OCTOBER TERM, 1998
Syllabus
ORTIZ ET AL.
v. FIBRE BOARD CORP. ET AL.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIFTH
CIRCUIT
No. 97-1704. Argued December 8, 1998-Decided June 23,1999
Respondent Fibreboard Corporation, an asbestos manufacturer, was
locked in litigation for decades. Plaintiffs filed a stream of
personal injury claims against it, swelling throughout the 1980's
and 1990's to thousands of claims for compensatory damages each
year. Fibreboard engaged in litigation with its insurers,
respondent Continental Casualty Company and respondent Pacific
Indemnity Company, over insurance coverage for the personal injury
claims. In 1990, a California trial court ruled against Continental
and Pacific, and the insurers appealed. At around the same time,
Fibreboard approached a group of asbestos plaintiffs' lawyers,
offering to discuss a "global settlement" of Fibreboard's asbestos
liability. Negotiations at one point led to the settlement of some
45,000 pending claims, and the parties eventually agreed upon
$1.535 billion as the key term of a "Global Settlement Agreement."
Of this sum, $1.525 billion would come from Continental and
Pacific, which had joined the negotiations, while Fibreboard would
contribute $10 million, all but $500,000 of it from other insurance
proceeds. At plaintiffs' counsels' insistence, Fibreboard and its
insurers then reached a backup settlement of the coverage dispute
in the "Trilateral Settlement Agreement," under which the insurers
agreed to provide Fibreboard with $2 billion to defend against
asbestos claimants and pay the winners, should the Global
Settlement Agreement fail to win court approval. Subsequently, a
group of named plaintiffs filed the present action in Federal
District Court, seeking certification for settlement purposes of a
mandatory class comprising three groups-claimants who had not yet
sued Fibreboard, those who had dismissed such claims and retained
the right to sue in the future, and relatives of class membersbut
excluded claimants who had actions pending against Fibreboard or
who had filed and, for negotiated value, dismissed such claims, and
whose only retained right is to sue Fibreboard upon development of
an asbestos-related malignancy. The District Court allowed
petitioners and other objectors to intervene, held a fairness
hearing under Federal Rule of Civil Procedure 23(e), ruled that the
threshold Rule 23(a) numerosity, commonality, typicality, and
adequacy of representation requirements were met, and certified the
class under Rule 23(b)(1)(B). In response to intervenors'
objections that the absence of a "limited fund"
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precluded Rule 23(b)(1)(B) certification, the District Court
ruled that both the disputed insurance asset liquidated by the
$1.535 billion global settlement, and, alternatively, the sum of
the value of Fibreboard plus the value of its insurance coverage,
as measured by the insurance funds' settlement value, were relevant
"limited funds." The Fifth Circuit affirmed both as to class
certification and adequacy of settlement. Agreeing with the
District Court's application of Rule 23(a), the Court of Appeals
found,
inter alia, that there were no conflicts of interest
sufficiently serious to undermine the adequacy of class counsel's
representation. As to Rule 23(b)(1)(B), the court approved the
class certification on a "limited fund" rationale based on the
threat to other class members' ability to receive full payment from
Fibreboard's limited assets. This Court then decided
Amchem
Products, Inc. v.
Windsor, 521 U. S. 591, vacated
the Fifth Circuit's judgment, and remanded for further
consideration in light of that decision. The Fifth Circuit again
affirmed the District Court's judgment on remand.
Held:
1. This Court need not resolve two threshold matters before
proceeding to the nub of the case. First, petitioners call the
class claims nonjusticiable under Article III, saying that this is
a feigned action initiated by Fibreboard to control its future
asbestos tort liability, with the vast majority of the
exposure-only class members being without injury in fact and hence
without standing to sue. While an Article III court ordinarily must
be sure of its own jurisdiction before getting to the merits,
Steel Co. v.
Citizens For Better Environment,
523 U. S. 83,
8889, a Rule 23 question should be treated first because class
certification issues are "logically antecedent" to Article III
concerns,
Amchem, supra, at 612, and pertain to statutory
standing, which may properly be treated before Article III
standing, see
Steel Co., supra, at 92. Second, although
petitioners are correct that the Fifth Circuit on remand fell short
in its attention to
Amchem in passing on the Rule 23(a)
issues, these points are dealt with in the Court's review of the
certification on the Fifth Circuit's "limited fund" theory under
Rule 23(b)(1)(B). Pp. 830-832.
2. Applicants for contested certification of a mandatory
settlement class on a limited fund theory under Rule 23(b)(1)(B)
must show that the fund is limited by more than the agreement of
the parties, and has been allocated to claimants belonging within
the class by a process addressing the conflicting interests of
class members. Pp. 832-848.
(a) In drafting Rule 23(b), the Civil Rules Advisory Committee
sought to catalogue in functional terms those recurrent life
patterns which call for mass litigation through representative
parties. Rule
817
23(b)(1)(B) (read with subdivision (c)(2)) provides for
certification of a class whose members have no right to withdraw,
when "the prosecution of separate actions ... would create a risk"
of "adjudications with respect to individual [class] members ...
which would as a practical matter be dispositive of the interests
of the other members not parties to the adjudications or
substantially impair or impede their ability to protect their
interests." Among the traditional varieties of representative suits
encompassed by Rule 23(b)(1)(B) is the limited fund class action.
In such a case, equity required absent parties to be represented,
joinder being impractical, where individual claims to be satisfied
from the one asset would, as a practical matter, prejudice the
rights of absent claimants against a fund inadequate to pay them
all. Pp. 832-837.
(b) The cases forming the limited fund class action's pedigree
as understood by Rule 23's drafters have a number of common
characteristics, despite the variety of circumstances from which
they arose. These characteristics show what the Advisory Committee
must have assumed would be at least a sufficient set of conditions
to justify binding absent members of a Rule 23(b)(1)(B) class, from
which no one has the right to secede. In sum, mandatory class
treatment through representative actions on a limited fund theory
was justified with reference to a "fund" with a definitely
ascertained limit that was inadequate to pay all claims against it,
all of which was distributed to satisfy all those with claims based
on a common theory of liability, by an equitable, pro rata
distribution. Pp. 838-841.
(c) There are good reasons to treat the foregoing
characteristics as presumptively necessary, and not merely
sufficient, to satisfy the limited fund rationale for a mandatory
class action. At the least, the burden of justification rests on
the proponent of any departure from the traditional norm. Although
Rule 23(b)(1)(B)'s text is open to a more lenient limited fund
concept, the greater the leniency in departing from the historical
model, the greater the likelihood of abuse in ways that are
apparent when the limited fund criteria are applied to this case.
The prudent course, therefore, is to presume that when subdivision
(b)(1)(B) was devised to cover limited fund actions, the object was
to stay close to the historical model. This limiting construction
finds support in the Advisory Committee's expressions of
understanding, which clearly did not contemplate that the mandatory
class action codified in subdivision (b)(1)(B) would be used to
aggregate unliquidated tort claims on a limited fund rationale. The
construction also minimizes potential conflict with the Rules
Enabling Act, which requires that rules of procedure "not abridge,
enlarge or modify any substantive right," 28 U. S. C. § 2072(b).
See,
e. g., Amchem, supra, at 613. Finally,
the Court's construction avoids serious constitutional concerns,
including the Seventh
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Amendment jury trial rights of absent class members, and the due
process principle that, with limited exceptions, one is not bound
by a judgment
in personam in litigation in which he is not a
party,
Hansberry v.
Lee, 311 U. S. 32, 40. Pp.
841-848.
3. The record on which the District Court rested its class
certification did not support the essential premises of a mandatory
limited fund class action. It did not demonstrate that the fund was
limited except by the agreement of the parties, and it
affirmatively allowed exclusions from the class and allocations of
assets at odds with the concept of limited fund treatment and the
Rule 23(a) structural protections explained in
Amchem. Pp.
848-861.
(a) The certification defect going to the most characteristic
feature of a limited fund action was the uncritical adoption by
both courts below of figures agreed upon by the parties in defining
the fund's limits. In a settlement-only class action such as this,
the settling parties must present not only their agreement, but
evidence on which the district court may ascertain the fund's
limits, with support in findings of fact following a proceeding in
which the evidence is subject to challenge. Here, there was no
adequate demonstration of the fund's upper limit. The "fund"
comprised both Fibreboard's general assets and the insurance
provided by the two policies. As to the general assets, the lower
courts concluded that Fibreboard had a then-current sale value of
$235 million that could be devoted to the limited fund. While that
estimate may have been conservative, at least the District Court
heard evidence and made an independent finding at some point in the
proceedings. The same, however, cannot be said for the value of the
disputed insurance. Instead of independently evaluating potential
insurance funds, the courts below simply accepted the $2 billion
Trilateral Settlement Agreement figure, concluding that where
insurance coverage is disputed, it is appropriate to value the
insurance asset at a settlement value. Such value may be good
evidence of the maximum available if one can assume that parties of
equal knowledge and negotiating skill agreed upon the figure
through arms-length bargaining, unhindered by any considerations
tugging against the interests of the parties ostensibly represented
in the negotiation. No such assumption may be indulged in here,
since at least some of the same lawyers representing the class also
negotiated the separate settlement of 45,000 pending claims, the
full payment of which was contingent on a successful global
settlement agreement or the successful resolution of the insurance
coverage dispute. Class counsel thus had great incentive to reach
any global settlement that they thought might survive a Rule 23(e)
fairness hearing, rather than the best possible arrangement for the
substantially unidentified global settlement class. See
Amchem,
supra, at 626-627. Pp. 848-853.
819
(b) The settlement certification also fell short with respect to
the inclusiveness of the class and the fairness of distributions to
those within it. The class excludes myriad claimants with causes of
action, or foreseeable causes of action, arising from exposure to
Fibreboard asbestos. The number of those outside the class who
settled with a reservation of rights may be uncertain, but there is
no such uncertainty about the significance of the settlement's
exclusion of the 45,000 inventory plaintiffs and the plaintiffs in
the unsettled present cases, estimated at more than 53,000. A
mandatory limited fund settlement class cannot qualify for
certification when, in the very negotiations aimed at a class
settlement, class counsel agree to exclude what may turn out to be
as much as a third of the claimants that negotiators thought might
eventually be involved, a substantial number of whom class counsel
represent. The settlement certification is likewise deficient as to
the fairness of the fund's distribution among class members. First,
a class including holders of present and future claims (some of the
latter involving no physical injury and claimants not yet born)
requires division into homogeneous subclasses under Rule
23(c)(4)(B), with separate representation to eliminate conflicting
interests of counsel. See
Amchem, 521 U. S., at 627. No such
procedure was employed here. Second, the class included those
exposed to Fibreboard's asbestos products both before and after
1959, the year that saw the expiration of Fibreboard's Continental
policy, which provided the bulk of the insurance funds for the
settlement. Pre-1959 claimants accordingly had more valuable claims
than post-1959 claimants, the consequence being a second instance
of disparate interests within the certified class. While at some
point there must be an end to reclassification with separate
counsel, these two instances of conflict are well within
Amchem's structural protection requirement. Pp.854-859.
(c) A third contested feature that departs markedly from the
limited fund antecedents is the ultimate provision for a fund
smaller than the assets understood by the Fifth Circuit to be
available for payment of the mandatory class members' claims. Most
notably, Fibreboard was allowed to retain virtually its entire net
worth. Given this Court's treatment of the two preceding
certification deficiencies, there is no need to decide whether this
feature would alone be fatal to the global settlement. To ignore it
entirely, however, would be so misleading that the Court simply
identifies the issue it raises, without purporting to resolve it at
this time. Fibreboard listed its supposed entire net worth as a
component of the total (and allegedly inadequate) assets available
for claimants, but subsequently retained all but $500,000 of that
equity for itself. It hardly appears that such a regime is the best
that can be provided for class members. Whether in a case where a
settle-
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ment saves transaction costs that would never have gone into a
class member's pocket in the absence of settlement, a credit for
some of the savings may be recognized as an incentive to settlement
is at least a legitimate question, which the Court leaves for
another day. pp. 859-861.
134 F.3d
668, reversed and remanded.
SOUTER, J., delivered the opinion of the Court, in which
REHNQUIST, C. J., and O'CONNOR, SCALIA, KENNEDY, THOMAS, and
GINSBURG, JJ., joined. REHNQUIST, C. J., filed a concurring
opinion, in which SCALIA and KENNEDY, JJ., joined,
post, p.
865. BREYER, J., filed a dissenting opinion, in which STEVENS, J.,
joined,
post, p. 865.
Laurence H. Tribe argued the cause for petitioners. With him on
the briefs were Brian Koukoutchos, Jonathan S. Massey, Frederick M.
Baron, Brent M. Rosenthal, and Steve Baughman.
Elihu Inselbuch argued the cause for respondents. With him on
the brief for respondents Ahearn et al. were Peter Van N. Lockwood,
Joseph B. Cox, Jr., Joseph F. Rice, Steven Kazan, and Harry F.
Wartnick. Herbert M. Wachtell, Paul
J. Bschorr, Richard B.
Sypher, Kelly C. Wooster, Stephen M. Snyder, William R. Irwin,
Rodney L. Eshelman, Donald T. Ramsey, Stuart Philip Ross, Sean M.
Hanifan, Merril
J. Hirsh, and Michael E. Jones filed a brief
for respondents Continental Casualty Co. et al. *
*Briefs of
amici curiae urging reversal were filed for
the Association of Trial Lawyers of America by
Jeffrey Robert
White and
Mark S.
Mandell; for Trial Lawyers for
Public Justice, P.
C., by
Arthur H. Bryant and
Anne Bloom; and for Legal Ethics, Civil Procedure, and
Constitutional Law Scholars by
Roger C.
Cramton,
Kenneth J. Chesebro, and
Barbara
Briefs of
amici curiae urging affirmance were filed for
Asbestos Victims of America by
Daniel U. Smith; for Exxon
Corporation by
Charles W Bender, John F.
Daum, and
Charles C.
Lifland; and for the National Association
of Securities and Commercial Law Attorneys by
Kevin P. Roddy
and
Arthur R. Miller.
821
JUSTICE SOUTER delivered the opinion of the Court.
This case turns on the conditions for certifying a mandatory
settlement class on a limited fund theory under Federal Rule of
Civil Procedure 23(b)(1)(B). We hold that applicants for contested
certification on this rationale must show that the fund is limited
by more than the agreement of the parties, and has been allocated
to claimants belonging within the class by a process addressing any
conflicting interests of class members.
I
Like
Amchem Products, Inc. v.
Windsor, 521 U. S. 591 (1997),
this case is a class action prompted by the elephantine mass of
asbestos cases, and our discussion in
Amchem will suffice to
show how this litigation defies customary judicial administration
and calls for national legislation.1 In 1967, one of the first
actions for personal asbestos injury was filed in the United States
District Court for the Eastern District
1" '[This] is a tale of danger known in the 1930s, exposure
inflicted upon millions of Americans in the 1940s and 1950s,
injuries that began to take their toll in the 1960s, and a flood of
lawsuits beginning in the 1970s. On the basis of past and current
filing data, and because of a latency period that may last as long
as 40 years for some asbestos related diseases, a continuing stream
of claims can be expected. The final toll of asbestos related
injuries is unknown. Predictions have been made of 200,000 asbestos
disease deaths before the year 2000 and as many as 265,000 by the
year 2015.
"'The most objectionable aspects of asbestos litigation can be
briefly summarized: dockets in both federal and state courts
continue to grow; long delays are routine; trials are too long; the
same issues are litigated over and over; transaction costs exceed
the victims' recovery by nearly two to one; exhaustion of assets
threatens and distorts the process; and future claimants may lose
altogether.'''
Amchem Products, Inc. v.
Windsor, 521
U. S., at 598 (quoting Report of The Judicial Conference Ad Hoc
Committee on Asbestos Litigation 2-3 (Mar. 1991) (hereinafter
Report)). We noted in
Amchem that the Judicial Conference Ad
Hoc Committee on Asbestos Litigation in 1991 had called for
"federal legislation creating a national asbestos
dispute-resolution scheme." 521 U. S., at 528 (citing Report 3,
27-35). To date Congress has not responded.
822
of Texas against a group of asbestos manufacturers. App. to Pet.
for Cert. 252a. In the 1970's and 1980's, plaintiffs' lawyers
throughout the country, particularly in East Texas, honed the
litigation of asbestos claims to the point of almost mechanical
regularity, improving the forensic identification of diseases
caused by asbestos, refining theories of liability, and often
settling large inventories of cases. See D. Hensler, W. Felstiner,
M. Selvin, & P. Ebener, Asbestos in the Courts: The Challenge
of Mass Toxic Torts vii (1985); McGovern, Resolving Mature Mass
Tort Litigation, 69 B. U. L. Rev. 659, 660-661 (1989); see also
App. to Pet. for Cert. 253a.
Respondent Fibreboard Corporation was a defendant in the 1967
action. Although it was primarily a timber company, from the 1920's
through 1971 the company manufactured a variety of products
containing asbestos, mainly for high-temperature industrial
applications. As the tide of asbestos litigation rose, Fibreboard
found itself litigating on two fronts. On one, plaintiffs were
filing a stream of personal injury claims against it, swelling
throughout the 1980's and 1990's to thousands of new claims for
compensatory damages each year.
Id., at 265a; App. 1040a. On
the second front, Fibreboard was battling for funds to pay its tort
claimants. From May 1957 through March 1959, respondent Continental
Casualty Company had provided Fibreboard with a comprehensive
general liability policy with limits of $1 million per occurrence,
$500,000 per claim, and no aggregate limit. Fibreboard also claimed
that respondent Pacific Indemnity Company had insured it from 1956
to 1957 under a similar policy. App. to Pet. for Cert. 267a-268a.
Beginning in 1979, Fibreboard was locked in coverage litigation
with Continental and Pacific in a California state trial court,
which in 1990 held Continental and Pacific responsible for
indemnification as to any claim by a claimant exposed to Fibreboard
asbestos products prior to their policies' respective
823
expiration dates.
I d., at 268a-269a. The decree also
required the insurers to pay the full cost of defense for each
claim covered.
Ibid. The insurance companies appealed.
With asbestos case filings continuing unabated, and its secure
insurance assets almost depleted, Fibreboard in 1988 began a
practice of "structured settlement," paying plaintiffs 40 percent
of the settlement figure up front with the balance contingent upon
a successful resolution of the coverage dispute.2 By 1991, however,
the pace of filings forced Fibreboard to start settling cases
entirely with the assignments of its rights against Continental,
with no initial payment. To reflect the risk that Continental might
prevail in the coverage dispute, these assignment agreements
generally carried a figure about twice the nominal amount of
earlier settlements. Continental challenged Fibreboard's right to
make unilateral assignments, but in 1992 a California state court
ruled for Fibreboard in that dispute.3
Meanwhile, in the aftermath of a 1990 Federal Judicial Center
conference on the asbestos litigation crisis, Fibreboard approached
a group of leading asbestos plaintiffs' lawyers, offering to
discuss a "global settlement" of its asbestos
2 Because Fibreboard's insurance policy with Continental expired
in 1959, before the global settlement the settlement value of
claims by victims exposed to Fibreboard's asbestos prior to 1959
was much higher than for victims exposed after 1959, where the only
right of recovery was against Fibreboard itself. See
In re
Asbestos Litigation, 90 F.3d
963,
1012-1013 (CA5 1996) (Smith, J., dissenting).
3Id., at 969, and n. 1 (citing
Andrus v.
Fibreboard, No. 614747-3 (Sup.
Ct., Alameda Cty., June 1, 1992)). Continental appealed, and,
after the Global Settlement Agreement was reached in this case, but
before the fairness hearing, see
infra, at 827, a California
appellate court reversed. See 90 F. 3d, at 969, and n. 1 (citing
Fibreboard Corp. v.
Continental Casualty Co., No.
A059716 (Cal. App., Oct. 19, 1994)). Continental and Fibreboard had
each brought actions seeking to establish (or challenge) the
validity of Fibreboard's assignment-settlement program, but only
Andrus produced a definitive ruling as opposed to a
settlement. See App. to Pet. for Cert. 288a-290a.
824
personal-injury liability. Early negotiations bore relatively
little fruit, save for the December 1992 settlement by assignment
of a significant inventory of pending claims. This settlement
brought Fibreboard's deferred settlement obligations to more than
$1.2 billion, all contingent upon victory over Continental on the
scope of coverage and the validity of the settlement
assignments.
In February 1993, after Continental had lost on both issues at
the trial level, and thus faced the possibility of practically
unbounded liability, it too joined the global settlement
negotiations. Because Continental conditioned its part in any
settlement on a guarantee of "total peace," ensuring no unknown
future liabilities, talks focused on the feasibility of a mandatory
class action, one binding all potential plaintiffs and giving none
of them any choice to opt out of the certified class. Negotiations
continued throughout the spring and summer of 1993, but the
difficulty of settling both actually pending and potential future
claims simultaneously led to an agreement in early August to
segregate and settle an inventory of some 45,000 pending claims,
being substantially all those filed by one of the plaintiffs' firms
negotiating the global settlement. The settlement amounts per claim
were higher than average, with one-half due on closing and the
remainder contingent upon either a global settlement or
Fibreboard's success in the coverage litigation. This agreement
provided the model for settling inventory claims of other
firms.
With the insurance companies' appeal of the consolidated
coverage case set to be heard on August 27, the negotiating parties
faced a motivating deadline, and about midnight before the
argument, in a coffee shop in Tyler, Texas, the negotiators finally
agreed upon $1.535 billion as the key term of a "Global Settlement
Agreement." $1.525 billion of this sum would come from Continental
and Pacific, in the proportion established by the California trial
court in the coverage case,
825
while Fibreboard would contribute $10 million, all but $500,000
of it from other insurance proceeds, App. 84a. The negotiators also
agreed to identify unsettled present claims against Fibreboard and
set aside an as-then unspecified fund to resolve them, anticipating
that the bulk of any excess left in that fund would be transferred
to class claimants.
Ahearn v.
Fibreboard Corp., 162
F. R. D. 505, 517 (ED Tex. 1995). The next day, as a hedge against
the possibility that the Global Settlement Agreement might fail,
plaintiffs' counsel insisted as a condition of that agreement that
Fibreboard and its two insurers settle the coverage dispute by what
came to be known as the "Trilateral Settlement Agreement." The two
insurers agreed to provide Fibreboard with funds eventually set at
$2 billion to defend against asbestos claimants and pay the
winners, should the Global Settlement Agreement fail to win
approval.
Id., at 517, 521; see also App. to Pet. for Cert.
492a.4
On September 9, 1993, as agreed, a group of named plaintiffs
filed an action in the United States District Court for the Eastern
District of Texas, seeking certification for settlement purposes of
a mandatory class comprising three groups: all persons with
personal injury claims against Fibreboard for asbestos exposure who
had not yet brought suit or settled their claims before the
previous August 27; those who had dismissed such a claim but
retained the right to bring a future action against Fibreboard; and
"past, present and future spouses, parents, children, and other
relatives" of class mem-
4 Two related settlement agreements accompanied the Global and
Trilateral Settlement Agreements. The first, negotiated with
representatives of Fibreboard's major codefendants, preserved
credit rights for codefendant third parties,
In re Asbestos
Litigation, 90 F.3d
963, 973
(CA5 1996); the second provided that final
approval of the Global Settlement Agreement would not constitute a
"settlement" under the Longshore and Harbor Workers' Compensation
Act, 33 U. S. C. § 933(g), 162 F. R. D., at 521-522. Neither of
these agreements is before the Court.
826
bers exposed to Fibreboard asbestos.5 The class did not include
claimants with actions presently pending against Fibreboard or
claimants "who filed and, for cash payment or some other negotiated
value, dismissed claims against Fibreboard, and whose only retained
right is to sue Fibreboard upon development of an asbestos-related
malignancy."
Id.,
5 The final judgment regarding class certification in the
District Court defined the class as follows:
"(a) All persons (or their legal representatives) who prior to
August 27, 1993 were exposed, directly or indirectly (including but
not limited to exposure through the exposure of a spouse, household
member or any other person), to asbestos or to asbestos-containing
products for which Fibreboard may bear legal liability and who have
not, before August 27, 1993, (i) filed a lawsuit for any asbestos
related personal injury, or damage, or death arising from such
exposure in any court against Fibreboard or persons or entities for
whose actions or omissions Fibreboard bears legal liability; or
(ii) settled a claim for any asbestos-related personal injury, or
damage, or death arising from such exposure with Fibreboard or with
persons or entities for whose actions or omissions Fibreboard bears
legal liability;
"(b) All persons (or their legal representatives) exposed to
asbestos or to asbestos-containing products, directly or indirectly
(including but not limited to exposure through the exposure of a
spouse, household member or any other person), who dismissed an
action prior to August 27, 1993 without prejudice against
Fibreboard, and who retain the right to sue Fibreboard upon
development of a nonmalignant disease process or a malignancy;
provided, however, that the Settlement Class does not include
persons who filed and, for cash payment or some other negotiated
value, dismissed claims against Fibreboard, and whose only retained
right is to sue Fibreboard upon development of an asbestos-related
malignancy; and
"(c) All past, present and future spouses, parents, children and
other relatives (or their legal representatives) of the class
members described in paragraphs (a) and (b) above, except for any
such person who has, before August 27, 1993, (i) filed a lawsuit
for the asbestos-related personal injury, or damage, or death of a
class member described in paragraph (a) or (b) above in any court
against Fibreboard (or against entities for whose actions or
omissions Fibreboard bears legal liability), or (ii) settled a
claim for the asbestos-related personal injury, or damage, or death
of a class member described in (a) or (b) above with Fibreboard (or
with entities for whose actions or omissions Fibreboard bears legal
liability)." App. to Pet. for Cert. 534a-535a.
827
at 534a-535a. The complaint pleaded personal injury claims
against Fibreboard, and, as justification for class certification,
relied on the shared necessity of ensuring insurance funds
sufficient for compensation.
Id., at 552a-569a. After
Continental and Pacific had obtained leave to intervene as
party-defendants, the District Court provisionally granted class
certification, enjoined commencement of further separate litigation
against Fibreboard by class members, and appointed a guardian ad
litem to review the fairness of the settlement to the class
members. See
In re Asbestos Litigation, 90 F.3d
963, 972
(CA5 1996).
As finally negotiated, the Global Settlement Agreement provided
that in exchange for full releases from class members, Fibreboard,
Continental, and Pacific would establish a trust to process and pay
class members' asbestos personal injury and death claims. Claimants
seeking compensation would be required to try to settle with the
trust. If initial settlement attempts failed, claimants would have
to proceed to mediation, arbitration, and a mandatory settlement
conference. Only after exhausting that process could claimants go
to court against the trust, subject to a limit of $500,000 per
claim, with punitive damages and prejudgment interest barred.
Claims resolved without litigation would be discharged over three
years, while judgments would be paid out over a 5- to 10-year
period. The Global Settlement Agreement also contained spendthrift
provisions to conserve the trust, and provided for paying more
serious claims first in the event of a shortfall in any given year.
Id., at 973.
After an extensive campaign to give notice of the pending
settlement to potential class members, the District Court allowed
groups of objectors, including petitioners here, to intervene.
After an 8-day fairness hearing, the District Court certified the
class and approved the settlement as "fair, adequate, and
reasonable" under Rule 23(e).
Ahearn, 162 F. R. D., at 527.
Satisfied that the requirements of Rule
828
23(a) were met,
id., at 523-526,6 the District Court
certified the class under Rule 23(b)(1)(B),7 citing the risk that
Fibreboard might lose or fare poorly on appeal of the coverage case
or lose the assignment-settlement dispute, leaving it without funds
to pay all claims.
Id., at 526. The "allowance of individual
adjudications by class members," the District Court concluded,
"would have destroyed the opportunity to compromise the insurance
coverage dispute by creating the settlement fund, and would have
exposed the class members to the very risks that the settlement
addresses."
Id., at 527. In response to intervenors'
objections that the absence of a "limited fund" precluded
certification under Rule 23(b)(1)(B), the District Court ruled that
although the subdivision is not so restricted, if it were, this
case would qualify. It found both the "disputed insurance asset
liquidated by the $1.535 billion Global Settlement," and,
alternatively, "the sum of the value of Fibreboard plus the value
of its insurance coverage," as measured by the insurance funds'
settlement value, to be relevant "limited funds." App. to Pet. for
Cert. 491a-492a.
On appeal, the Fifth Circuit affirmed both as to class
certification and adequacy of settlement.
In re Asbestos
Litiga-
6 "Rule 23(a) states four threshold requirements applicable to
all class actions: (1) numerosity (a 'class [so large] that joinder
of all members is impracticable'); (2) commonality ('questions of
law or fact common to the class'); (3) typicality (named parties'
claims or defenses 'are typical ... of the class'); and (4)
adequacy of representation (representatives 'will fairly and
adequately protect the interests of the class')."
Amchem
Products, Inc. v.
Windsor, 521 U. S. 591, 613
(1997).
7 Rule 23(b)(1)(B) provides that "[a]n action may be maintained
as a class action if the prerequisites of subdivision (a) are
satisfied, and in addition: (1) 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 be dispositive of the
interests of the other members not parties to the adjudications or
substantially impair or impede their ability to protect their
interests."
829
tion, supra.s Agreeing with the District Court's
application of Rule 23(a), the Court of Appeals found that there
was commonality in class members' shared interest in securing and
equitably distributing maximum possible settlement funds, and that
the representative plaintiffs were sufficiently typical both in
sharing that interest and in basing their claims on the same legal
and remedial theories that absent class members might raise.
Id., at 975-976. The Fifth Circuit also thought that there
were no conflicts of interest sufficiently serious to undermine the
adequacy of class counsel's representation.
Id., at
976-982.9 As to Rule 23(b)(1)(B), the court approved the class
certification on a "limited fund" rationale based on the threat to
"the ability of other members of the class to receive full payment
for their injuries from Fibreboard's limited assets."
Id.,
at 982.10 The Court of Appeals cited expert testimony that
Fibreboard faced enormous potential liabilities and defense costs
that would likely equal or exceed the amount of damages paid out,
and concluded that even combining Fibreboard's value of some $235
million with the $2 billion provided in the Trilateral Settlement
Agreement, the company would be unable to pay all valid claims
against it within five to nine years.
Ibid. Judge Smith
dissented, arguing among other things that the
8 Continental and Pacific also filed a class action against a
defendant class essentially identical to the plaintiff class in the
Global Settlement Agreement as well as a class of third parties
with asbestos-related claims against Fibreboard, seeking a
declaration that the Trilateral Settlement Agreement was fair and
reasonable. The District Court certified the class and approved the
Trilateral Settlement Agreement, which the Fifth Circuit
consolidated with the review of the case below and affirmed. See
In re Asbestos Litigation, 90 F. 3d, at 974, 991-993. That
decision is now final and is not before this Court.
9 As the objectors did not challenge the adequacy of
representation of class representatives, the Fifth Circuit did not
consider the issue.
Id., at 976, n. 10. Likewise, no party
raised concerns with Rule 23(a)'s numerosity requirement.
10 Abandoning the District Court's alternative rationale, the
Court of Appeals rested entirely on a limited fund theory.
830
majority had skimped on serious due process concerns, had
glossed over problems of commonality, typicality, and adequacy of
representation, and had ignored a number of justiciability issues.
See generally
id., at 993-1026.11
Shortly thereafter, this Court decided
Amchem and
proceeded to vacate the Fifth Circuit's judgment and remand for
further consideration in light of that decision. 521 U. S. 1114
(1997). On remand, the Fifth Circuit again affirmed, in a brief
per curiam opinion, distinguishing
Amchem on the
grounds that the instant action proceeded under Rule 23(b)(1)(B)
rather than (b)(3), and did not allocate awards according to the
nature of the claimant's injury.
In re Asbestos Litigation,
134 F.3d
668, 669-670 (1998). Again citing the findings on certification
under Rule 23(b)(1)(B), the Fifth Circuit affirmed as
"incontestable" the District Court's conclusion that the terms of
the subdivision had been met.
Id., at 670. The Court of
Appeals acknowledged
Amchem's admonition that settlement
class actions may not proceed unless the requirements of Rule 23(a)
are met, but noted that the District Court had made extensive
findings supporting its Rule 23(a) determinations.
Ibid.
Judge Smith again dissented, reiterating his previous concerns, and
argued specifically that the District Court erred in certifying the
class under Rule 23(b)(1)(B) on a "limited fund" theory because the
only limited fund in the case was a creature of the settlement
itself.
Id., at 671-674.
We granted certiorari, 524 U. S. 936 (1998), and now
reverse.
II
The nub of this case is the certification of the class under
Rule 23(b)(1)(B) on a limited fund rationale, but before we reach
that issue, there are two threshold matters. First,
11 The Fifth Circuit denied rehearing en bane, with Judge Smith,
joined by five other Circuit Judges, dissenting.
In re Asbestos
Litigation, 101 F.3d
368, 369 (1996).
831
petitioners call the class claims nonjusticiable under Article
III, saying that this is a feigned action initiated by Fibreboard
to control its future asbestos tort liability, with the "vast
majority" of the "exposure-only" class members being without injury
in fact and hence without standing to sue. Brief for Petitioners
44-50. Ordinarily, of course, this or any other Article III court
must be sure of its own jurisdiction before getting to the merits.
Steel Co. v.
Citizens For Better Environment,
523 U. S. 83,
88-89 (1998). But the class certification issues are, as they were
in
Amchem, "logically antecedent" to Article III concerns,
521 U. S., at 612, and themselves pertain to statutory standing,
which may properly be treated before Article III standing, see
Steel Co., supra, at 92. Thus the issue about Rule 23
certification should be treated first, "mindful that [the Rule's]
requirements must be interpreted in keeping with Article III
constraints .... "
Amchem, supra, at 612-613.
Petitioners also argue that the Fifth Circuit on remand
disregarded
Amchem in passing on the Rule 23(a) issues of
commonality, typicality, and adequacy of representation. Brief for
Petitioners 13-22. We agree that in reinstating its affirmance of
the District Court's certification decision, the Fifth Circuit fell
short in its attention to
Amchem's explanation of the
governing legal standards. Two aspects in particular of the
District Court's certification should have received more detailed
treatment by the Court of Appeals. First, the District Court's
enquiry into both commonality and typicality focused almost
entirely on the terms of the settlement. See
Ahearn, 162 F.
R. D., at 524.12 Second, and more significantly, the District Court
took no steps at the outset to ensure that the potentially
conflicting interests of
12 In
Amchem, the Court found that class members' shared
exposure to asbestos was insufficient to meet the demanding
predominance requirements of Rule 23(b)(3). 521 U. S., at 623-624.
We left open the possibility, however, that such commonality might
suffice for the purposes of Rule 23(a).
Ibid.
832
easily identifiable categories of claimants be protected by
provisional certification of subclasses under Rule 23(c)(4),
relying instead on its
post hoc findings at the fairness
hearing that these subclasses in fact had been adequately
represented. As will be seen, however, these points will reappear
when we review the certification on the Court of Appeals's "limited
fund" theory under Rule 23(b)(1)(B). We accordingly turn directly
to that.
III A
Although representative suits have been recognized in various
forms since the earliest days of English law, see generally S.
Yeazell, From Medieval Group Litigation to the Modern Class Action
(1987); see also Marcin, Searching for the Origin of the Class
Action, 23 Cath. U. L. Rev. 515, 517524 (1973), class actions as we
recognize them today developed as an exception to the formal
rigidity of the necessary parties rule in equity, see Hazard,
Gedid, & Sowle, An Historical Analysis of the Binding Effect of
Class Suits, 146 U. Pa. L. Rev. 1849, 1859-1860 (1998) (hereinafter
Hazard, Gedid, & Sowle), as well as from the bill of peace, an
equitable device for combining multiple suits, see Z. Chafee, Some
Problems of Equity 161-167, 200-203 (1950). The necessary parties
rule in equity mandated that "all persons materially interested,
either as plaintiffs or defendants in the subject matter of the
bill ought to be made parties to the suit, however numerous they
may be."
West v.
Randall, 29 F. Cas. 718, 721 (No.
17,424)
(CC RI) (1820) (Story, J.). But because that rule
would at times unfairly deny recovery to the party before the
court, equity developed exceptions, among them one to cover
situations "where the parties are very numerous, and the court
perceives, that it will be almost impossible to bring them all
before the court; or where the question is of general interest, and
a few may sue for the benefit of the whole; or where the parties
form a part of a voluntary associ-
833
ation for public or private purposes, and may be fairly supposed
to represent the rights and interests of the whole .... "
I
d., at 722; see J. Story, Commentaries on Equity Pleadings § 97
(J. Gould 10th rev. ed. 1892); F. Calvert, A Treatise upon the Law
Respecting Parties to Suits in Equity 17-29 (1837) (hereinafter
Calvert, Parties to Suits in Equity). From these roots, modern
class action practice emerged in the 1966 revision of Rule 23. In
drafting Rule 23(b), the Advisory Committee sought to catalogue in
"functional" terms "those recurrent life patterns which call for
mass litigation through representative parties." Kaplan, A
Prefatory Note, 10 B. C. Ind. & Com. L. Rev. 497 (1969).
Rule 23(b)(1)(B) speaks from "a vantage point within the class,
[from which the Advisory Committee] spied out situations where
lawsuits conducted with individual members of the class would have
the practical if not technical effect of concluding the interests
of the other members as well, or of impairing the ability of the
others to protect their own interests." Kaplan, Continuing Work of
the Civil Committee: 1966 Amendments of the Federal Rules of Civil
Procedure (I), 81 Harv. L. Rev. 356, 388 (1967) (hereinafter
Kaplan, Continuing Work). Thus, the subdivision (read with
subdivision (c)(2)) provides for certification of a class whose
members have no right to withdraw, when "the prosecution of
separate actions ... would create a risk" of "adjudications with
respect to individual members of the class which would as a
practical matter be dispositive of the interests of the other
members not parties to the adjudications or substantially impair or
impede their ability to protect their interests." Fed. Rule Civ.
Proc. 23(b)(1)(B).13 Classic examples
13 In contrast to class actions brought under subdivision
(b)(3), in cases brought under subdivision (b)(1), Rule 23 does not
provide for absent class members to receive notice and to exclude
themselves from class membership as a matter of right. See 1 H.
Newberg & A. Conte, Class Actions §4.01, p. 4-6 (3d ed. 1992)
(hereinafter Newberg). It is for this reason that such cases are
often referred to as "mandatory" class actions.
834
of such a risk of impairment may, for example, be found in suits
brought to reorganize fraternal-benefit societies, see,
e. g.,
Supreme Tribe of Ben-Hur v.
Cauble, 255 U. S. 356 (1921);
actions by shareholders to declare a dividend or otherwise to "fix
[their] rights," Kaplan, Continuing Work 388; and actions charging
"a breach of trust by an indenture trustee or other fiduciary
similarly affecting the members of a large class" of beneficiaries,
requiring an accounting or similar procedure "to restore the
subject of the trust," Advisory Committee's Notes on Fed. Rule Civ.
Proc. 23, 28 U. S. C. App., p. 696 (hereinafter Adv. Comm. Notes).
In each of these categories, the shared character of rights claimed
or relief awarded entails that any individual adjudication by a
class member disposes of, or substantially affects, the interests
of absent class members.
Among the traditional varieties of representative suit
encompassed by Rule 23(b)(1)(B) were those involving "the presence
of property which call[ed] for distribution or management," J.
Moore & J. Friedman, 2 Federal Practice 2240 (1938)
(hereinafter Moore & Friedman). One recurring type of such
suits was the limited fund class action, aggregating "claims ...
made by numerous persons against a fund insufficient to satisfy all
claims." Adv. Comm. Notes 697; cf. 1 Newberg § 4.09, at 4-33
("Classic" limited fund class actions "include claimants to trust
assets, a bank account, insurance proceeds, company assets in a
liquidation sale, proceeds of a ship sale in a maritime accident
suit, and others").14 The Advisory Committee cited
Dickinson
v.
14 Indeed, Professor Kaplan, reporter to the Advisory
Committee's 1966 revision of Rule 23, commented in a letter to
another member of the Advisory Committee that the phrase" 'impair
or impede the ability of the other members to protect their
interests'" is "redolent of claims against a fund." Letter from
Benjamin Kaplan to John P. Frank, Feb. 7, 1963, Congressional
Information Service Records of the U. S. Judicial Conference,
Committee on Rules of Practice and Procedure 1935-1988, No.
CI-6312-31, p.2.
Some fund-related class actions involved claims for the creation
or preservation of a specific fund subject to the interests of
numerous claim-
835
Burnham, 197 F.2d
973 (CA2), cert. denied, 344 U. S. 875 (1952), as
illustrative of this tradition. In
Dickinson, investors
hoping to save a failing company had contributed some $600,000,
which had been misused until nothing was left but a pool of secret
profits on a fraction of the original investment. In a class
action, the District Court took charge of this fund, subjecting it
to a constructive trust for division among subscribers who
demonstrated their claims, in amounts proportional to each class
member's percentage of all substantiated claims. 197 F. 2d, at
978.15 The Second Circuit approved the class action and the
distribution of the entire pool to claimants, noting that
"[a]lthough none of the contributors has been paid in full, no one
... now asserts or suggests that they should have full recovery ...
as on an ordinary tort liability for conspiracy and defrauding. The
court's power of disposition over the fund was therefore ab-
ants. See,
e. g., City &
County of San
Francisco v.
Market Street R. Co., 95 Cal. App. 2d 648,
213 P. 2d 780 (1950). The rationale in such cases for
representative plaintiffs suing on behalf of all similarly situated
potential parties was that benefits arising from the action
necessarily inured to the class as a whole. Another type of fund
case involved the adjudication of the rights of all participants in
a fund in which the participants had common rights. See,
e. g.,
Hartford Life Ins. Co. v.
IBS, 237 U. S. 662 (1915);
Supreme Council of Royal Arcanum v.
Green, 237 U. S. 531 (1915);
Hartford Life Ins. Co. v.
Barber, 245 U. S. 146 (1917); see
also
Smith v.
Swormstedt, 16 How. 288 (1854). In such
cases, regardless of the size of any individual claimant's stake,
the adjudication would determine the operating rules governing the
fund for all participants. This category is more analogous in
modern practice to class actions seeking structural injunctions and
is not at issue in this case.
15 The District Court in
Dickinson, as was the usual
practice in such cases, distributed the limited fund only after
notice had been given to all class members, allowing them to come
into the suit, prove their claim, and share in the recovery. See
197 F. 2d, at 978; see also Adv. Comm. Notes 697 (describing
limited fund class actions as involving an "action by or against
representative members to settle the validity of the claims as a
whole, or in groups, followed by separate proof of the amount of
each valid claim and proportionate distribution of the fund").
836
solute and final."
Id., at 980.16 As the Advisory
Committee recognized in describing
Dickinson, equity
required absent parties to be represented, joinder being
impractical, where individual claims to be satisfied from the one
asset would, as a practical matter, prejudice the rights of absent
claimants against a fund inadequate to pay them all.
Equity, of course, recognized the same necessity to bind absent
claimants to a limited fund when no formal imposition of a
constructive trust was entailed. In
Guffanti v.
National
Surety Co., 196 N. Y. 452, 458, 90 N. E. 174, 176 (1909), for
example, the defendant received money to supply steamship tickets
and had posted a $15,000 bond as required by state law. He
converted to personal use funds collected from more than 150 ticket
purchasers, was then adjudged bankrupt, and absconded. One of the
defrauded ticket purchasers sued the surety in equity on behalf of
himself and all others like him. Over the defendant's objection,
the New York Court of Appeals sustained the equitable class suit,
citing among other considerations the fact that all recovery had to
come from a "limited fund out of which the aggregate recoveries
must be sought" that was inadequate to pay all claims, and subject
to pro rata distribution.
Id., at 458, 90 N. E., at 176. See
Hazard, Gedid, & Sowle 1915
("[Guffanti]
16 As
Dickinson demonstrates, the immediate precursor to
the type of limited fund class action invoked in this case was a
subset of "hybrid" class actions under the 1938 version of Rule 23.
Cf. 1 Newberg § 1.09, at 1-25. The original Rule 23 categorized
class actions by "the character of the right sought to be enforced
for or against the class," dividing such actions into "(1) joint,
or common, or secondary in the sense that the owner of a primary
right refuses to enforce that right and a member of the class
thereby becomes entitled to enforce it; (2) several, and the object
of the action is the adjudication of claims which do or may affect
specific property involved in the action; or (3) several, and there
is a common question of law or fact affecting the several rights
and a common relief is sought." Fed. Rule Civ. Proc. 23(a) (1938
ed., Supp. V). See Moore & Friedman 2240; see also Moore &
Cohn, Federal Class Actions, 32 Ill. L. Rev. 307, 317-318 (1937);
Moore, Federal Rules of Civil Procedure: Some Problems Raised by
the Preliminary Draft, 25 Geo. L. J. 551, 574 (1937).
837
explained that when a debtor's assets were less than the total
of the creditors' claims, a binding class action was not only
permitted but was required; otherwise some creditors (the parties)
would be paid and others (the absentees) would not"). See also
Morrison v.
Warren 174 Misc. 233, 234, 20 N. Y. S. 2d
26, 27 (Sup. Ct. N. Y. Cty. 1940) (suit on behalf of more than 400
beneficiaries of an insurance policy following a fire appropriate
where "the amount of the claims ... greatly exceeds the amount of
the insurance");
National Surety Co. v.
Graves, 211
Ala. 533, 534, 101 So. 190 (1924) (suit against a surety company by
stockholders "for the benefit of themselves and all others
similarly situate who will join the suit" where it was alleged that
individual suits were being filed on surety bonds that "would
result in the exhaustion of the penalties of the bonds, leaving
many stockholders without remedy").
Ross v.
Crary, 1 Paige Ch. 416, 417-418 (N. Y. Ch.
1829), presents the concept of the limited fund class action in
another incarnation. "[DJivers suits for general legacies,"
id., at 417, were brought by various legatees against the
executor of a decedent's estate. The
Ross court stated that
where "there is an allegation of a deficiency of the fund, so that
an account of the estate is necessary," the court will "direc[t] an
account in one cause only" and "stay the proceeding[s] in the
others, leaving all the parties interested in the fund, to come in
under the decree."
Id., at 417-418. Thus, in equity, legatee
and creditor bills against the assets of a decedent's estate had to
be brought on behalf of all similarly situated claimants where it
was clear from the pleadings that the available portion of the
estate could not satisfy the aggregate claims against it.17
17 In early creditors' bills, for example, equity would order a
master to call for all creditors to prove their debts, to take
account of the entire estate, and to apply the estate in payment of
the debts. See 1 J. Story, Commentaries on Equity Jurisprudence §§
547, 548 (I. Redfield 8th rev. ed. 1861). This decree, with its
equitable benefit and incorporation of all
838
B
The cases forming this pedigree of the limited fund class action
as understood by the drafters of Rule 23 have a number of common
characteristics, despite the variety of circumstances from which
they arose. The points of resemblance are not necessarily the
points of contention resolved in the particular cases, but they
show what the Advisory Committee must have assumed would be at
least a sufficient set of conditions to justify binding absent
members of a class under Rule 23(b)(1)(B), from which no one has
the right to secede.
The first and most distinctive characteristic is that the totals
of the aggregated liquidated claims and the fund available for
satisfying them, set definitely at their maximums, demonstrate the
inadequacy of the fund to pay all the claims. The concept driving
this type of suit was insufficiency, which alone justified the
limit on an early feast to avoid a later famine. See,
e.
g., Guffanti, supra, at 457, 90 N. E., at 176 ("The
total amount of the claims exceeds the penalty of the bond .... A
just and equitable payment from the bond would be a distribution
pro rata upon the amount of the several embezzlements.
Unless in a case like this the amount
creditors was not, however, available when the executor of the
estate admitted assets sufficient to cover its debts, because where
assets were not limited, no prejudice to the other creditors would
result from the simple payment of the debt to the creditor who
brought the bill. See
Woodgate v.
Field, 2 Hare 211,
213, 67 Eng. Rep. 88, 89 (Ch. 1842) ("The reason for ... the usual
form of decree ... has no application where assets are admitted,
for the executor thereby makes himself liable to the payment of the
debt. In such a case, the other creditors cannot be prejudiced by a
decree for payment of the Plaintiff's debt; and the object of the
special form of the decree in a creditors' suit fails"); see also
Hallett v.
Hallett, 2 Paige 15, 21 (N. Y. 1829)
("[I]f by the answer of the defendant [in a creditors' or legatees'
suit] it appears there will be a deficiency of assets so that all
the creditors cannot be paid in full, or that there must be an
abatement of the complainant's legacy, the court will make a decree
for the general administration of the estate, and a distribution of
the same among the several parties entitled thereto, agreeable to
equity").
839
of the bond is so distributed among the persons having claims
which are secured thereby, it must necessarily result in a scramble
for precedence in payment, and the amount of the bond may be paid
to the favored, or to those first obtaining knowledge of the
embezzlements");
Graves, supra, at 534, 101 So., at 190
("The primary equity of the bill is the adjustment of claims and
the equitable apportionment of a fund provided by law, which is
insufficient to pay claimants in full"). The equity of the
limitation is its necessity.
Second, the whole of the inadequate fund was to be devoted to
the overwhelming claims. See,
e. g., Dickinson, 197 F. 2d,
at 979-980 (rejecting a challenge by holder of funds to the court's
disposition of the entire fund); see also
United States v.
Butterworth-Judson Corp., 269 U. S. 504, 513 (1926)
("Here, the fund being less than the debts, the creditors are
entitled to have all of it distributed among them according to
their rights and priorities"). It went without saying that the
defendant or estate or constructive trustee with the inadequate
assets had no opportunity to benefit himself or claimants of lower
priority by holding back on the amount distributed to the class.
The limited fund cases thus ensured that the class as a whole was
given the best deal; they did not give a defendant a better deal
than
seriatim litigation would have produced.
Third, the claimants identified by a common theory of recovery
were treated equitably among themselves. The cases assume that the
class will comprise everyone who might state a claim on a single or
repeated set of facts, invoking a common theory of recovery, to be
satisfied from the limited fund as the source of payment. Each of
the people represented in
Ross, for example, had comparable
entitlement as a legatee under the testator's will. Those subject
to representation in
Dickinson had a common source of claims
in the solicitation of funds by parties whose subsequent
defalcation left them without their investment, while in
Guffanti the individuals represented had each entrusted
840
money for ticket purchases. In these cases the hope of recovery
was limited, respectively, by estate assets, the residuum of
profits, and the amount of the bond. Once the represented classes
were so identified, there was no question of omitting anyone whose
claim shared the common theory of liability and would contribute to
the calculated shortfall of recovery. See
Railroad Co. v.
Orr, 18 Wall. 471, 474 (1873) (reciting the "well settled"
general rule "that when it appears on the face of the bill that
there will be a deficiency in the fund, and that there are other
creditors or legatees who are entitled to a ratable distribution
with the complainants, and who have a common interest with them,
such creditors or legatees should be made parties to the bill, or
the suit should be brought by the complainants in behalf of
themselves and all others standing in a similar situation"). The
plaintiff appeared on behalf of all similarly situated parties, see
Calvert, Parties to Suits in Equity 24 ("[I]t is not sufficient
that the plaintiff appear on behalf of numerous parties: the rule
seems to be, that he must appear on behalf of all who are
interested"); thus, the creditors' bill was brought on behalf of
all creditors, cf.
Leigh v.
Thomas, 2 Yes. Sen. 312,
313, 28 Eng. Rep. 201 (Ch. 1751) ("No doubt but a bill may be by a
few creditors in behalf of themselves and the rest ... but there is
no instance of a bill by three or four to have an account of the
estate, without saying they bring it in behalf of themselves and
the rest of the creditors"), the constructive trust was asserted on
behalf of all victims of the fraud, and the surety suit was brought
on behalf of all entitled to a share of the bond.18 Once all
similar claims
18 Professor Chafee explained, in discussing bills of peace,
that where a case presents a limited fund, "it is impossible to
make a fair distribution of the fund or limited liability to all
members of the multitude except in a single proceeding where the
claim of each can be adjudicated with due reference to the claims
of the rest. The fund or limited liability is like a mince pie,
which can not be satisfactorily divided until the carver counts
841
were brought directly or by representation before the court,
these antecedents of the mandatory class action presented
straightforward models of equitable treatment, with the simple
equity of a pro rata distribution providing the required fairness,
see 1 J. Pomeroy, Equity Jurisprudence § 407, pp. 764-765 (4th ed.
1918) ("[I]f the fund is not sufficient to discharge all claims
upon it in full ... equity will incline to regard all the demands
as standing upon an equal footing, and will decree a
pro
rata distribution or payment").19
In sum, mandatory class treatment through representative actions
on a limited fund theory was justified with reference to a "fund"
with a definitely ascertained limit, all of which would be
distributed to satisfy all those with liquidated claims based on a
common theory of liability, by an equitable, pro rata
distribution.
C
The Advisory Committee, and presumably the Congress in approving
subdivision (b)(l)(B), must have assumed that an action with these
characteristics would satisfy the limited
the number of persons at the table." Bills of Peace with
Multiple Parties, 45 Harv. L. Rev. 1297, 1311 (1932).
19 As noted above, traditional limited fund class actions
typically provided notice to all claimants and the opportunity for
those claimants to establish their claims before the actual
distribution took place. See,
e. g., Dickinson
v.
Burnham, 197 F.2d
973, 978
(CA2 1952);
Terry v.
President and
Directors of the Bank of Cape Fear, 20 F.7d
7, 782
(CC WDNC 1884); cf.
Johnson v.
Waters, 111 U.
S. 640, 674 (1884) (in a creditors' bill, "it is the usual and
correct course to open a reference in the master's office and to
give other creditors, having valid claims against the fund, an
opportunity to come in and have the benefit of the decree"). Rule
23, however, specifies no notice requirement for subdivision
(b)(1)(B) actions beyond that required by subdivision (e) for
settlement purposes. Plaintiffs in this case made an attempt to
notify all presently identifiable class members in connection with
the fairness hearing, though the adequacy of the effort is
disputed. Since satisfaction or not of a notice requirement would
not affect the disposition of this case, we express no opinion on
the need for notice or the sufficiency of the effort to give it in
this case.
842
fund rationale cognizable under that subdivision. The question
remains how far the same characteristics are necessary for limited
fund treatment. While we cannot settle all the details of a
subdivision (b)(l)(B) limited fund here (and so cannot decide the
ultimate question whether settlements of multitudes of related tort
actions are amenable to mandatory class treatment), there are good
reasons to treat these characteristics as presumptively necessary,
and not merely sufficient, to satisfy the limited fund rationale
for a mandatory action. At the least, the burden of justification
rests on the proponent of any departure from the traditional
norm.
It is true, of course, that the text of Rule 23(b)(1)(B) is on
its face open to a more lenient limited fund concept, just as it
covers more historical antecedents than the limited fund. But the
greater the leniency in departing from the historical limited fund
model, the greater the likelihood of abuse in ways that will be
apparent when we apply the limited fund criteria to the case before
us. The prudent course, therefore, is to presume that when
subdivision (b)(l)(B) was devised to cover limited fund actions,
the object was to stay close to the historical model. As will be
seen, this limiting construction finds support in the Advisory
Committee's expressions of understanding, minimizes potential
conflict with the Rules Enabling Act, and avoids serious
constitutional concerns raised by the mandatory class resolution of
individuallegal claims, especially where a case seeks to resolve
future liability in a settlement-only action.
To begin with, the Advisory Committee looked cautiously at the
potential for creativity under Rule 23(b)(1)(B), at least in
comparison with Rule 23(b)(3). Although the Committee crafted all
three subdivisions of the Rule in general, practical terms, without
the formalism that had bedeviled the original Rule 23, see Kaplan,
Continuing Work 380-386, the Committee was consciously
retrospective with intent to codify preRule categories under Rule
23(b)(1), not forward looking as it was in anticipating innovations
under Rule 23(b)(3). Com-
843
pare Civil Rules Advisory Committee Meeting, Oct. 31-Nov. 2,
1963, Congressional Information Service Records of the U. S.
Judicial Conference, Committee on Rules of Practice and Procedure
1935-1988, No. CI-7104-53, p. 11 (hereinafter Civil Rules Meeting)
(comments of Reporter Kaplan) (Rule 23(b)(3) represents "the
growing point of the law");
id., at 16 (comments of
Committee Member Prof. Albert M. Sacks) (Rule 23(b)(3) is "an
evolving area"). Thus, the Committee intended subdivision (b)(l) to
capture the" 'standard'" class actions recognized in pre-Rule
practice, Kaplan, Continuing Work 394.
Consistent with its backward look under subdivision (b)(l), as
commentators have pointed out, it is clear that the Advisory
Committee did not contemplate that the mandatory class action
codified in subdivision (b)(l)(B) would be used to aggregate
unliquidated tort claims on a limited fund rationale. See Monaghan,
Antisuit Injunctions and Preclusion Against Absent Nonresident
Class Members, 98 Colum. L. Rev. 1148, 1164 (1998) ("The 'framers'
of Rule 23 did not envision the expansive interpretations of the
rule that have emerged .... No draftsmen contemplated that, in mass
torts, (b)(l)(B) 'limited fund' classes would emerge as the
functional equivalent to bankruptcy by embracing 'funds' created by
the litigation itself"); see also Schwarzer, Settlement of Mass
Tort Class Actions: Order Out of Chaos, 80 Cornell L. Rev. 837, 840
(1995) ("The original concept of the limited fund class does not
readily fit the situation where a large volume of claims might
eventually result in judgments that in the aggregate could exceed
the assets available to satisfy them"); Marcus, They Can't Do That,
Can They? Tort Reform Via Rule 23, 80 Cornell L. Rev. 858, 877
(1995). None of the examples cited in the Advisory Committee Notes
or by Professor Kaplan in explaining Rule 23(b)(1)(B) remotely
approach what was then described as a "mass accident" case. While
the Advisory Committee focused much attention on the amenability of
Rule 23(b)(3) to such cases,
844
the Committee's debates are silent about resolving tort claims
under a mandatory limited fund rationale under Rule 23(b)(1)(B).20
It is simply implausible that the Advisory Committee, so concerned
about the potential difficulties posed by dealing with mass tort
cases under Rule 23(b)(3), with its provisions for notice and the
right to opt out, see Rule 23(c)(2), would have uncritically
assumed that mandatory versions of such class actions, lacking such
protections, could be certified under Rule 23(b)(1)(B)P We do not,
it is true, decide the ultimate question whether Rule 23(b)(1)(B)
may ever be used to aggregate individual tort claims, cf.
Ticor
Title Ins. Co. v.
Brown, 511 U. S. 117, 121
(1994)
20 To the extent that members of the Advisory Committee
explicitly considered cases resembling the current mass tort
limited fund class action, they did so in the context of the debate
about bringing "mass accident" class actions under Rule 23(b)(3).
There was much concern on the Advisory Committee about the degree
to which subdivision (b)(3), which the Committee was drafting to
replace the old spurious class action category, would be applied to
"mass accident" cases. Compare,
e. g., Civil Rules
Meeting 9, 14, with,
e. g., id., at 13, 44-45. See
also
id., at 51. As a compromise, the Advisory Committee
Notes state that a '''mass accident' resulting in injuries to
numerous persons is ordinarily not appropriate for a class action
because of the likelihood that significant questions, not only of
damages but of liability and defenses of liability, would be
present, affecting the individuals in different ways." Adv. Comm.
Notes 697. See also Kaplan, Continuing Work 393.
21 The Advisory Committee noted, moreover, that "[w]here the
classaction character of the lawsuit is based solely on the
existence of a 'limited fund,' the judgment, while extending to all
claims of class members against the fund, has ordinarily left
unaffected the personal claims of nonappearing members against the
debtor." Adv. Comm. Notes 698. Cf. Bone, Personal and Impersonal
Litigative Forms: Reconceiving the History of Adjudicative
Representation, 70 B. U. L. Rev. 213, 282 (1990) (historically
suits involving individual claims in the absence of a common fund
did not automatically bind class members, instead providing a
mechanism for notice and the opportunity to join the suit). This
recognition underscores doubt that the Advisory Committee would
have intended liberality in allowing such a circumscribed tradition
to be transmogrified by operation of Rule 23(b)(I)(B) into a
mechanism for resolving the claims of individuals not only against
the fund, but also against an individual tortfeasor.
845
(per curiam). But we do recognize that the Committee
would have thought such an application of the Rule surprising, and
take this as a good reason to limit any surprise by presuming that
the Rule's historical antecedents identify requirements.
The Rules Enabling Act underscores the need for caution.
As we said in
Amchem, no reading of the Rule can ignore
the Act's mandate that "rules of procedure 'shall not abridge,
enlarge or modify any substantive right,'"
Amchem, 521 U.
S., at 613 (quoting 28 U. S. C. § 2072(b)); cf.
Guaranty Trust
Co. v.
York, 326 U. S. 99, 105 (1945)
("In giving federal courts 'cognizance' of equity suits in cases of
diversity jurisdiction, Congress never gave, nor did the federal
courts ever claim, the power to deny substantive rights created by
State law or to create substantive rights denied by State law").
Petitioners argue that the Act has been violated here, asserting
that the Global Settlement Agreement's priorities of claims and
compromise of full recovery abrogated the state law that must
govern this diversity action under 28 U. S. C. § 1652. See Brief
for Petitioners 31-36. Although we need not grapple with the
difficult choice-of-Iaw and substantive state-law questions raised
by petitioners' assertion, we do need to recognize the tension
between the limited fund class action's pro rata distribution in
equity and the rights of individual tort victims at law. Even if we
assume that some such tension is acceptable under the Rules
Enabling Act, it is best kept within tolerable limits by keeping
limited fund practice under Rule 23(b)(1)(B) close to the practice
preceding its adoption.
Finally, if we needed further counsel against adventurous
application of Rule 23(b)(1)(B), the Rules Enabling Act and the
general doctrine of constitutional avoidance would jointly sound a
warning of the serious constitutional concerns that come with any
attempt to aggregate individual tort claims on a limited fund
rationale. First, the certification of a mandatory class followed
by settlement of its action for money
846
damages obviously implicates the Seventh Amendment jury trial
rights of absent class members.22 We noted in
Ross v.
Bernhard, 396
U. S. 531 (1970), that since the merger of law and equity in
1938, it has become settled among the lower courts that "class
action plaintiffs may obtain a jury trial on any legal issues they
present."
Id., at 541. By its nature, however, a mandatory
settlement-only class action with legal issues and future claimants
compromises their Seventh Amendment rights without their
consent.
Second, and no less important, mandatory class actions
aggregating damages claims implicate the due process "principle of
general application in Anglo-American jurisprudence that one is not
bound by a judgment
in personam in a litigation in which he
is not designated as a party or to which he has not been made a
party by service of process,"
Hansberry v.
Lee,
311 U. S. 32, 40
(1940), it being "our 'deep-rooted historic tradition that everyone
should have his own day in court,'"
Martin v.
Wilks,
490 U. S. 755,
762 (1989) (quoting 18 C. Wright, A. Miller, & E. Cooper,
Federal Practice and Procedure § 4449, p. 417 (1981)); see
Richards v.
Jefferson County, 517 U. S. 793, 798-799
(1996). Although" '[w]e have recognized an exception to the general
rule when, in certain limited circumstances, a person, although not
a party, has his interests adequately represented by someone with
the same interests who is a party," or "where a special remedial
scheme exists expressly foreclosing successive litigation by
nonlitigants, as for example in bankruptcy or probate,"
Martin,
supra, at 762, n. 2 (citations omitted), the burden of
justification rests on the exception.
The inherent tension between representative suits and the
day-in-court ideal is only magnified if applied to damages claims
gathered in a mandatory class. Unlike Rule 23(b)(3) class members,
objectors to the collectivism of a mandatory
22 The Seventh Amendment provides: "In Suits at common law,
where the value in controversy shall exceed twenty dollars, the
right of trial by jury shall be preserved .... "
847
subdivision (b)(l)(B) action have no inherent right to abstain.
The legal rights of absent class members (which in a class like
this one would include claimants who by definition may be
unidentifiable when the class is certified) are resolved regardless
of either their consent, or, in a class with objectors, their
express wish to the contrary.23 And in settlement-only class
actions the procedural protections built into the Rule to protect
the rights of absent class members during litigation are never
invoked in an adversarial setting, see
Amchem, supra, at
620.
In related circumstances, we raised the flag on this issue of
due process more than a decade ago in
Phillips Petroleum Co.
v.
Shutts, 472
U. S. 797 (1985).
Shutts was a state class action for
small sums of interest on royalty payments suspended on the
authority of a federal regulation.
Id., at 800. After
certification of the class, the named plaintiffs notified each
member by first-class mail of the right to opt out of the lawsuit.
Out of a class of 33,000, some 3,400 exercised that right, and
another 1,500 were excluded because their notices could not be
delivered.
Id., at 801. After losing at trial, the
defendant, Phillips Petroleum, argued that the state court had no
jurisdiction over claims of out-of-state plaintiffs without their
affirmative consent. We said no and held that out-of-state
plaintiffs could not invoke the same due process limits on personal
jurisdiction that out-of-state defendants had under
International Shoe Co. v.
Washington, 326 U. S.
23 It is no answer in this case that the settlement agreement
provided for a limited, back-end "opt out" in the form of a right
on the part of class members eventually to take their case to court
if dissatisfied with the amount provided by the trust. The "opt
out" in this case requires claimants to exhaust a variety of
alternative dispute mechanisms, to bring suit against the trust,
and not against Fibreboard, and it limits damages to $500,000, to
be paid out in installments over 5 to 10 years, see
supra,
at 827, despite multimillion-dollar jury verdicts sometimes reached
in asbestos suits,
In re Asbestos Litigation, 90 F. 3d, at
1006-1007, n. 30 (Smith, J., dissenting). Indeed, on approximately
a dozen occasions, Fibreboard had settled for more than $500,000.
See App. to Pet. for Cert. 373a.
848
310 (1945), and its progeny. 472 U. S., at 806-808. But we also
saw that before an absent class member's right of action was
extinguishable due process required that the member "receive notice
plus an opportunity to be heard and participate in the litigation,"
and we said that "at a minimum ... an absent plaintiff [must] be
provided with an opportunity to remove himself from the class."
Id., at 812.24
IV
The record on which the District Court rested its certification
of the class for the purpose of the global settlement did not
support the essential premises of mandatory limited fund actions.
It failed to demonstrate that the fund was limited except by the
agreement of the parties, and it showed exclusions from the class
and allocations of assets at odds with the concept of limited fund
treatment and the structural protections of Rule 23(a) explained in
Amchem.
A
The defect of certification going to the most characteristic
feature of a limited fund action was the uncritical adoption by
both the District Court and the Court of Appeals of figures 25
agreed upon by the parties in defining the limits of the fund and
demonstrating its inadequacy.26 When a dis-
24 We also reiterated the constitutional requirement articulated
in
Hansberry v.
Lee, 311 U. S. 32 (1940), that
"the named plaintiff at all times adequately represent the
interests of the absent class members."
Phillips Petroleum
Co. v.
Shutts, 472 U. S., at 812 (citing
Hansberry,
supra, at 42-43, 45). In
Shutts, as an important caveat
to our holding, we made clear that we were only examining the
procedural protections attendant on binding out-of-state class
members whose claims were "wholly or predominately for money
judgments," 472 U. S., at 811, n. 3.
25 The plural reflects the fact that the insurers agreed to
provide $1.525 billion under the Global Settlement Agreement and $2
billion under the Trilateral Settlement Agreement.
26 The federal courts have differed somewhat in articulating the
standard to evaluate whether, in fact, a fund is limited, in cases
involving mass torts. Compare,
e. g., In re Northern Dist. of
California, Dalkon Shield
849
trict court, as here, certifies for class action settlement
only, the moment of certification requires "heightene[d]
attention,"
Amchem, 521 U. S., at 620, to the justifications
for binding the class members. This is so because certification of
a mandatory settlement class, however provisional technically,
effectively concludes the proceeding save for the final fairness
hearing. And, as we held in
Amchem, a fairness hearing under
Rule 23(e) is no substitute for rigorous adherence to those
provisions of the Rule "designed to protect absentees,"
ibid., among them subdivision (b)(1)(B).27 Thus, in an
action such as this the settling parties must present not only
their agreement, but evidence on which the district court may
ascertain the limit and the insufficiency of the fund, with support
in findings of fact following a proceeding in which the evidence is
subject to challenge, see
In re Bendectin Products Liability
Litigation, 749 F.2d
300, 306
(CA6 1984) ("[T]he district court, as a matter
of law, must have a fact-finding inquiry on this question and allow
the opponents of class certification to present evidence that a
limited fund
IUD Products Liability Litigation, 693
F.2d 847, 852
(CA9 1982), cert. denied
sub nom. A. H.
Robins Co., Inc. v.
Abed, 459 U. S. 1171 (1983) (class
proponents must demonstrate that allowing the adjudication of
individual claims will inescapably compromise the claims of absent
class members), with,
e. g., In re "Agent Orange" Product
Liability Litigation, 100 F. R. D. 718, 726 (EDNY 1983), aff'd
818 F.2d
145 (CA2 1987), cert. denied
sub nom. Fraticelli et
al. v.
Dow Chemical Co. et al., 484 U. S. 1004 (1988)
(requiring only a "substantial probability-that is less than a
preponderance but more than a mere possibility-that if damages are
awarded, the claims of earlier litigants would exhaust the
defendants' assets"). Cf.
In re Bendectin Products Liability
Litigation, 749 F.2d
300, 306
(CA6 1984). Because under either formulation,
the class certification in this case cannot stand, it would be
premature to decide the appropriate standard at this time.
27 See Issacharoff, Class Action Conflicts, 30 U. C. D. L. Rev.
805, 822 (1997) ("[I]n the context of a mandatory
settlement
class, the individual class member is presented with what purports
to be a binding
fait accompli, with the only recourse
a likely futile objection at the fairness hearing required by Rule
23(e)").
850
does not exist"); see also
In re Temple, 851 F.2d
1269, 1272 (CAll 1988) ("Without a finding as to the net worth
of the defendant, it is difficult to see how the fact of a limited
fund could have been established given that all of [the
defendant's] assets are potentially available to suitors");
In
re Dennis Greenman Securities Litigation, 829
F.2d 1539, 1546 (CAll 1987) (discussing factual findings
necessary for certification of a limited fund class action).
We have already alluded to the difficulties facing limited fund
treatment of huge numbers of actions for unliquidated damages
arising from mass torts, the first such hurdle being a computation
of the total claims. It is simply not a matter of adding up the
liquidated amounts, as in the models of limited fund actions.
Although we might assume,
arguendo, that prior judicial
experience with asbestos claims would allow a court to make a
sufficiently reliable determination of the probable total, the
District Court here apparently thought otherwise, concluding that
"there is no way to predict Fibreboard's future asbestos liability
with any certainty." 162 F. R. D., at 528. Nothing turns on this
conclusion, however, since there was no adequate demonstration of
the second element required for limited fund treatment, the upper
limit of the fund itself, without which no showing of insufficiency
is possible.
The "fund" in this case comprised both the general assets of
Fibreboard and the insurance assets provided by the two policies,
see 90 F. 3d, at 982 (describing the fund as Fibreboard's entire
equity and $2 billion in insurance assets under the Trilateral
Settlement Agreement). As to Fibreboard's assets exclusive of the
contested insurance, the District Court and the Fifth Circuit
concluded that Fibreboard had a then-current sale value of $235
million that could be devoted to the limited fund. While that
estimate may have been conservative,28 at least the District Court
heard evi-
28 The District Court based the $235 million figure on evidence
provided by an investment banker regarding what a "financially
prudent buyer" would pay to acquire Fibreboard free of its personal
injury asbestos liabili-
851
dence and made an independent finding at some point in the
proceedings. The same, however, cannot be said for the value of the
disputed insurance.
The insurance assets would obviously be "limited" in the
traditional sense if the total of demonstrable claims would render
the insurers insolvent, or if the policies provided aggregate
limits falling short of that total; calculation might be difficult,
but the way to demonstrate the limit would be clear. N either
possibility is presented in this case, however. Instead, any limit
of the insurance asset here had to be a product of potentially
unlimited policy coverage discounted by the risk that Fibreboard
would ultimately lose the coverage dispute litigation. This sense
of limit as a value discounted by risk is of course a step removed
from the historical model, but even on the assumption that it would
suffice for limited fund treatment, there was no adequate finding
of fact to support its application here. Instead of undertaking an
independent evaluation of potential insurance funds, the District
Court (and, later, the Court of Appeals), simply accepted the $2
billion Trilateral Settlement Agreement figure as representing the
maximum amount the insurance companies could be required to pay
tort victims, concluding that "[w]here insurance coverage is
disputed, it is appropriate to value the insurance asset at a
settlement value." App. to Pet. for Cert. 492a.29
ties, less transaction costs. App. to Pet. for Cert. 377a, 492a.
In 1997, however, Fibreboard was acquired for about $515 million,
plus $85 million of assumed debt. See
In re Asbestos
Litigation, 134 F.3d
668, 674
(CA5 1998) (Smith, J., dissenting); see also
Coffee, Class Wars: The Dilemma of the Mass Tort Class Action, 95
Colum. L. Rev. 1343, 1402 (1995) (noting the surge in Fibreboard's
stock price following the settlement below).
29 In describing possible limited funds in this case, the
District Court discounted the $2 billion Trilateral Settlement
Agreement figure by the amount necessary to resolve present claims
included in neither the inventory settlements nor the global class
claims and other items, yielding a figure equal to the $1.535
billion available under the Global Settlement Agreement. App. to
Pet. for Cert. 492a. The Court of Appeals, by contrast, assumed
that the full $2 billion represented by the Trilateral Settle-
852
Settlement value is not always acceptable, however. One may take
a settlement amount as good evidence of the maximum available if
one can assume that parties of equal knowledge and negotiating
skill agreed upon the figure through arms-length bargaining,
unhindered by any considerations tugging against the interests of
the parties ostensibly represented in the negotiation. But no such
assumption may be indulged in this case, or probably in any class
action settlement with the potential for gigantic fees.30 In this
case, certainly, any assumption that plaintiffs' counsel could be
of a mind to do their simple best in bargaining for the benefit of
the settlement class is patently at odds with the fact that at
least some of the same lawyers representing plaintiffs and the
class had also negotiated the separate settlement of 45,000 pending
claims, 90 F. 3d, at 969-970, 971, the full payment of which was
contingent on a successful Global Settlement Agreement or the
successful resolution of the insurance coverage dispute (either by
litigation or by agreement, as eventually occurred in the
Trilateral Settlement Agreement),
id., at 971, n. 3; App.
119a-120a. Class counsel thus had great incentive to reach any
agreement in the global settlement negotiations that they thought
might survive a Rule 23(e) fairness hearing, rather than the best
possible arrangement for the substantially unidentified global
settlement class. Cf. Cramton, Individualized Justice, Mass
ment Agreement would be available to class claims.
In re
Asbestos Litigation, 90 F. 3d, at 982. The Court of Appeals
provided no explanation for using the higher figure in light of the
District Court's conclusion that only $1.535 billion of the $2
billion Trilateral Settlement Agreement figure would actually be
available to the class. Either way, the figure represented only the
amount the insurance companies agreed to pay, and not an
independent evaluation of the limits of their payment
obligations.
30 In a strictly rational world, plaintiffs' counsel would
always press for the limit of what the defense would pay. But with
an already enormous fee within counsel's grasp, zeal for the client
may relax sooner than it would in a case brought on behalf of one
claimant.
853
Torts, and "Settlement Class Actions": An Introduction, 80
Cornell L. Rev. 811, 832 (1995) ("[S]ide settlements suggest that
class counsel has been laboring under an impermissible conflict of
interest and that it may have preferred the interests of current
clients to those of the future claimants in the settlement class").
The resulting incentive to favor the known plaintiffs in the
earlier settlement was, indeed, an egregious example of the
conflict noted in
Amchem resulting from divergent interests
of the presently injured and future claimants. See 521 U. S., at
626-627 (discussing adequacy of named representatives under Rule
23(a)(4)).
We do not, of course, know exactly what an independent valuation
of the limit of the insurance assets would have shown. It might
have revealed that even on the assumption that Fibreboard's
coverage claim was sound, there would be insufficient assets to pay
claims, considered with reference to their probable timing; if
Fibreboard's own assets would not have been enough to pay the
insurance shortfall plus any claims in excess of policy limits, the
projected insolvency of the insurers and Fibreboard would have
indicated a truly limited fund. (Nothing in the record, however,
suggests that this would have been a supportable finding.) Or an
independent valuation might have revealed assets of insufficient
value to pay all projected claims if the assets were discounted by
the prospects that the insurers would win the coverage cases. Or
the court's independent valuation might have shown, discount or no
discount, the probability of enough assets to pay all projected
claims, precluding certification of any mandatory class on a
limited fund rationale. Throughout this litigation the courts have
accepted the assumption that the third possibility was out of the
question, and they may have been right. But objecting and
unidentified class members alike are entitled to have the issue
settled by specific evidentiary findings independent of the
agreement of defendants and conflicted class counsel.
854
B
The explanation of need for independent determination of the
fund has necessarily anticipated our application of the requirement
of equity among members of the class. There are two issues, the
inclusiveness of the class and the fairness of distributions to
those within it. On each, this certification for settlement fell
short.
The definition of the class excludes myriad claimants with
causes of action, or foreseeable causes of action, arising from
exposure to Fibreboard asbestos. While the class includes those
with present claims never filed, present claims withdrawn without
prejudice, and future claimants, it fails to include those who had
previously settled with Fibreboard while retaining the right to sue
again "upon development of an asbestos related malignancy,"
plaintiffs with claims pending against Fibreboard at the time of
the initial announcement of the Global Settlement Agreement, and
the plaintiffs in the "inventory" claims settled as a supposedly
necessary step in reaching the global settlement, see 90 F. 3d, at
971. The number of those outside the class who settled with a
reservation of rights may be uncertain, but there is no such
uncertainty about the significance of the settlement's exclusion of
the 45,000 inventory plaintiffs and the plaintiffs in the unsettled
present cases, estimated by the Guardian Ad Litem at more than
53,000 as of August 27, 1993, see App. in No. 95-40635
(CA5), 6 Record, Tab 55, p. 72 (Report of the Guardian Ad
Litem). It is a fair question how far a natural class may be
depleted by prior dispositions of claims and still qualify as a
mandatory limited fund class, but there can be no question that
such a mandatory settlement class will not qualify when in the very
negotiations aimed at a class settlement, class counsel agree to
exclude what could turn out to be as much as a third of the
claimants that negotiators thought might eventually be involved, a
substantial number of whom class counsel represent, see App. to
Pet. for Cert.
855
321a (noting that the parties negotiating the global settlement
agreed to use a negotiating benchmark of 186,000 future claims
against Fibreboard).
Might such class exclusions be forgiven if it were shown that
the class members with present claims and the outsiders ended up
with comparable benefits? The question is academic here. On the
record before us, we cannot speculate on how the unsettled claims
would fare if the global settlement were approved, or under the
trilateral settlement. As for the settled inventory claims, their
plaintiffs appeared to have obtained better terms than the class
members. They received an immediate payment of 50 percent of a
settlement higher than the historical average, and would get the
remainder if the global settlement were sustained (or the coverage
litigation resolved, as it turned out to be by the Trilateral
Settlement Agreement); the class members, by contrast, would be
assured of a 3-year payout for claims settled, whereas the
unsettled faced a prospect of mediation followed by arbitration as
prior conditions of instituting suit, which would even then be
subject to a recovery limit, a slower payout, and the limitations
of the trust's spendthrift protection. See
supra, at 827.
Finally, as discussed below, even ostensible parity between
settling nonclass plaintiffs and class members would be
insufficient to overcome the failure to provide the structural
protection of independent representation as for subclasses with
conflicting interests.
On the second element of equity within the class, the fairness
of the distribution of the fund among class members, the settlement
certification is likewise deficient. Fair treatment in the older
cases was characteristically assured by straightforward pro rata
distribution of the limited fund. See
supra, at 841. While
equity in such a simple sense is unattainable in a settlement
covering present claims not specifically proven and claims not even
due to arise, if at all, until some future time, at the least such
a settlement must
856
seek equity by providing for procedures to resolve the difficult
issues of treating such differently situated claimants with
fairness as among themselves.
First, it is obvious after
Amchem that a class divided
between holders of present and future claims (some of the latter
involving no physical injury and attributable to claimants not yet
born) requires division into homogeneous subclasses under Rule
23(c)(4)(B), with separate representation to eliminate conflicting
interests of counsel. See
Amchem, 521 U. S., at 627 (class
settlements must provide "structural assurance of fair and adequate
representation for the diverse groups and individuals affected");
cf. 5 J. Moore, T. Chorvat, D. Feinberg, R. Marmer, & J.
Solovy, Moore's Federal Practice § 23.25[5][e], p. 23-149 (3d ed.
1998) (an attorney who represents another class against the same
defendant may not serve as class counsel).31 As we said in
Amchem, "for the currently injured, the critical goal is
generous immediate payments," but "[t]hat goal tugs against the
interest of exposure-only plaintiffs in ensuring an ample,
inflationprotected fund for the future." 521 U. S., at 626. No such
procedure was employed here, and the conflict was as contrary to
the equitable obligation entailed by the limited fund
31 This adequacy of representation concern parallels the enquiry
required at the threshold under Rule 23(a)(4), but as we indicated
in
Amchem, the same concerns that drive the threshold
findings under Rule 23(a) may also influence the propriety of the
certification decision under the subdivisions of Rule 23(b). See
Amchem, 521 U. S., at 623, n. 18.
In
Amchem, we concentrated on the adequacy of named
plaintiffs, but we recognized that the adequacy of representation
enquiry is also concerned with the "competency and conflicts of
class counsel."
Id., at 626, n. 20 (citing
General
Telephone Co. of Southwest v.
Falcon, 457 U. S. 147, 157-158,
n. 13 (1982)); see also 5 Moore's Federal Practice § 23.25[3][a]
(adequacy of representation concerns named plaintiff and class
counsel). In this case, of course, the named representatives were
not even "named [until] after the agreement in principle was
reached," App. to Pet. for Cert. 483a; and they then relied on
class counsel in subsequent settlement negotiations,
ibid.
857
rationale as it was to the requirements of structural protection
applicable to all class actions under Rule 23(a)(4).
Second, the class included those exposed to Fibreboard's
asbestos products both before and after 1959. The date is
significant, for that year saw the expiration of Fibreboard's
insurance policy with Continental, the one that provided the bulk
of the insurance funds for the settlement. Pre-1959 claimants
accordingly had more valuable claims than post1959 claimants, see
90 F. 3d, at 1012-1013 (Smith, J., dissenting), the consequence
being a second instance of disparate interests within the certified
class. While at some point there must be an end to reclassification
with separate counsel, these two instances of conflict are well
within the requirement of structural protection recognized in
Amchem.
It is no answer to say, as the Fifth Circuit said on remand,
that these conflicts may be ignored because the settlement makes no
disparate allocation of resources as between the conflicting
classes. See 134 F. 3d, at 669-670. The settlement decides that the
claims of the immediately injured deserve no provisions more
favorable than the more speculative claims of those projected to
have future injuries, and that liability subject to indemnification
is no different from liability with no indemnification. The very
decision to treat them all the same is itself an allocation
decision with results almost certainly different from the results
that those with immediate injuries or claims of indemnified
liability would have chosen.
Nor does it answer the settlement's failures to provide
structural protections in the service of equity to argue that the
certified class members' common interest in securing contested
insurance funds for the payment of claims was so weighty as to
diminish the deficiencies beneath recognition here. See Brief for
Respondent Class Representatives Ahearn et al. 31 (discussing this
issue in the context of the Rule 23(a)(4) adequacy of
representation requirement);
id.,
858
at 35-36 (citing,
e. g., In re ''Agent Orange" Product
Liability Litigation, 996 F.2d
1425, 1435-1436
(CA2 1993);
In re ''Agent Orange"
Product Liability Litigation, 800 F.2d
14,
18-19 (CA2 1986)). This argument is simply a
variation of the position put forward by the proponents of the
settlement in
Amchem, who tried to discount the comparable
failure in that case to provide separate representatives for
subclasses with conflicting interests, see Brief for Petitioners in
Amchem Products, Inc. v.
Windsor, O. T. 1996, No.
96-270, p. 48 (arguing that "achieving a
global settlement"
was "an overriding concern that all plaintiffs [held] in common");
see also
id., at 42 (arguing that the requirement of Rule
23(b)(3) that there be predominance of common questions of law or
fact had been met by shared interest in "the fairness of the
settlement"). The current position is just as unavailing as its
predecessor in
Amchem. There we gave the argument no weight,
see 521 U. S., at 625-628, observing that "[t]he benefits
asbestos-exposed persons might gain from the establishment of a
grand-scale compensation scheme is a matter fit for legislative
consideration," but the determination whether "proposed classes are
sufficiently cohesive to warrant adjudication" must focus on
"questions that preexist any settlement,"
id., at 622-623.32
Here, just as in the earlier case, the proponents of the settlement
are trying to rewrite Rule 23; each ignores the fact that Rule 23
requires protections under subdivisions (a) and (b) against
inequity and potential inequity at the precertification stage,
quite independently of the required determination at
postcertification fairness review under subdivision (e) that any
settlement is fair in an overriding sense. A fairness hearing under
subdivision (e) can no more swallow the preceding protective
requirements
32We made this observation in the context of Rule 23(b)(3)'s
predominance enquiry, see
Amchem, 521 U. S., at 622-623, and
noted that no "'limited fund' capable of supporting class treatment
under Rule 23(b)(1)(B)" was involved,
id., at 623, n.
19.
859
of Rule 23 in a subdivision (b)(l)(B) action than in one under
subdivision (b)(3).33
C
A third contested feature of this settlement certification that
departs markedly from the limited fund antecedents is the ultimate
provision for a fund smaller than the assets understood by the
Court of Appeals to be available for payment of the mandatory class
members' claims; most notably, Fibreboard was allowed to retain
virtually its entire net worth. Given our treatment of the two
preceding deficiencies of the certification, there is of course no
need to decide whether this feature of the agreement would alone be
fatal to the Global Settlement Agreement. To ignore it entirely,
however, would be so misleading that we have decided simply to
identify the issue it raises, without purporting to resolve it at
this time.
Fibreboard listed its supposed entire net worth as a component
of the total (and allegedly inadequate) assets available for
claimants, but subsequently retained all but $500,000
33 As a variation of the argument that class members' common
interest in securing the insurance settlement overrode any internal
conflicts, respondents put forth an alternative rationale for
sustaining the certification in this case under Rule 23(b)(1)(B).
They assert that "failure by the class to file and maintain a class
action to resolve the coverage disputes on a unitary basis-allowing
class members instead to prosecute their claims separately-would
have put class members to the 'significant risk[s]' that Fibreboard
would lose its claimed insurance as a result of the coverage
disputes," and that "any separate action by any class member could
have
itself resulted in an adjudication that the insurers
owed no coverage to Fibreboard .... " Brief for Respondents
Continental et al. 25 (quoting Rule 23(b)(1)(B)). Whatever its
merits, this rationale for certification is foreclosed by the class
conflicts, rehearsed above, that tainted the negotiation of the
global settlement, and that at this point cannot be undone. Thus,
whether a mandatory class could now be certified without the
excluded inventory plaintiffs (whose settlements would appear to be
final), or with properly represented subclasses, is an issue we
need not address.
860
of that equity for itself.34 On the face of it, the arrangement
seems irreconcilable with the justification of necessity in denying
any opportunity for withdrawal of class members whose jury trial
rights will be compromised, whose damages will be capped, and whose
payments will be delayed. With Fibreboard retaining nearly all its
net worth, it hardly appears that such a regime is the best that
can be provided for class members. Given the nature of a limited
fund and the need to apply its criteria at the certification stage,
it is not enough for a District Court to say that it "need not
ensure that a defendant designate a particular source of its assets
to satisfy the class' claims; [but only that] the amount recovered
by the class [be] fair."
Ahearn, 162 F. R. D., at 527.
The District Court in this case seems to have had a further
point in mind, however. One great advantage of class action
treatment of mass tort cases is the opportunity to save the
enormous transaction costs of piecemeal litigation, an advantage to
which the settlement's proponents have referred in this case.35
Although the District Court made no specific
34 We need not decide here how close to insolvency a limited
fund defendant must be brought as a condition of class
certification. While there is no inherent conflict between a
limited fund class action under Rule 23(b)(1)(B) and the Bankruptcy
Code, cf.,
e. g., In re Drexel Burnham Lambert Group, Inc.,
960 F.2d
285, 292
(CA2 1992), it is worth noting that if limited
fund certification is allowed in a situation where a company
provides only a
de minimis contribution to the ultimate
settlement fund, the incentives such a resolution would provide to
companies facing tort liability to engineer settlements similar to
the one negotiated in this case would, in all likelihood,
significantly undermine the protections for creditors built into
the Bankruptcy Code. We note further that Congress in the
Bankruptcy Reform Act of 1994, Pub. L. 103-394, § 111(a), amended
the Bankruptcy Code to enable a debtor in a Chapter 11
reorganization in certain circumstances to establish a trust toward
which the debtor may channel future asbestos-related liability, see
11 U. S. C. §§ 524(g), (h).
35 Some courts certifying limited fund class actions have
focused on the advantages such suits have in reducing transaction
costs when compared to piecemeal litigation. See,
e. g., In re
Drexel Burnham Lambert Group, Inc., supra, at 292 (certifying
mandatory class in part because "some mem-
861
finding about the transaction cost saving likely from this class
settlement, estimating the amount in the "hundreds of millions,"
id., at 529, it did conclude that the amount would exceed
Fibreboard's net worth as the Court valued it,
ibid.
(Fibreboard's net worth of $235 million "is considerably less than
the likely savings in defense costs under the Global Settlement").
If a settlement thus saves transaction costs that would never have
gone into a class member's pocket in the absence of settlement, may
a credit for some of the savings be recognized in a mandatory class
action as an incentive to settlement? It is at least a legitimate
question, which we leave for another day.
v
Our decision rests on a different basis from the ground of
JUSTICE BREYER'S dissent, just as there was a difference in
approach between majority and dissenters in
Amchem. The nub
of our position is that we are bound to follow Rule 23 as we
understood it upon its adoption, and that we are not free to alter
it except through the process prescribed by Congress in the Rules
Enabling Act. Although, as the dissent notes,
post, at 882,
the revised text adopted in 1966 was understood (somewhat
cautiously) to authorize the courts to provide for class treatment
of mass tort litigation, it was also
bers of the putative class might attempt to maintain costly
individual actions in the hope and, perhaps, the belief that their
claims are more meritorious than the claims of other class
members," and thus warranting mandatory class certification "to
prevent claimants with such motivations from unfairly diminishing
the eventual recovery of other class members"). Although the
transaction costs Fibreboard faced prior to settlement were at
times significant, see
Ahearn, 162 F. R. D., at 509; see
also App. to Pet. for Cert. 282a (Fibreboard's annual asbestos
litigation defense costs ran, at times, as high as twice the total
face value of settlements reached), given the exigencies of
Fibreboard's contingent insurance asset, this case does not present
an instance in which limited fund certification can be justified on
the ground that such settlement necessarily provided funds equal
to, or greater than, what might have been recovered through
individual litigation factoring out transaction costs.
862
the Court's understanding that the Rule's growing edge for that
purpose would be the opt-out class authorized by subdivision
(b)(3), not the mandatory class under subdivision (b)(l)(B), see
supra, at 843-844. While we have not ruled out the
possibility under the present Rule of a mandatory class to deal
with mass tort litigation on a limited fund rationale, we are not
free to dispense with the safeguards that have protected mandatory
class members under that theory traditionally.
Apart from its effect on the requirements of subdivision (a) as
explained and held binding in
Amchem, the dissent would move
the standards for mandatory actions in the direction of opt-out
class requirements by according weight to this "unusual limited
fund['s] ... witching hour,"
post, at 877, in exercising
discretion over class certification. It is on this belief (that we
should sustain the allowances made by the District Court in
consideration of the exigencies of this settlement proceeding) that
the dissent addresses each of the criteria for limited fund
treatment (demonstrably insufficient fund, intraclass equity, and
dedication of the entire fund, see
post, at 873-883).
As to the calculation of the fund, the dissent believes an
independent valuation by the District Court may be dispensed with
here in favor of the figure agreed upon by the settling parties.
The dissent discounts the conflicts on the part of class counsel
who negotiated the Global Settlement Agreement by arguing that the
"relevant" settlement negotiation, and hence the relevant
benchmark for judging the actual value of the insurance amount, was
the negotiation between Fibreboard and the insurers that produced
the Trilateral Settlement Agreement. See
post, at 876. This
argument, however, minimizes two facts: (1) that Fibreboard and the
insurers made this separate, backup agreement only at the
insistence of class counsel as a condition for reaching the Global
Settlement Agreement; (2) even more important, that "[t]he Insurers
were ... adamant that they would not agree
863
to pay any more in the context of a backup agreement than in a
global agreement," a principle "Fibreboard acceded to" on the day
the Global Settlement Agreement was announced "as the price of
permitting an agreement to be reached with respect to a global
settlement,"
Ahearn, 162 F. R. D., at 516. Under these
circumstances the reliability of the Trilateral Settlement
Agreement's figure is inadequate as an independent benchmark that
might excuse the want of any independent judicial determination
that the Global Settlement Agreement's fund was the maximum
possible. In any event, the dissent says, it is not crucial whether
a $30 claim has to settle for $15 or $20. But it is crucial.
Conflict-free counsel, as required by Rule 23(a) and
Amchem,
might have negotiated a $20 figure, and a limited fund rationale
for mandatory class treatment of a settlement-only action requires
assurance that claimants are receiving the maximum fund, not a
potentially significant fraction less.
With respect to the requirement of intraclass equity, the
dissent argues that conflicts both within this certified class and
between the class as certified and those excluded from it may be
mitigated because separate counsel were simply not to be had in the
short time that a settlement agreement was possible before the
argument (or likely decision) in the coverage case. But this is to
say that when the clock is about to strike midnight, a court
considering class certification may lower the structural
requirements of Rule 23(a) as declared in
Amchem, and the
parallel equity requirements necessary to justify mandatory class
treatment on a limited fund theory.
Finally, the dissent would excuse Fibreboard's retention of
virtually all its net worth, and the loss to members of the
certified class of some 13 percent of the fund putatively available
to them, on the ground that the settlement made more money
available than any other effort would likely have done. But even if
we could be certain that this evaluation were true, this is to
reargue
Amchem: the settlement's fair-
864
ness under Rule 23(e) does not dispense with the requirements of
Rules 23(a) and (b).
We believe that if an allowance for exigency can make a
substantial difference in the level of Rule 23 scrutiny, the
economic temptations at work on counsel in class actions will
guarantee enough exigencies to take the law back before
Amchem and unsettle the line between mandatory class actions
under subdivision (b)(l)(B) and opt-out actions under subdivision
(b)(3).
VI
In sum, the applicability of Rule 23(b)(1)(B) to a fund and plan
purporting to liquidate actual and potential tort claims is subject
to question, and its purported application in this case was in any
event improper. The Advisory Committee did not envision mandatory
class actions in cases like this one, and both the Rules Enabling
Act and the policy of avoiding serious constitutional issues
counsel against leniency in recognizing mandatory limited fund
actions in circumstances markedly different from the traditional
paradigm. Assuming,
arguendo, that a mandatory, limited fund
rationale could under some circumstances be applied to a settlement
class of tort claimants, it would be essential that the fund be
shown to be limited independently of the agreement of the parties
to the action, and equally essential under Rules 23(a) and
(b)(l)(B) that the class include all those with claims unsatisfied
at the time of the settlement negotiations, with intraclass
conflicts addressed by recognizing independently represented
subclasses. In this case, the limit of the fund was determined by
treating the settlement agreement as dispositive, an error
magnified by the representation of class members by counsel also
representing excluded plaintiffs, whose settlements would be funded
fully upon settlement of the class action on any terms that could
survive final fairness review. Those separate settlements, together
with other exclusions from the claimant class, precluded adequate
structural protection by subclass treatment, which was not even
865
afforded to the conflicting elements within the class as
certified.
The judgment of the Court of Appeals, accordingly, is reversed,
and the case is remanded for further proceedings consistent with
this opinion.
It is so ordered.
CHIEF JUSTICE REHNQUIST, with whom JUSTICE SCALIA and JUSTICE
KENNEDY join, concurring.
JUSTICE BREYER'S dissenting opinion highlights in graphic detail
the massive impact of asbestos-related claims on the federal
courts.
Post, at 866-867. Were I devising a system for
handling these claims on a clean slate, I would agree entirely with
that dissent, which in turn approves the near-heroic efforts of the
District Court in this case to make the best of a bad situation.
Under the present regime, transactional costs will surely consume
more and more of a relatively static amount of money to pay these
claims.
But we are not free to devise an ideal system for adjudicating
these claims. Unless and until the Federal Rules of Civil Procedure
are revised, the Court's opinion correctly states the existing law,
and I join it. But the "elephantine mass of asbestos cases,"
ante, at 821, cries out for a legislative solution.
JUSTICE BREYER, with whom JUSTICE STEVENS joins, dissenting.
This case involves a settlement of an estimated 186,000
potential future asbestos claims against a single company,
Fibreboard, for approximately $1.535 billion. The District Court,
in approving the settlement, made 446 factual findings, on the
basis of which it concluded that the settlement was equitable, that
the potential claimants had been well represented, and that the
distinctions drawn among different categories of claimants were
reasonable.
Ahearn v.
Fibreboard Corp., 162 F. R. D.
505 (ED Tex. 1995); App. to Pet. for
866
Cert.248a-468a. The Court of Appeals, dividing 2 to 1, held that
the settlement was lawful.
In re Asbestos Litigation,
134 F.3d
668 (CAS 1998). I would not set aside the Court of
Appeals' judgment as the majority does. Accordingly, I dissent.
I A
Four special background circumstances underlie this settlement
and help to explain the reasonableness and consequent lawfulness of
the relevant District Court determinations. First, as the majority
points out, the settlement comprises part of an "elephantine mass
of asbestos cases," which "defies customary judicial
administration."
Ante, at 821. An estimated 13-to-21 million
workers have been exposed to asbestos. See Report of the Judicial
Conference Ad Hoc Committee on Asbestos Litigation 6-7 (Mar. 1991)
(hereinafter Report). Eight years ago the Judicial Conference spoke
of the mass of related cases having "reached critical dimensions,"
threatening "a disaster of major proportions."
Id., at 2. In
the Eastern District of Texas, for example, one out of every three
civil cases filed in 1990 was an asbestos case. See
id., at
8. In the past decade nearly 80,000 new federal asbestos cases have
been filed; more than 10,000 new federal asbestos cases were filed
last year. See U. S. District Courts Civil Cases Commenced by
Nature of Suit, Administrative Office of the Courts Statistics
(Dec. 31, 1994-1998) (Table
C2-A) (hereinafter AO
Statistics).
The Judicial Conference found that asbestos cases on average
take almost twice as long as other lawsuits to resolve. See Report
10-11. Judge Parker, the experienced trial judge who approved this
settlement, noted in one 3,000member asbestos class action over
which he presided that 448 of the original class members had died
while the litigation was pending.
Cimino v.
Raymark
Industries, Inc., 751 F. Supp. 649, 651 (ED Tex. 1990). And
yet, Judge Parker
867
went on to state, if the District Court could close "thirty
cases a month, it would [still] take six and one-half years to try
these cases and [due to new filings] there would be pending over
5,000 untouched cases" at the end of that time.
I d., at
652. His subsequent efforts to accelerate final decision or
settlement through the use of sample cases produced a highly
complex trial (133 trial days, more than 500 witnesses, half a
million pages of documents) that eventually closed only about 160
cases because efforts to extrapolate from the sample proved
fruitless. See
Cimino v.
Raymark Industries, Inc.,
151 F.3d
297, 335
(CA5 1998). The consequence is not only delay
but also attorney's fees and other "transaction costs" that are
unusually high, to the point where, of each dollar that asbestos
defendants pay, those costs consume an estimated 61 cents, with
only 39 cents going to victims. See Report 13.
Second, an individual asbestos case is a tort case, of a kind
that courts, not legislatures, ordinarily will resolve. It is the
number of these cases, not their nature, that creates the special
judicial problem. The judiciary cannot treat the problem as
entirely one of legislative failure, as if it were caused, say, by
a poorly drafted statute. Thus, when "calls for national
legislation" go unanswered,
ante, at 821, judges can and
should search aggressively for ways, within the framework of
existing law, to avoid delay and expense so great as to bring about
a massive denial of justice.
Third, in that search the district courts may take advantage of
experience that appellate courts do not have. Judge Parker, for
example, has written of "a disparity of appreciation for the
magnitude of the problem," growing out of the difference between
the trial courts' "daily involvement with asbestos litigation" and
the appellate courts' "limited" exposure to such litigation in
infrequent appeals.
Cimino, 751
Fourth, the alternative to class-action settlement is not a fair
opportunity for each potential plaintiff to have his or her
868
own day in court. Unusually high litigation costs, unusually
long delays, and limitations upon the total amount of resources
available for payment together mean that most potential plaintiffs
may not have a realistic alternative. And Federal Rule of Civil
Procedure 23 was designed to address situations in which the
historical model of individual actions would not, for practical
reasons, work. See generally Advisory Committee's Notes on Fed.
Rule Civ. Proc. 23, 28 U. S. C. App., p. 696 (discussing, in
relation to Rule 23(b)(1)(B), instances in which individual
judgments, "while not technically concluding the other members,
might do so as a practical matter").
For these reasons, I cannot easily find a legal answer to the
problems this case raises by referring, as does the majority, to
"our 'deep-rooted historic tradition that everyone should have his
own day in court.'"
Ante, at 846 (citation omitted).
Instead, in these circumstances, I believe our Court should allow a
district court full authority to exercise every bit of
discretionary power that the law provides. See generally
Califano v.
Yamasaki, 442 U. S. 682, 703 (1979)
("[M]ost issues arising under Rule 23 ... [are] committed in the
first instance to the discretion of the district court");
Reiter v.
Sonotone Corp., 442 U. S. 330, 345 (1979)
(district courts have "broad power and discretion ... with respect
to matters involving the certification" of class actions). And, in
doing so, the Court should prove extremely reluctant to overturn a
fact-specific or circumstance-specific exercise of that discretion,
where a court of appeals has found it lawful. Cf.
Universal
Camera Corp. v.
NLRB, 340 U. S. 474, 490-491
(1951) (Supreme Court will rarely overturn appellate court review
of agency factfinding). This cautionary principle of review leads
me to an ultimate conclusion different from that of the
majority.
B
The case before us involves a class of individuals (and their
families) exposed to asbestos manufactured by Fibreboard
869
who, for the most part, had not yet sued or settled with
Fibreboard as of August 1993. The negotiating parties estimated
that Fibreboard faced approximately 186,000 of these future claims.
See App. to Pet. for Cert. 321a; cf. AO Statistics, Table
C2-A (total number of
all civil cases filed in
federal district courts in 1998 was 252,994). Although the District
Court was unable to give a precise figure, see App. to Pet. for
Cert. 356a-357a, there is no doubt that a realistic assessment of
the value of these claims far exceeds Fibreboard's total net
worth.
But, as of 1993, one potentially short-lived additional asset
promised potential claimants a greater recovery. That asset
consisted of two insurance policies, one issued by Continental
Casualty, the other by Pacific Indemnity. If the policies were
valid (i.
e., if they covered most of the relevant claims),
they were worth several billion dollars; but if they were invalid,
this asset was worth nothing. At that time, a separate case brought
by Fibreboard against the insurance companies in California state
court seemed likely to resolve the value of the policies in the
near future. That separate litigation had a settlement value for
the insurance companies. At the time the parties were negotiating,
prior to the California court's decision, the insurance policies
were worth, as the majority puts it, the value of "unlimited policy
coverage" (i.
e., perhaps the insurance companies' entire
net worth) "discounted by the risk that Fibreboard would ultimately
lose the coverage dispute litigation."
Ante, at 851.
The insurance companies offered to settle with both Fibreboard
and those persons with claims against Fibreboard (who might have
tried to sue the insurance companies directly). The settlement
negotiations came to a head in August 1993, just as a California
state appeals court was poised to decide the validity of the
insurance policies. This fact meant speed was important, for the
California court could well decide that the policies were worth
nothing. It also meant that it was important to certify a
non-opt-out class of Fibreboard plain-
870
tiffs. If the class that entered into the settlement were an
opt-out class, then members of that class could wait to see what
the California court did. If the California court found the
policies valid (hence worth many billions of dollars), they would
opt out of the class and sue for everything they could get; if the
California court found the policies invalid (and worth nothing),
they would stick with the settlement. The insurance companies would
gain little from that kind of settlement, and they would not agree
to it. See
In re Asbestos Litigation, 90
F.3d 963, 970
(CA5 1996).
After eight days of hearings, the District Court found that the
insurance policies plus Fibreboard's net worth amounted to a
"limited fund," valued at $1.77 billion (the amount the insurance
companies were willing to contribute to the settlement plus
Fibreboard's value). See App. to Pet. for Cert. 492a. The court
entered detailed factual findings. See generally 162 F. R. D., at
518-519. It certified a "non-opt-out" class. And the court approved
the parties' Global Settlement Agreement. The Global Settlement
Agreement allows those exposed to asbestos (and their families) to
assert their Fibreboard claims against a fund that it creates. It
does not limit recoveries for particular types of claims, but
allows for individual determinations of damages based on all
historically relevant individual factors and circumstances. See 90
F. 3d, at 976. It contains spendthrift provisions designed to limit
the total payouts for any particular year, and a requirement that
the claimants with the most serious injuries be paid first in any
year in which there is a shortfall. It also permits an individual
who wishes to retain his right to bring an ordinary action in court
to opt out of the arrangement (albeit after mediation and
nonbinding arbitration), but sets a ceiling of $500,000 upon the
recovery obtained by any person who does so. See generally 162 F.
R. D., at 518-519.
The question here is whether the court's certification of the
class under Rule 23(b)(1)(B) violates the law. The majority seems
to limit its holding (though not its discussion)
871
to that question, and so I limit the focus of my dissent to the
Rule 23(b)(1)(B) issues as well.
II
The District Court certified a class consisting primarily of
individuals (and their families) who had been exposed to
Fibreboard's asbestos but who had not yet made claims. See
ante, at 825-827, and n. 5. It did so under the authority of
Federal Rule of Civil Procedure 23(b)(1)(B), which, by analogy to
pre-Rules "limited fund" cases, permits certification of a
non-opt-out class where
"the prosecution of separate actions by or against individual
members of the class would create a risk of ... adjudications with
respect to individual members of the class which would as a
practical matter be dispositive of the interests of the other
members not parties to the adjudications or substantially impair or
impede their ability to protect their interests."
The majority thinks this class could not be certified under Rule
23(b)(1)(B). I, on the contrary, think it could.
The case falls within the Rule's language as long as there was a
significant "risk" that the total assets available to satisfy the
claims of the class members would fall well below the likely total
value of those claims, for in such circumstances the money would go
to those claimants who brought their actions first, thereby
"'substantially impair[ingJ''' the " 'ability''' of later claimants
"'to protect their interests.'" And the District Court found there
was indeed such a " 'risk.'" 162 F. R. D., at 526.
Conceptually speaking, that "risk" was no different from the
risk inherent in a classic pre-Rules "limited fund" case. Suppose a
broker agrees to invest the funds of 10 individuals who each give
the broker $100. The broker misuses the money, and the customers
sue. (1) Suppose their claims total $1,000, but the broker's total
assets amount to $100.
872
(2) Suppose the same broker has no assets left, but he does have
an insurance policy worth $100. (3) Suppose the broker has both
$100 in assets and a $100 insurance policy.
The first two cases are classic limited fund cases. See
ante, at 834-836 (citing,
e. g., Dickinson v.
Burnham, 197 F. 2d 973
(CA2 1952), cert. denied, 344
U. S. 875 (1952), an investors' suit for the return of misused
funds);
ante, at 837 (citing,
e. g., Morrison v.
Warren, 174 Misc. 233, 234, 20 N. Y. S. 2d 26, 27 (Sup. Ct.
N. Y. Cty. 1940), a suit to distribute insurance proceeds to third
party beneficiaries). The third case simply combines the first two,
and that third case is the case before us.
Of course the value of the insurance policies in our case is not
as precise as the $100 in my example, nor was it certain at the
time of settlement. But that uncertainty makes no difference. It
was certain that the insurance policies' value was limited. And
that limitation was created by the likelihood of an independent
judicial determination of the meaning of words in the policy, in
respect to which the merits or value of the underlying tort claims
against Fibreboard were beside the point.
Nor does it matter that the value of the insurance policies in
our case might have fluctuated over time. Long before the Federal
Rules of Civil Procedure, courts permitted actions by one group of
insurance policyholders to bind all policyholders, even where the
group proceeded against an insurance-company-administered fund that
fluctuated over time. See
Hartford Life Ins. Co. v.
IBS, 237 U. S.
662, 672 (1915) (life insurance fund which, like the fund
before us, was administered through court-ordered rules that bound
all policyholders ).
Neither does it matter that the insurance policies
might
be worth much more money
if the California court decided the
coverage dispute in Fibreboard's favor. A trust worth, say, $1
million (faced with $2 million in claims) is a limited fund,
despite the possibility that a company whose stock it
873
holds
might strike oil and send the value of the trust
skyrocketing. Limitation is a matter of present value, which takes
appropriate account of such future possibilities.
I need not pursue the conceptual matter further, however, for
the majority apparently concedes the conceptual point that a fund's
limit may equal its "value discounted by risk."
Ante, at
851. But the majority sets forth three additional conditions that
it says are "sufficient ... to justify binding absent members of a
class under Rule 23(b)(1)(B), from which no one has the right to
secede."
Ante, at 838. The three are:
Condition One: That "the totals of the aggregated
liquidated claims and the fund available for satisfying them, set
definitely at their maximums, demonstrate the inadequacy of the
fund to pay all the claims." Ibid.; Part IV-A,
ante.
Condition Two: That "the claimants identified by a common
theory of recovery were treated equitably among themselves."
Ante, at 839; Part IV-B, ante.
Condition Three: That "the whole of the inadequate fund
was to be devoted to the overwhelming claims." Ante, at 839;
Part IV -C, ante.
I shall discuss each condition in turn.
A
In my view, the first condition is substantially satisfied.
No one doubts that the "totals of the aggregated" claims well
exceed the value of the assets in the "fund available for
satisfying them," at least if the fund totaled about what the
District Court said it did, namely, $1.77 billion at most. The
District Court said that the limited fund equaled in value "the sum
of the value of Fibreboard plus the value of its insurance
coverage," or $235 million plus $1.535 billion. App. to Pet. for
Cert. 492a. The Court of Appeals upheld
874
the finding. 90 F. 3d, at 982. And the finding is adequately
supported.
The District Court found that the insurance policies were not
worth substantially more than $1.535 billion in part because there
was a "significant risk" that the insurance policies would soon
turn out to be worth nothing at all. 162 F. R. D., at 526. The
court wrote that "Fibreboard might lose" its coverage, i.
e., that it might lose "on one or more issues in the
[California] Coverage Case, or that Fibreboard might lose its
insurance coverage as a result of its assignment settlement
program."
Ibid.
Two California insurance law experts, a Yale professor and a
former state court of appeals judge, testified that there was a
good chance that Fibreboard would lose all or a significant part of
its insurance coverage once the California appellate courts decided
the matter. 90 F. 3d, at 974. And that conclusion is not
surprising. The Continental policy (for which Fibreboard had paid
$10,000 per year) carried limits of $500,000 "per-person" and $1
million "per-occurrence," had been in effect only between May 1957
and March 1959, and arguably denied Fibreboard the right to settle
tort cases as it had been doing. See App. to Pet. for Cert. 267a.
The Pacific policy was said (no one could find a copy) to carry a
$500,000 per-claim limit, and had been in effect only for one year,
from 1956 to 1957. See
ibid. To win significantly in respect
to either of the two policies, Fibreboard had to show that the
policies fully covered a person exposed to asbestos long before the
policy year (say, in 1948) even if the disease did not appear until
much later (say, in 2002). It also had to explain away the $1
million per occurrence limit in the Continental policy, despite
policy language defining "one occurrence" as "'[a]ll ... exposure
to substantially the same general conditions existing at or
emanating from each premises location.'" Brief for Respondents
Continental Casualty et al. 5. And Fibreboard had to show that its
tort-suit settlement practice was consistent with the policy.
875
The settlement value of previous cases also indicated that the
insurance policies were of limited value. Fibreboard's "no-cash"
settlements (which required a settling plaintiff to obtain recovery
from the insurance companies) were twice as high on average as were
its comparable 40% cash settlements. App. to Pet. for Cert. 231a.
That difference, suggesting a 50% discount for 40% cash, in turn
suggests that settling parties estimated the odds of recovering on
the insurance policies as worse than 2 to 1 against.
The District Court arrived at the present value of the policies
($1.535 billion) by looking to a different settlement, the
settlement arrived at in the insurance coverage case itself as a
result of bargaining between Fibreboard and the insurance
companies. See
id., at 492a. That settlement, embodied in
the Trilateral Agreement, created a backup fund by taking from the
insurance companies $1.535 billion (plus other money used to
satisfy claims not here at issue) and simply setting it aside to
use for the payment of claims brought against Fibreboard in the
ordinary course by members of this class (in the event that the
federal courts ultimately failed to approve the Global Settlement
Agreement).
The Fifth Circuit approved this method of determining the value
of the insurance policies. See 90 F. 3d, at 982 (discussing value
of Trilateral Agreement plus value of Fibreboard). And the majority
itself sees nothing wrong with that method in principle. The
majority concedes that one
"may take a settlement amount as good evidence of the maximum
available if one can assume that parties of equal knowledge and
negotiating skill agreed upon the figure through arms-length
bargaining, unhindered by any considerations tugging against the
interests of the parties ostensibly represented in the
negotiation." Ante, at 852.
The majority rejects the District Court's valuation for a
different reason. It says that the settlement negotiation
876
that led to the valuation was not necessarily a fair one. The
majority says it cannot make the necessary "arms-length bargaining"
assumption because
"[c]lass counsel" had a "great incentive
to reach any agreement" in light of the fact that "some of the same
lawyers ... had also negotiated the separate settlement of 45,000"
pending cases, which was partially contingent upon a global
settlement or other favorable resolution of the insurance dispute.
Ibid. (emphasis added).
The District Court and Court of Appeals, however, did accept the
relevant "arms-length" assumption, with good reason. The
relevant bargaining (i.
e., the bargaining that led
to the Trilateral Agreement that set the policies' value) was not
between the
plaintiffs' class counsel and the insurance
companies; it was between
Fibreboard and the insurance
companies. And there is no reason to believe that
that
bargaining, engaged in to settle the California coverage dispute,
was not "arms length." That bargaining did not lead to a settlement
that would release Fibreboard from potential tort liability.
Rather, it led to a potential backup settlement that did not
release Fibreboard from anything. It created a fund of insurance
money, which, once exhausted, would have left Fibreboard totally
exposed to tort claims. Consequently, Fibreboard had every
incentive to squeeze as much money as possible out of the insurance
companies, thereby creating as large a fund as possible in order to
diminish the likelihood that it would eventually have to rely upon
its own net worth to satisfy future asbestos plaintiffs.
Nor are petitioners correct when they argue that the insurance
companies' participation in setting the value of the insurance
policies created a fund that is limited "only in the sense that ...
every settlement is limited." Brief for Petitioners 28. As the
District Court found, the fund was limited by the value of the
insurance policies (along with Fibreboard's own limited net worth),
and that limitation arose out of the independent likelihood that
the California courts
877
would find the policies valueless. App. to Pet. for Cert. 492a.
That is why the District Court said that certification in this case
does not determine whether
"mandatory class certification is appropriate in the typical
case where a class action is settled with a defendant's own funds,
or with insurance funds that are not the subject of genuine and
vigorous dispute." 162 F. R. D., at 527.
The court added that, in the ordinary case: "If the settlement
failed[,] ... the defendant would retain the settlement funds (or
the insurance coverage), and there might not be the 'impair[mentJ'
to class members' 'ability to protect their interests' required for
mandatory class certification."
Ibid. In this case, however,
if settlement failed, coverage "[might] well disappear ... with the
result that Class members could not then secure their due through
litigation."
Ibid.
I recognize that one could reasonably argue about whether the
total value of the insurance policies (plus the value of
Fibreboard) is $1.535 billion, $1.77 billion, $2.2 billion, or some
other roughly similar number. But that kind of argument, in this
case, is like arguing about whether a trust fund, facing $30,000 in
claims, is worth $15,000 or $20,000
(e. g., do we count Aunt
Agatha's share as part of the fund?), or whether a ship, subject to
claims that, by any count, exceed its value, is worth a little more
or a little less
(e. g., does the coal in the hold count as
fuel, which is part of the ship's value, or as cargo, which is
not?). A perfect valuation, requiring lengthy study by independent
experts, is not feasible in the context of such an unusual limited
fund, one that comes accompanied with its own witching hour. Within
weeks after the parties' settlement agreement, the insurance
policies might well have disappeared, leaving most potential
plaintiffs with little more than empty claims. The ship was about
to sink, the trust fund to evaporate; time was important. Under
these circumstances, I would accept the valuation
878
findings made by the District Court and affirmed by the Court of
Appeals as legally sufficient. See
supra, at 868.
B
I similarly believe that the second condition is satisfied.
The "claimants ... were treated equitably among themselves."
Ante, at 839. The District Court found equitable treatment,
and the Court of Appeals affirmed. But a majority of this Court now
finds significant inequities arising out of class counsel's
"egregious" conflict of interest, the settlement's substantive
terms, and the District Court's failure to create subclasses. See
ante, at 854-859. But nothing I can find in the Court's
opinion, nor in the objectors' briefs, convinces me that the
District Court's findings on these matters were clearly erroneous,
or that the Court of Appeals went seriously astray in affirming
them.
The District Court made 76 separate findings of fact, for
example, in respect to potential conflicts of interest. App. to
Pet. for Cert. 392a-430a. Of course, class counsel consisted of
individual attorneys who represented other asbestos claimants,
including many other Fibreboard claimants outside the certified
class. Since Fibreboard had been settling cases contingent upon
resolution of the insurance dispute for several years, any attorney
who had been involved in previous litigation against Fibreboard was
likely to suffer from a similar "conflict." So whom should the
District Court have appointed to negotiate a settlement that had to
be reached soon, if ever? Should it have appointed attorneys
unfamiliar with Fibreboard and the history of its asbestos
litigation? Where was the District Court to find those competent,
knowledgeable, conflict-free attorneys? The District Court said
they did not exist. Finding of Fact ~ 372 says there is "no
credible evidence of the existence of other 'conflict-free' counsel
who were qualified to negotiate" a settlement within the necessary
time.
Id., at 428a. Finding of Fact ~ 317 adds that the
District Court viewed it as
879
"crucial ... to appoint asbestos attorneys who were experienced,
knowledgeable, skilled and credible in view of the extremely short
window of opportunity to negotiate a global settlement, and the
very high risk to future claimants presented by the Coverage Case
appeal."
Id., at 401a. Where is the clear error?
The majority emphasizes the fact that, by settling the claims of
a class that consisted, for the most part, of persons who had not
yet asserted claims against Fibreboard, counsel assured the
availability of funds to pay other clients who had already asserted
those claims.
Ante, at 852-853. The decision to split the
latter "inventory" claims from the former "class" claims, however,
reflected the suggestion, not of class counsel, but of a judge,
Circuit Judge Patrick Higginbotham, who had become involved in
efforts to produce a timely settlement. Judge Higginbotham thought
that negotiations had broken down because the combined class was
"too complex." App. to Pet. for Cert. 316a-317a; see also
id., at 397a. He thought "inventory" claim settlements could
be used as benchmarks to determine future class claim values,
id., at 316a-317a, and that is just what happened. Although
the majority is concerned that "inventory" plaintiffs "appeared to
have obtained better terms than the class members,"
ante, at
855, Finding of Fact ~ 329 says that class counsel
"used the higher-than-average [inventory plaintiff settlement
values] ... to achieve a global settlement for future claimants at
similarly high values, effectively arguing they could not possibly
accept less for a class of future claimants than they had just
negotiated for their present clients." App. to Pet. for Cert.
407a.
In addition, more than 150 findings of fact, made after an 8-day
hearing, support the District Court's finding that overall the
settlement is "fair, adequate, and reasonable." See
id., at
500a-501a. And, of course, Finding of Fact ~ 318 says that
appointing other attorneys-i.
e., those who had no in-
880
ventory clients-would have" 'jeopardiz[ed] any effort at serious
negotiations'" and "resulted in a less favorable settlement" for
the class, or perhaps no settlement followed by no insurance policy
either.
Id., at 402a.
The Fifth Circuit found that "[t]he record amply supports" these
District Court findings. 90 F. 3d, at 978. Does the majority mean
to set them aside? If not, does it mean to set forth a rigid
principle of law, such as the principle that asbestos lawyers with
clients outside a class, who will potentially benefit from a class
settlement, can
never represent a class in settlement
negotiations? And does that principle apply no matter how unusual
the circumstances, or no matter how necessary that representation
might be? Why should there be such a rule of law? If there is not
an absolute rule, however, I do not see how this Court can hold
that the case before us is
not that unusual situation.
Consider next the claim that "equity" required more subclasses.
Ante, at 855-857. To determine the "right" number of
subclasses, a district court must weigh the advantages and
disadvantages of bringing more lawyers into the case. The majority
concedes as much when it says "at some point there must be an end
to reclassification with separate counsel."
Ante, at 857.
The District Court said that if there had "been as many separate
attorneys" as the objectors wanted, "there is a significant
possibility that a global settlement would not have been reached
before the Coverage Case was resolved by the California Court of
Appeal." App. to Pet. for Cert. 428a. Finding of Fact ~ 346 lists
the shared common interests among subclasses that argue for single
representation, including "avoiding the potentially disastrous
results of a loss ... in the Coverage Case," "maximizing the total
settlement contribution," "reducing transaction costs and delays,"
"minimizing ... attorney's fees," and "adopting" equitable claims
payment "procedures."
Id., at 415a. Surely the District
Court was within its discretion to conclude that "the point" to
which the majority alludes was reached in this case.
881
I need not go into further detail here. Findings of Fact ~~
347-354 explain why the alleged conflict between pre- and post-1959
claimants is not significant.
Id., at 415a-418a (noting that
"the decision as to how to divide the settlement among class
members" did not take place until after the Trilateral Agreement
was agreed to, at which point money was available equally to both
pre- and post-1959 claimants). Findings of Fact ~~ 355-363 explain
why the alleged conflict between claimants with, and those without,
current illnesses is not significant.
Id., at 419a-422a
(explaining why "the interest of the two subgroups at issue here
coincide to a far greater extent than they diverge"). The Fifth
Circuit found that the District Court "did not abuse its discretion
in finding that the class was adequately represented and that
subclasses were not required." 90 F. 3d, at 982. This Court should
not overturn these highly circumstance-specific judgments.
C
The majority's third condition raises a more difficult question.
It says that the
"whole of the inadequate fund" must be
"devoted to the overwhelming claims."
Ante, at 839 (emphasis
added). Fibreboard's own assets, in theory, were available to pay
tort claims, yet they were not included in the global settlement
fund. Is that fact fatal?
I find the answer to this question in the majority's own
explanation. It says that the third condition helps to guarantee
that those who held the
"inadequate assets had no opportunity to benefit [themselves] or
claimants of lower priority by holding back on the amount
distributed to the class. The limited fund cases thus ensured that
the class as a whole was given the best deal; they did not give a
defendant a better deal than seriatim litigation would have
produced." Ibid.
882
That explanation suggests to me that Rule 23(b)(1)(B) permits a
slight relaxation of this absolute requirement, where its basic
purpose is met, i.
e., where there is no doubt that "the
class as a whole was given the best deal," and where there is good
reason for allowing the third condition's
substantial,
rather than its
literal, satisfaction.
Rule 23 itself does not require modern courts to trace every
contour of ancient case law with literal exactness. Benjamin
Kaplan, Reporter to the Advisory Committee on Civil Rules that
drafted the 1966 revisions, upon whom the majority properly relies
for explanation, see,
e. g., ante, at 833,
834, 842-843, wrote of Rule 23:
"The reform of Rule 23 was intended to shake the law of class
actions free of abstract categories ... and to rebuild the law on
functional lines responsive to those recurrent life patterns which
call for mass litigation through representative parties .... And
whereas the old Rule had paid virtually no attention to the
practical administration of class actions, the revised Rule dwelt
long on this matter-not, to be sure, by prescribing detailed
procedures, but by confirming the courts' broad powers and inviting
judicial initiative." A Prefatory Note, 10 B. C. Ind. & Com. L.
Rev. 497 (1969).
The majority itself recognizes the possibility of providing
incentives to enter into settlements that reduce costs by granting
a "credit" for cost savings by relaxing the whole-of-theassets
requirement, at least where most of the savings would go to the
claimants.
Ante, at 861.
There is no doubt in this case that the settlement made far more
money available to satisfy asbestos claims than was likely to occur
in its absence. And the District Court found that administering the
fund would involve transaction costs of only 15%. App. to Pet. for
Cert. 362a. A comparison of that 15% figure with the 61%
transaction costs figure applicable to asbestos cases in general
suggests hundreds of mil-
883
lions of dollars in savings-an amount greater than Fibreboard's
net worth. And, of course, not only is it better for the injured
plaintiffs, it is far better for Fibreboard, its employees, its
creditors, and the communities where it is located for Fibreboard
to remain a working enterprise, rather than slowly forcing it into
bankruptcy while most of its money is spent on asbestos lawyers and
expert witnesses. I would consequently find substantial compliance
with the majority's third condition.
Because I believe that all three of the majority's conditions
are satisfied, and because I see no fatal conceptual difficulty, I
would uphold the determination, made by the District Court and
affirmed by the Court of Appeals, that the insurance policies
(along with Fibreboard's net value) amount to a classic limited
fund within the scope of Rule 23(b)(1)(B).
III
Petitioners raise additional issues, which the majority does not
reach. I believe that respondents would likely prevail were the
Court to reach those issues. That is why I dissent. But, as the
Court does not reach those issues, I need not decide the questions
definitively.
In some instances, my belief that respondents would likely
prevail reflects my reluctance to second-guess a court of appeals
that has affirmed a district court's fact- and
circumstance-specific findings. See
supra, at 868; c:t:
Amchem Products, Inc. v.
Windsor, 521 U. S. 591, 629-630
(1997) (BREYER, J., concurring in part and dissenting in part).
That reluctance applies to those of petitioners' further claims
that, in effect, attack the District Court's conclusions related
to: (1) the finding under Rule 23(a)(2) that there are "questions
of law and fact common to the class," see App. to Pet. for Cert.
480a; see generally
Amchem, supra, at 634-636 (BREYER, J.,
concurring in part and dissenting in part); (2) the finding under
Rule 23(a)(3) that claims of the representative parties are
"typical" of the claims of the class, see App.
884
to Pet. for Cert. 480a-481a; (3) the adequacy of "notice" to
class members pursuant to Rule 23(e) and the Due Process Clause,
see
id., at 511a; see generally
Amchem, supra, at
640-641 (BREYER, J., concurring in part and dissenting in part);
and (4) the standing-related requirement that each class member
have a good-faith basis under state law for claiming damages for
some form of injury-in-fact (even if only for fear of cancer or
medical monitoring), see App. to Pet. for Cert. 252a; cf.,
e.
g., Coover v.
Painless Parker, Dentist, 105 Cal. App.
110, 286 P. 1048 (1930).
In other instances, my belief reflects my conclusion that class
certification here rests upon the presence of what is close to a
traditional limited fund. And I doubt that petitioners'
additional arguments that certification violates, for example, the
Rules Enabling Act, the Bankruptcy Act, the Seventh Amendment, and
the Due Process Clause are aimed at, or would prevail against, a
traditional limited fund
(e. g., "trust assets, a bank
account, insurance proceeds, company assets in a liquidation sale,
proceeds of a ship sale in a maritime accident suit,"
ante,
at 834 (internal quotation marks and citations omitted)). Cf.
In
re Asbestos Litigation, 90 F. 3d, at 986 (noting that
Phillips Petroleum Co. v.
Shutts, 472 U. S. 797 (1985),
involved a class certified under the equivalent of Rule 23(b)(3),
not a limited fund case under Rule 23(b)(1)(B)). Regardless, I need
not decide these latter issues definitively now, and I leave them
for another day. With that caveat, I respectfully dissent.
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