankruptcy

proceeding, we find their focus misplaced. The inquiry

instead should be whether the class is better served by

avoiding impairment of their interests. Fibreboard is

clearly acting in its own interest in consummating the

Global Settlement Agreement and thereby avoiding

future insolvency. But the Global Settlement Agreement

also serves the interests of the Global Health Claimant

Class. Early settlement allows the class to recover far

more as a group than it could if it was forced to wait

until Fibreboard enters bankruptcy on its own and

encounters the high transaction costs of insolvency. See

Mark J. Roe, Bankruptcy and Mass Tort, 84 Colum. L.Rev.

8846, 851-64, 905-17 (1984) (advocating early reorganiza-

(continued from page A41)

UNR Indus., 29 B.R. 741, 745 n.4 (Bankr. N.D. Ill. 1983). The

inability or refusal of the bankruptcy courts to place Global Health

Claimant Class members on equal footing with other creditors of

Fibreboard and the indeterminance of the “party in interest” cate-

gorization that the class would receive if its claims were

at all in bankruptcy have been widely criticized. See e.g. Anne

Hardiman, ee ea te ce ee ye tga

Future Claims, 38 Vand. L.Rev. 1369, 1395-96 (October 1985); Kevin

H. Hudson, Catch-23(b)(1)(B): The Dilemma of Using the Mandatory

Class Action to Resolve the Problem of the Mass Tort Case, 40 Emory

L.J. 665, 693-95 (Spring 1991).

AA3

tions because they avoid the waste of insolvency and

distribute more to victims, but noting that no one with

the ability to push the mass tortfeasor into an early

reorganization has the incentive to do so). Precisely

because it avoids the enormous transactions costs of

litigation and insolvency, the Global Settlement Agree-

ment can offer a deal from which all parties gain. Mem-

bers of the Global Health Claimant Class receive more

money in payment for their injuries and Fibreboard’s

shareholders keep their stake in a viable entity. The

only loser under the Global Settlement Agreement is the

asbestos litigation industry.

For all of these reasons, we find that the district

court's decision to certify Ahearn as a 23(b)(1)(B) class

action is an appropriate interpretation of Rule 23 that

does not conflict with the Bankruptcy Code and

upholds the principles of equity and fairness.

2. Jurisdictional and due process considerations

in 23(b)(1)(b) class actions

The intervenors next argue that the district court

cannot exercise jurisdiction over class members who do

not have minimum contacts with the Eastern District of

Texas and that due process requires that Global Health

Claimant Class members be allowed to opt out of the

class. Both of these arguments are based on language

from the Supreme Court decision Phillips Petroleum Co.

v. Shutts, 472 U.S. 797, 105 S.Ct. 2965, 86 L.Ed.2da 628

(1985). In Shutts, the Supreme Court held that a Kansas

state court could bind absent plaintiff members of the

class in a “common question” class action brought

under a state rule virtually identical to 23(b)(3) only if

the plaintiffs were provided with “minimal procedural

due process protection,” including the right to opt out.

Id. at 811-12, 105 S.Ct. at 2974. However, the Court specifi-

cally limited its holding to

class actions which seek to bind known plaintiffs

concerning claims wholly or predominantly for

money judgments. We intimate no view concern-

A-44

ing other types of class actions such as those

seeking equitable relief.

id. at 811 n.3, 105 S.Ct. at 2974 n.3 (emphasis added).

The limitation of Shutts to claims of known plaintiffs

that are predominantly for money damages forecloses

application of its holding to 23(b)(1)(B) actions which

have always been equitable and often involve unknown

plaintiffs. See Newberg & Conte, ] Newberg on Class

Actions § 1.18.

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 lim-

ited-fund class action is an equitable and unitary dispo-

sition of a fund too small to satisfy all claims. See

Fed.R.Civ.P. 23 advisory committee's note. Unitary adju-

dication of a limited fund is crucial because allowing

plaintiffs to sue individually would make the litigation

“an unseemly race to the courtroom door with mone-

tary prizes for a few winners and worthless judgments

for the rest.” Coburn v. 4-R Corp., 77 ER.D. 43, 45 (E.D. Ky.

1977). Limited-fund class actions effect a pro-rata reduc-

tion 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 dam-

ages that claimants can ultimately receive. /n 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 US. 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

A-45

interests of absent parties who are to be bound

by it.

Id. at 42, 61 S.Ct. at 118. See also Shutts, 472 US. 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. Sub-

sequent 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.RCiv.P. 23).

Actions under Rule 23(b)(1)(B) are precisely the type

of limited circumstances noted by Martin where “equi-

table circumstances dictate the need for a unitary adju-

dication regardless of the individual consent of the

parties affected.” Newberg and Conte, / Newberg on

Class Actions § 1.22 at 1-51. As a result, due process

requires only that all parties bound by the Global Set-

tlement Agreement were adequately represented. We

have already concluded that they were.®

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

16 Opt-out class actions were unheard of before the 1966

amendments to the Federal Rules of Civil Procedure created the

Rule 23(b)(3) opt-out class action. The intervenors would have us

read Shutts to mean that all class actions involving money claims

under Rule 23(b)(1) or (2) are unconstitutional. If the Supreme

Court had intended to so hold, it surely would have been more

explicit given the ancient history of the mandatory class action, over

a hundred years of precedent upholding the constitutionality of

such classes, the relatively recent development of the “opt-out”

class action, and the strong presumption that the Federal Rules of

Civil Procedure are constitutional.

A-46

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, min-

imum contacts or consent to jurisdiction are not neces-

sary in equitable class actions. Newberg and Conte, /

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 Con-

sent 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 defi-

nition, could not give consent to jurisdiction. Mullane v.

Central Hanover Bank & Trust Co., 339 US. 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 US. at 311-13, 70 S.Ct. at 655-57; /n re Joint

Eastern and Southern Dist. Asbestos Litigation (Findley),

878 FSupp. 473, 478, 562 (E. & S.D.NY. 1995); Jn re Joint

Eastern and Southern Dist. Asbestos Litigation (Eagle-

Picher), 134 ER.D. 32, 38 (E. & S.D.NY. 1990). Cf. In re Fed-

eral Skywalk Cases, 680 F2d 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., Jn re Drexel

Burnham Lambert Group, Inc., 960 F.2d 285, 292 (2d Cir.

1992); In re Joint Eastern and Southern Dist. Asbestos Liti-

gation (Eagle-Picher), 134 F.R.D. 32, 38 (E. & S.D.NY.

1990); Coburn v. 4-R Corp., 77 ER.D. 43 (E.D. Ky. 1977).

A-47

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 ade-

quately represented before it. Smith v. Swormstedt, 57

US. (16 Howard) 288, 302, 14 L.Ed. 942 (1853).

Finally, the intervenors complain that the Global Set-

tlement 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 resoives this

controversy by settling the insurance coverage litiga-

tion, capping the amount recovered by individual plain-

tiffs 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 court-

house 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 con-

tract asbestos-related diseases is not supportable and

has been widely rejected. See /n re Johns-Manville Corp.,

36 B.R. 743, 749 (Bankr. S.D.N.Y. 1984); Carlough v.

Amchem Products, Inc., 10 F3d 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

A-48

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.

C. OTHER OBJECTIONS

1. “Friendly” suit

The intervenors assert that Ahearn was a collusive or

“friendly” suit in contravention of the “case or contro-

versy” requirement of Article Ill 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 repre-

sentatives 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 Ill requires that

the parties be truly adverse. United States v. Johnson,

319 US. 302, 63 S.Ct. 1075, 87 L.Ed. 1413 (1943). This re-

quires a continuing controversy, Preiser v. Newkirk, 422

US. 395, 401, 95 S.Ct. 2330, 2334, 45 L.Ed.2d 272 (1975),

and an “honest and actual antagonistic assertion of

rights.” Johnson, 319 US. at 305, 63 S.Ct. at 1076 (quoting

Chicago & Grand Trunk Ry. Co. v. Wellman, 143 US. 3339,

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 adver-

sarial nature of the disputes which the settlement

A-49

resolves and does not contradict the district court’s

finding that settlement negotiations were heated, diffi-

cult 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 US. 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 unsupport-

able and has also been rejected. See Carlough v.

Amchem Products, 10 F.3d 189, 201 (3d Cir. 1993) (adopt-

ing the reasoning of the district court’s October 6, 1993

opinion in Carlough v. Amchem Products, Inc., 834 FSupp.

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 inter-

venors’ assertions to the contrary have no support in

the record. The district court found that the negotiation

process was slow, contentious and fraught with dis-

agreements on serious issues. Its exhaustive findings of

fact detail the parties’ initial positions and their slow

A-50

movement toward a settlement that offers a fair com-

promise of their various claims.

The complaint that Fibreboard handpicked the plain-

tiffs’ 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 negoti-

ations 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 negotia-

tions with a group of highly experienced, top-notch

plaintiffs’ attorneys in order to craft a global settlement

suggests that Fibreboard warited a fair settlement that a

court was likely to approve.

2. Recusal of Judge Parker

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 con-

ducted a fairness hearing on the same settlement. We

review Judge Steger’s decision for abuse of discretion.

In re Hipp, 5 F3d 109, 116 (Sth 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 par-

tiality stems from a source other than a judicial pro-

ceeding, a judge must recuse himself if “a reasonable

VE a

a"

A-51

and objective person, knowing all of the facts, would

harbor doubts concerning the judge’s partiality.” United

States v. Jordan, 49 F3d 152, 155 (Sth 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 negotia-

tions 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 settle-

ment 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."" 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.

17 The district court also rejected the intervenors’ motion under

28 U.S.C. § 144. This statute requires that a party submit an affi-

davit alleging facts that, if true, would convince a reasonable person

that bias exists. However, “{a] court may not grant relief under

§ 144 if a party’s counsel instead of the party executes an affidavit

alleging personal bias or prejudice.” Pomeroy v. Merritt Plaza Nursing

Home, Inc., 760 F.2d 654, 658-59 (5th Cir. 1985) (citations omitted).

The only affidavit before the district court was submitted by

counsel for the Flanagan intervenors, Leonard Jacques, and there-

fore did not qualify for relief under § 144. The district court's error

in considering the recusal motion under § 144 was harmless in any

event because the court properly concluded that even if the facts in

the affidavit were assumed true, a reasonable person would find

that no bias exists.

A-52

3. Plant Insulation Company

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 F2d 554 (5th Cir. 1993). See also,

Edwa. ds v. City of Houston, 78 F.3d 983 (Sth Cir. 1996) (en

banc) (unions had no standing to appeal the court’s

final judgment because they never became named par-

ties or intervenors in the suit). Accordingly we dismiss

Plant's appeal for lack of standing.”

4. Other objections of the Flanagan inter venors

The Flanagan intervenors raise several more objec-

tions 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

18 Two other would-be appellants also lack standing under this

rule. However, we need not dismiss their appeals for lack of

standing because they are dismissed on other grounds.

On March 25, 1996, Jeffrey Mack Chapin filed notices of appeal

complaining of orders entered in Ahearn and Rudd. These notices

of appeal which were consolidated into Ahearn and Rudd were

untimely and are therefore dismissed.

Kenneth Smith has also filed notices of appeal complaining of

the orders in Ahearn and Rudd. Smith’s notices of appeal have also

been consolidated into Ahearn and Rudd and are dismissed due to

Smith’s failure to pay the docketing fee and failure to file an appel-

late brief.

A-53

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 dam-

ages). 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 dis-

trict court improperly used defendant classes. They

argue that defendant classes are only appropriate in

cases where defendants are guilty of egregious miscon-

duct. 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 F2d 906, 911-13 (9th Cir.

1981) (defendant class of Yurok Indians on counter-

claims seeking declaration eliminating alleged Indian

treaty rights in land held by lumber and mining com-

pany); Board of Regents of University of Nebraska v.

Dawes, 522 E2d 380, 381 (8th Cir. 1975) cert. denied, 424

US, 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 FSupp. 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).”

19 The Flanagan intervenors also argue that claims which Fibre-

board already knew about (those of Mr. Jaques’ clients) cannot be

(concluded on page A-54)

A-54

Ii

RUDD

In addition to the claims addressed above, the

Flanagan intervenors make several objections specific

only to Rudd.”

A. FIBREBOARD AS

AN INDISPENSABLE PARTY

The Flanagan intervenors argue that the Rudd action

must be dismissed for lack of an indispensable party,

Fibreboard.”* Although they failed to raise this issue in

(continued from page A-53)

“future claims” simply because they were not filed before the set-

tlement was reached. This objection is asserted without any basis

in law and fails to explain how claims which have not yet been

filed could be anything other than “future claims” in the eyes of a

court.

The Flanagan intervenors also claim that they are appealing

the judgment entered in Ahearn which approves the Trilateral

Settlement Agreement as a fair settlement of the coverage litiga-

tion between Fibreboard and the Insurers. However, Flanagan

failed to raise this issue in his initial brief and has not demon-

strated that he has standing to challenge this judgment. On

appeal, this court will not reach issues not raised in the initial

brief. United Paperworkers Intern. U. v. Champion Intern., 908 F.2d

1252, 1255 (5th Cir. 1990). Additionally, Flanagan has failed to

demonstrate (or make any argument) that he is a proper party

to appeal the judgment approving the fairness of the settlement

of the coverage litigation between Fibreboard and the Insurers.

See Rohm & Hass Tex. v. Ortiz Bros. Insulation, 32 F.3d 205 (5th

Cir. 1994).

20 The Flanagan intervenors argue that Rudd was inappropri-

ately certified as a 23(b)(1)(B) class. We do not consider the merits

of this argument because the district court found, and we agree,

that the defendant class in Rudd could also be certified under

23(b)(2). None of the intervenors appeals the propriety of certifica-

tion under this provision.

21 Rule 19(b) requires a district court deciding the question of

indispensability to consider:

(concluded on page A-55)

A-55

the district court, we may still consider it on appeal.

United States v. Sabine Shell, Inc., 674 E2d 480, 482 (Sth

Cir. 1982). However, “failure to raise the issue of joinder

until this appeal mitigates against a finding in their

favor.” /d. 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 F2d 1162, 1166

(9th Cir. 1978), cited with approval in McCulloch v.

Glasgow, 620 F2d 47, 51 (Sth Cir. 1980). See also Judwin

Properties Inc. v. United States Fire Insurance Co., 973

F2d 432, 434 (Sth Cir. 1992) and Sabine Shell, 674 F2d

at 483.

Both the Trilateral Health Claimant Class and the Tri-

lateral 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 Fibre-

board. Thus, Rudd should not be dismissed for want of

an indispensable party.

(continued from page A-54)

first, to what extent a judgment rendered in the person's

absence might be prejudicial to the person or those

already ; second, the extent to which, by protective

provisions in the judgment, by the shaping of relief, or

other measures, the prejudice can be lessened or avoided;

third, whether a judgment rendered in the person's

absence will be adequate; fourth, whether the plaintiff

will have an adequate remedy if the action is dismissed

for nonjoinder.

Fed.Rule Civ.Proc. 19(b).

A-56

B. JusticiaBitiry OF THE Rupp CLAm

The Flanagan intervenors argue that the Rudd com-

plaint fails to state a cause of action or a “case or con-

troversy.” The Insurers in Rudd seek declaratory and

injunctive relief determining that (1) the Trilateral Set-

tlement 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 US. 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 US. 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 sub-

stantial controversy, between parties having adverse

legal interests, of sufficient immediacy and reality to

warrant the issuance of a declaratory judgment.” /d. 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

A-57

spend $2 billion on the Trilateral Settlement with Fibre-

board, the settlement could be challenged by asbestos

victims and third-party claimants, particularly if Fibre-

board 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 set-

tlement of the policy. See, e.g., Maryland Casualty Co.,

312 US. 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 NYS.2d 606, 608 (Ist 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 SW.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 Tri-

lateral Third-party Claimant Class asserting that the Tri-

lateral Settlement was unfair or fraudulent. A true

controversy existed.

The Flanagan intervenors also argue that the Trilat-

eral Settlement Agreement is effective only if the Ahearn

settlement is rejected. Flanagan argues that this contin-

gency precludes a finding that Rudd is an adjudication

A-58

of a “present right upon established facts.” Brown &

Root, Inc. v. Big Rock Corp., 383 F.2d 662, 665 (Sth Cir.

1967).

The Trilateral Settlement Agreement contains provi-

sions that become operative regardless of whether the

Global Settlement Agreement is ultimately approved or

disapproved; for example, the parties agree in the Trilat-

eral Settlement Agreement to compromise all Fibre-

board’s claims under the insurance policies not

previously released, including claims for property dam-

ages. The Global Settlement Agreement only refers to

personal injury claims filed against Fibreboard after

August 27, 1993. Therefore, the effectiveness of the Tri-

lateral Settlement Agreement is not wholly contingent

on the outcome in Ahearn.

Moreover, the case would be ripe even if the effective-

ness of the Trilateral Settlement Agreement were wholly

contingent upon the disapproval of the Global Settle-

ment Agreement. In Chevron U.S.A., Inc. v. Traillour Oil

Co., 987 F2d 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.” /d. at 1154. We found judicial resolution of

contingent claims is consistent with the purpose of the

Declaratory Judgment Act which is “to settle actual con-

troversies before they ripen into violations of law or

breach of some contractual duty.” /d. (quoting Hardware

Mutual Casualty Co. v. Schantz, 178 F2d 779, 780 (Sth Cir.

1949)).

In Rudd, the contingency that the global settlement

might not receive court approval or might be success-

fully attacked was a substantial possibility; the global

settlement was an innovative approach to unique cir-

cumstances. 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 agree-

A-59

ment to settle the coverage issue. Thus, we agree with

the district court that the Rudd complaint presented a

justiciable claim.

CONCLUSION

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 pos-

sible 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 chal-

lenges 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.

JERRY E. SMITH, Circuit Judge, dissenting:

I

INTRODUCTION.

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

A-60

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 jurisdic-

tion 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 sur-

render their claims in exchange for a meager $10 mil-

lion 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.”

On the other hand, the district court and the majority

have bailed Fibreboard’s shareholders out of a mam-

moth 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 attor-

neys, courts, and asbestos victims — the victims were

the only entity absent from the bargaining table. Per-

haps 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

1 John C. Coffee, Jr., Class Wars: The Dilemma of the Mass Tort

Class Action, 95 COLUM. L.REV. 1343, 1420 (1995).

A61

unending asbestos litigation. Having certified at least

two other high-profile asbestos class actions,” 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.’

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 judg-

ment 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 mem-

bers; and (2) this case is an affrcnt 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.

2 See In re Fibreboard Corp., 893 F.2d 706 (5th Cir. 1990) (grant-

ing writ of mandamus); Jenkins v. Raymark Indus., 782 F.2d 468 (5th

Cir

3 For example, certain of the appellants make much of a gath-

ering Chief Judge Parker arranged at his house during which,

allegedly, counsel — especially the insurers’ —- were hounded into

A-62

A. IMPORTANCE AND UNIQUENESS.

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, how-

ever, 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 Al. The

majority’s unequivocal approval of Fibreboard'’s litigation

strategy undoubtedly will lead “other financially threat-

ened 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 [A-59]* is ironic: The

unique fact of the insurance dispute is simply irrele-

vant, and the other unique facts — a corporate defen-

dant’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 reme-

dies from those who could otherwise invoke them.”

John Leubsdorf, Co-Opting the Class Action, 80 CORNELL

L.REV. 1222, 1223 (1995).

B. THE NEED FOR PROCEDURAL PROTECTIONS.

Two primary errors led the district court and the

majority astray. These are, first, underestimating the

* [Printer’s Note]: Reference to the majority opinion’s published

pagination will be followed by bracketed reference to the pagination

of this Appendix.

A-63

importance of jurisdictional and procedural protections

for absent class members, and second, departing from

the judiciary’s exclusive area of authority and compe-

tence — 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 sotd 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 setilement, and the district

judge presided at the fairness hearing on the very set-

tlement 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 mon-

itor 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 mem-

bers was some nominal compensation for having

been charged an extra five cents on a bag of

potato chips, one might not be too concerned

A64

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.‘

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.

C. LEGISLATED TORT REFORM.

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: Fibre-

board 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 settle-

ment.” 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

4 Susan P. Koniak, the Looking Glass of Ethics and the

with Rights We Find , 9 GEO. J. LEGAL ETHICS 1, 13

(1995). The Ahearn and Georgine settlements have received sig-

nificant attention in the academic literature, most of it extreme

negative. See, e.g., Coffee, supra note 1, at 1393-1404; Roger C.

Crampton, Individualized , Mass Torts, and “Settlement Class

Actions”: An Introduction, CORNELL L.REV. 811, 825-35 (1995);

Susan P. Koniak, Feasting While the Widow : Georgine v. Amchem

Products, Inc., 80 CORNELL L.REV. 1045 (1995); Richard L. Marcus,

Can't Do That, Can ? Tort via Rule 23, 80 CORNELL

LEN. 856, 096-900 (1988). eats

A-65

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 manufac-

ture jurisdiction over class members who have not yet

manifested symptoms of asbestosis or otherwise suf-

fered 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 specifi-

cally, 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.5 The

Association of Trial Lawyers of America summed up

this point nicely in an amicus brief opposing the settle-

ment: “The alchemy of the [instant] settlement ... had

the effect of transforming the common law damage

claims of asbestos victims, which were clearly safe-

guarded by the right to trial by jury, into administrative

claims without that right.” Amicus br. at 9.

5 The purported “back-end opt-out right” likely will prove to be

no right at all. Before he may even file a lawsuit, a victim must

(1) file a claim with the trust and wait for it to evaluate his claim;

(2) engage in settlement discussions; (3) proceed to mediation; and

(4) participate in non-binding arbitration.

Even after securing a court judgment in his favor, the «.aimant

may not enforce that judgment; instead, he must accept installment

payments over a number of years. His recovery is capped at a pre—

(concluded on page A-66)

A-66

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 | doubt that it is, see infra part IX — such

a policy decision is “better addressed to the repre-

sentative branches — Congress and the State Legisla-

ture.” 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 pow-

erful special interest groups — a wealthy defendant and

the class action bar — and unwittingly disserved the

very victims the courts were intended to help.

D. CONSTRUCTIVE BANKRUPTCY.

Nor does Fibreboard’s “constructive bankruptcy” jus-

tify 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

Fibredoard to effect a reorganization bankruptcy pro-

ceeding in the guise of a futures-only class action cir-

cumvents 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:

(continued from page A-65)

set dollar amount, and he is barred from receiving punitive dam-

ages or pre- or post-judgment interest. In short, the settlement

ensures that the trust can make trial an impracticable method of

recovery, forcing class members to settle within the confines of the

administrative procedure devised by Fibreboard and class counsel.

A-67

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 F3d 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.

E. CREATING A Circuit SPLIT.

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 pre-

dominantly 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 US. 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 certi-

fied under FED.RCIV.P. 23(b)(3), see maj. op. at 987 [A-

45] 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

A-68

action. Georgine v. Amchem Prods., 83 F.3d (10, 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 foot-

note, distinguishing it on the ground that the Georgine

settiement provides a detailed claims resolution

schedule, while the Ahearn settlement does not. See

maj. op. at 976 [A-22] n.8. Class counsel still served

conflicting interests, however, and postponing some dis-

tributional 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 | 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.” /d. at 732. Future defendants pre-

sumably 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. | respectfully

but vehemently dissent from all but part Ill of the

majority opinion.

A-69

IL

FACTS AND PROCEDURAL HISTORY.

Though the background to this case is somewhat

complicated, the key facts are hard to overlook. Fibre-

board approached four plaintiffs’ lawyers, including Ron

Motley and Joe Rice, and suggested that they negotiate

a “global settlement” of all of Fibreboard’s asbestos lia-

bilities. 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 settiement of individual

suits. The danger was that these settlements arguably

violated the insurance policies. Fortunately for Fibre-

board, a California court approved the deals.

Then something odd happened: Fibreboard settled a

large number of cases with Ness Motiey — 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 Fibre-

board, 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 /d. at

1391-92, 1457. Actually, they made a series of deals: a

A-70

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 /d. 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 F3d 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 Higgin-

botham, then suggested that they settle those cases

before attempting further negotiation of a global settle-

ment. After conciding 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 suc-

cessful, 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

A-71

and approve the settlement. The judge certified the

class and found that the settlement was fair.

And Fibreboard’s stock soared.®

Il

THE FOREST FOR THE TREES.

The majority commits two fundamental errors: first,

treating justiciability, due process rights, and certifica-

tion 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 indis-

pensable 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 funda-

mental of all due process rights.

The majority addresses each class protection device

in isolation, always finding that the protection does not

6 See Coffee, supra note 1, at 1402 & n. 232.

A-72

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.

A. THE DANGER INHERENT IN

REPRESENTATIVE LITIGATION.

“It is a principle of general application in Anglo-Amer-

ican 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 US. 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 US. at 41,

61 S.Ct. at 117-18. Not surprisingly, such a “funda-

mental departure from the traditional pattern in Anglo-

American litigation generates a host of problems.” Mars

Steel Corp. v. Continental lil. Nat'l Bank & Trust Co., 834

F2d 677, 678 (7th Cir. 1987). More bluntly, “class actions

are extraordinary proceedings with extraordinary

potential for abuse.” General Motors Corp. v. Bloyed, 916

SW.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 substi-

tute protections. See Phillips Petroleum Co. v. Shutts, 472

A-73

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;’ and

second, we must meet new uses of the device with new

protections.®

In short, the safeguards required by due process nec-

essarily differ according to the type of action, and when

confronted with a new animai, we must analyze those

safeguards anew. Reliance on strained analogies to in-

apposite traditional actions leaves us in what one com-

mentator has aptly labeled a “due process quandary.”®

Thus the irony: The majority eviscerates well-

established due process protections because of

7 See Shutts, 472 U.S. at 808-11, 105 S.Ct. at 2972-74 (finding

that opt-out right, rather than opt-in requirement, adequately pro-

tects class members in light of burdens imposed on them).

8 See Mullanz v. Central Hanover Bank & Trust Co., 339 U.S. 306,

313-14, 70 S.Ct. 652, 656-57, 94 L.Ed. 865 (1950) (balancing interests

of class members and efficient operation of modern investment

trusts). The majority’s assertion that “(t]he rule that adequate rep-

resentation is all that due process requires for the traditional

mandatory class action in equity was not challenged by Shutts,” maj.

op. at 986 [A-45], is erroneous. The Hansberry court reserved judg-

ment on what other procedures might be required, see 311 U.S. at

43-44, 61 S.Ct. at 118-19, and the Court later found that members of

mandatory classes have an additional due process right to adequate

notice, see Mullane, 339 U.S. at 318-19, 70 S.Ct. at 659-60. Nor did

Shutts construe Hansberry so narrowly. See Shutts, 472 U.S. at 808-09

n.1, 105 S.Ct. at 2972-73 n.1 (“The holding in Hansberry, of course,

was that petitioners in that case had not a sufficient common

interest with the parties to a prior lawsuit such that a decree against

those parties in the prior suit would bind the petitioners.” ).

9 See Linda S. Mullenix, Class Actions, Personal Jurisdiction, and

Plaintiffs’ Due Process: Implications for Mass Tort Litigation, 28 U.C.

(concluded on page A-74)

A-74

the “unique facts” of the case, see maj. op. at 993 [A-59],

but fails to recognize that those novel facts may actu-

ally call for enhanced, not lessened, protections for vul-

nerable asbestos victims.”

B. VULNERABILITY OF THE CLASS.

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 chil-

dren 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."

(continued from page A-73)

DAVIS L.REV. 871, 911-12 (1995); cf. William W. Schwarzer, Struc-

turing Multiclaim Litigation: Should Rule 23 Be Revisited?, 94 MICH.

L.Rev. 1250, 1255 (1996) (observing that appropriate accommoda-

tion of competing interests differs according to nature of class and

claims).

10 We need not consider the outer limits of due process in this

case, however, as the district court failed to employ even basic pro-

tections such as opt-out rights and adequate

11 See Ivy v. Diamond Shamrock Chems. Co. (In re Agent Orange

Prod. Liab. Litig.), 996 F.2d 1425, 1435 (2d Cir. 1993) (observing

(concluded on page A-75)

A-75

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.” 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." Of course, any such inter-

venors 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.

(continued from page A-74)

that “providing individual notice and opt-out rights to persons who

are unaware of an injury would probably do little good” ), cert.

denied, 510 U.S. 1140, 114 S.Ct. 1125, 127 L.Ed.2d 434 and cert.

denied, 510 U.S. 1140, 114 S.Ct. 1126, 127 L.Ed.2d 434 (1994); see

generally Marcus, supra note 4, at 889 (explaining that the notice

given to Ahearn class members was particularly hard for them to

understand).

12 See Crampton, supra note 4, at 828.

13° Two groups of plaintiffs intervened in this action. Thus,

while exclusion of present claimants appears to have limited the

opposition, it did not completely eliminate it.

A-76

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 lim-

ited 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 vic-

tims, 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."

Arbitrariness in the class definition might not present

a problem by itself, but future claimants, unlike present

claimants, are particularly vul» erable. Exclusion of all

present claimants has the effect uf not the purpose) of

excluding all those who are likely to receive notice,

monitor the class action, and oppose the class attor-

neys’ conflicts and other inadequacies.®

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 Jn re Gen. Motors Corp. Pick-Up Truck Fuel

Tank Prods. Liab. Litig., 55 F3d 768, 788 (3d Cir.), cert.

14 See Koniak, Feasting, supra note 4, at 1058; Crampton, supra

note 4, at 829-30.

15 In addition, the settlement’s silence regarding the actual com-

pensation that claimants can expect — other than various caps and

limitations on recovery — makes it difficult for class members and

courts to evaluate the settlement. That lack of information might be

one of the reasons that the intervenors chose not to attack the set-

tlement’s substantive fairness on appeal.

A-77

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 inter-

vene, 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.

C. DIMINISHED PROTECTION FOR THE CLASS.

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 pow-

erful 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 [A-59] (emphasis added). In fact, Fibreboard

and the insurers did reach such a settlement. See maj.

op. part Ill (unanimously approving that agreement).

With that cloak removed, the second half of the

Ahearn settlement is wholly baseless. The class mem-

A-78

bers surrendered their claims against Fibreboard, sub-

mitted 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’ mischaracteriza-

tion of the settlement does little to justify certification,

however, for traditional class protections still prevent it.

lV.

DUE PROCESS AND THE RIGHT TO OPT OUT.

The majority's treatment of opt-out rights is a para-

digmatic example of its erroneous reasoning. Though

the Court plainly held in Phillips Petroleum Co. v. Shutts,

472 US. 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 availabie in tradi-

tional “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.” Moreover, this case pre-

16 The Ninth Circuit has held that a class action certified under

rule 23(b)(1) and (b)(2) cannot bind absent plaintiffs unless they

are allowed to opt out. Brown v. Ticor Title Ins. Co., 982 F.2d 386

(9th Cir. 1992) (holding that absent plaintiffs were not bound by a

rule 23(l9)(1)-(b)(2) class action for money because the

original class action court did not have personal “vias mp

the plaintiffs and did not them with an

dismissed as improvidenily granted, 511 U.S. 117, 114 S.Ct. 359, 128

(concluded on page A-79)

ee

A-79

sents anything but a traditional common fund,” and the

majority's attempt to analogize it to an action to settle a

(continued from page A-78)

L.Ed.2d 33 (1994). See also In re Real Estate Title & Settlement Servs.

Antitrust Litig., 869 F.2d 760 (3d Cir.) (reversing an injunction and

allowing a collateral attack against a rule 23(b)(1)-(b)(2) class action

to in a different jurisdiction), cert. denied, 493 U.S. 821, 110

S.Ct. 77, 107 L.Ed.2d 44 (1989). In dictum, the Second Circuit has

eee ere ee ne ee ee

legal remedies requires an opt-out right. In re Joint E. & S. Dist

Asbestos Litig. (Findley 1), 982 F.2d 721, 735 (2d Cir. 1992) (up-

holding a mandatory class action by beneficiaries of a trust but rec-

ognizing that “[i]f the members x the plaintiff class were not all

beneficiaries of the Trust, we would think that the applicable stan-

dards for personal jurisdiction would be drawn more from Shutts

than from Hansberry” ); In re Joint E. & S. Dist. Asbestos Litig. (Findley

11), 78 F.3d 764, 777-78 (2d Cir. 1996) (distinguishing the class

action from that in Shutts because the restructuring of a trust is an

equitable remedy).

17 The paradigmatic use of rule 23(b)(1)(B) is for a common

(or limited) fund, which exists

when a fixed asset or piece of property exists in which all

class members have a preexisting interest, and an appor-

tionment or determination of the interests of one class

member cannot be made -vithout affecting the propor-

tionate interests of other class members similarly situated.

Classic illustrations include claimants to trust assets, a bank

account, insurance proceeds, company assets in a liquida-

tion sale, process of a ship sale in a maritime accident suit,

and others.

| HERBERT NEWBERG & ALBA CONTE, NEWBERG ON CLASS

ACTIONS (hereinafter “NEWBERG ON CLASS ACTIONS”) § 4.09, at

4-32 through 4-33 (3d ed. 1992). The language of rule 23(b)(1)(B)

is broad enough to encompass more than the traditional common

fund, /d. at 4-31, and the fact that an action meets the requirements

of rule 23(b)(1)(B) does not necessarily transform it into one for

the division of a fund.

This case deviates from the traditional common fund in a

number of ways. First, there is no fund to speak of. The insurance

proceeds are not common or limited, but are simply all that the

defendants are willing to provide to the settlement. A settlement

offer is far from “a fixed asset ... in which all class members have

a preexisting interest.” The fact that Fibreboard’s asbestos liabilities

are greater than its assets is also insufficient to create a common

(concluded on page A-80)

A-80

trust is entirely unjustified: Far from adjudicating equi-

table rights in a preexisting fund, the settlement creates

a common fund by extinguishing personal rights of

action. In short, the majority rationalizes its eviscera-

tion of a right that we have already recognized with a

call to historical rigidity.

A. Basic REQUIREMENTS OF THE SHUTTS CASE.

Shutts could not be more unambiguous:

[W]e hold that due process requires at a min-

imum 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 US. at 812, 105 S.Ct. at 2974-75 (citations and foot-

notes 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.”

Thus, Shutts teaches that in an action seeking money dam-

ages, an absent plaintiff is entitled to the right to opt out."

(continued from page A-79)

fund, even though it is sufficient to meet the requirements of rule

(b)(1)(B). See Arthur R. Miller & David Crump, Jurisdiction and

Choice of Law in Multistate Class Actions after Phillips Petroleum Co. v.

Shutts, 96 YALE L.J. 1, 42 (1986) (describing the “constructive bank-

ruptcy” theory for certifying mass torts under rule (b)(1)(B)). See

also Marcus, supra note 4, at 877-81 (suggesting that a common fund

theory does not work for mass torts). Second, the plaintiffs do not

have a preexisting interest in Fibreboard’s assets; the purpose of the

suit is to establish those rights and not to divide preexisting rights.

18 472 U.S. at 811 & n.3, 105 S.Ct. at 2973-74 & n.3 (“Our

holding today is limited to those class actions which seek to bind

known plaintiffs concerning claims wholly or predominately for

money judgments. We intimate no view concerning other types of

class actions, such as those seeking equitable relief.” ).

19 Although Shutts involved a state court action, the consensus

view is that it applies to federal class actions as well. See Matsushita

(concluded on page A-81)

A81

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, | believe that whether a class action

seeks equitable relief or money damages can be deter-

mined only by focusing on the underlying remedy the

plaintiffs seek. See, e.g., Findley /, 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.”® The

prayer for relief seeks general and special compen-

satory damages, punitive damages, costs of the suit,

appropriate declarations and orders, and other relief as

may be deemed just and proper. These remedies repre-

sent paradigmatic legal remedies.”' 1 DAN B. DOBBS,

(continued from page A-80)

Elec. Indus. Co. v. Epstein, _. U.S. __, —, 116 S.Ct. 873, 888, 134

L.Ed.2d € (1996) (Ginsburg, J., concurring in part and dissenting in

part) (“In [Shutts), this Court listed minimal procedural due

requirements a class action money judgment must meet if it is to

bind absentees; those requirements include notice, an opportunity to

be heard, a right to opt out, and adequate representation.” );

Carlough v. Amchem -» Inc., 10 F.3d 189, 198-99 (3d Cir. 1993);

Brown, 982 F.2d at 392; In re Drexel Burnham Lambert Group, Inc., 960

F.2d 285, 292 (2d Cir. 1992) (dictum), cert. dismissed, 506 U.S. 1088,

113 S.Cz. 1070, 122 L.Ed.2d 497 (1993); In re Real Estate Title, 869

F.2d at 766 n.6. See also Miller & Crump, supra note 17, at 29-31.

20 The specific counts in the

This text is long and has been trimmed here. Open the source document for the complete record.