527 U.S. 815 (1999)
Fibreboard Corporation, primarily a timber company, manufactured asbestos-containing products for high-temperature industrial applications from the 1920s through 1971.1
Beginning in the 1970s and accelerating through the 1980s and 1990s, Fibreboard faced thousands of personal injury claims each year from asbestos exposure.2 From May 1957 through March 1959, Continental Casualty Company issued Fibreboard a comprehensive general liability policy with per-occurrence and per-claim limits but no aggregate limit.3 Pacific Indemnity Company issued a similar policy for 1956-1957.4 Fibreboard initiated coverage litigation against both insurers in California state court in 1979.5
In 1990 the California trial court held the insurers responsible for indemnification of claims involving exposure before their policies expired and required them to pay full defense costs.6 Fibreboard began structured settlements in 1988, initially paying 40 percent up front with the balance contingent on coverage victory, then shifting in 1991 to full assignments of coverage rights.7 By December 1992 Fibreboard had deferred settlement obligations exceeding $1.2 billion, all contingent on prevailing in the coverage dispute.8
After the insurers lost at trial in early 1993, they joined global settlement negotiations conditioned on achieving "total peace" through a mandatory class action.9 Negotiators reached the Global Settlement Agreement shortly before midnight on August 27, 1993, providing $1.525 billion from the insurers and $10 million from Fibreboard to fund a trust for class claims.10 The Trilateral Settlement Agreement, executed the same night as a backup, committed the insurers to supply up to $2 billion if the global settlement failed.11
On September 9, 1993, named plaintiffs filed suit in the Eastern District of Texas seeking certification of a mandatory class under Rule 23(b)(1)(B) that included persons exposed to Fibreboard asbestos who had not sued or settled before August 27, 1993, persons who had dismissed claims without prejudice, and their relatives, but that excluded pending claimants and those who had settled while retaining malignancy rights.12 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.13 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).14 The Fifth Circuit affirmed.15 After this Court vacated and remanded in light of Amchem Products, Inc. v. Windsor, the Fifth Circuit reinstated its affirmance in a per curiam opinion.16 The Supreme Court granted certiorari.17
Whether certification of a mandatory settlement class under Rule 23(b)(1)(B) on a limited fund theory requires demonstration that the asserted fund limit exists independently of the parties' settlement agreement?18
Rule 23(b)(1)(B) permits mandatory class certification when separate adjudications would as a practical matter dispose of or substantially impair absent class members' interests.19 Traditional limited fund precedents require the fund's upper limit and insufficiency to be shown by evidence independent of any settlement agreement.20 The entire fund must be devoted to the class with equity among claimants.21
Yes. The District Court and Fifth Circuit accepted the $1.535 billion Global Settlement Agreement figure and the $2 billion Trilateral Settlement Agreement as defining the fund limit without independent valuation of the insurance policies or Fibreboard's assets.22 This approach contradicted the requirement that the settling parties present evidence subject to challenge establishing the limit and insufficiency apart from their agreement.23 The negotiators reached the $1.535 billion figure shortly before midnight on August 27, 1993, as a product of the parties' compromise rather than any judicial or actuarial determination of maximum available assets.24
The District Court made no findings that the policies' value discounted by coverage risk was independently ascertained.25
Certification fails because the asserted fund limit was not demonstrated independently of the settlement agreement.26
Related opinions on this issue
Joined by Justices Scalia And Kennedy
Chief Justice Rehnquist joined the majority opinion.27 He highlighted the massive impact of asbestos-related claims on the federal courts and noted that the elephantine mass of asbestos cases cries out for a legislative solution.28 Under the present regime, transactional costs will surely consume more and more of a relatively static amount of money to pay these claims.29
He agreed that courts are not free to devise an ideal system for adjudicating these claims unless and until the Federal Rules of Civil Procedure are revised.30 The Court's opinion correctly states the existing law, and he joined it.
Joined by Justice Stevens
Justice Breyer dissented on the valuation issue.31 He contended that the District Court properly valued the insurance policies at their settlement value because the relevant bargaining that produced the Trilateral Agreement occurred between Fibreboard and the insurers rather than between class counsel and the insurers. That separate agreement created a backup fund leaving Fibreboard exposed to claims if the global settlement failed.32
The short time before the coverage appeal decision justified accepting the agreed figure without an independent judicial valuation.33 He emphasized that the District Court had made 446 factual findings supporting its conclusions that the settlement was equitable and the claimants well represented.34
Whether a class certified for settlement under Rule 23(b)(1)(B) must include all persons holding unsatisfied claims against the defendant at the time settlement negotiations concluded?35
Limited fund class actions require that the class comprise everyone who might state a claim on a common theory of recovery to be satisfied from the fund.36 This ensures that the whole of the inadequate fund is devoted to all such claims.37 Exclusions that allow the defendant to benefit by holding back assets or favoring some claimants are not permitted.38
Yes. The certified class excluded the 45,000 inventory plaintiffs whose settlements were contingent on the global settlement or coverage victory.39 It also excluded the more than 53,000 plaintiffs with pending claims at the time of the August 27, 1993 agreement.40 Those who had settled while retaining malignancy rights were likewise omitted.41
These groups held unsatisfied claims arising from the same asbestos exposure.42 Class counsel represented many of the excluded inventory plaintiffs whose full payment depended on approval of the class settlement.43
Certification fails because the class improperly excluded numerous holders of unsatisfied claims at the time negotiations concluded.44
Related opinions on this issue
Joined by Justice Stevens
Justice Breyer dissented on the exclusion issue as well.45 He contended that the District Court findings showed the inventory settlements were used as benchmarks to achieve comparable high values for the class.46 The District Court viewed appointment of experienced asbestos attorneys as crucial given the extremely short window of opportunity to negotiate a global settlement.47
Separate counsel for every subgroup was not feasible given the short window before the coverage appeal. The exclusions therefore did not undermine equity within the overall limited fund. The District Court had made extensive findings that the settlement treated claimants fairly.48
Whether certification of a mandatory class under Rule 23(b)(1)(B) requires division into subclasses with separate representation when class members hold conflicting interests arising from differences in exposure timing or claim status?49
Rule 23(a)(4) and the equitable obligations of limited fund treatment require that conflicting interests within the class be addressed by division into homogeneous subclasses with separate representation.50 Examples include conflicts between present and future claimants or pre- and post-policy-expiration exposure claimants.51 Separate representation eliminates the risk that counsel will favor one group over another.52
Yes. The class included both pre-1959 and post-1959 exposure claimants whose insurance coverage differed markedly in value.53 It also included present injury claimants seeking immediate generous payments and future exposure-only claimants seeking to preserve an inflation-protected fund.54 No subclasses were created.55 Class counsel simultaneously represented excluded inventory plaintiffs whose settlements were funded upon global approval.56 This created divergent interests.57 The District Court addressed those interests only through post hoc fairness findings rather than structural protections at certification.58
Certification fails for lack of subclasses with separate representation to address intraclass conflicts.59
Related opinions on this issue
Joined by Justice Stevens
Justice Breyer dissented on the subclass issue.60 He maintained that the District Court's 76 findings on conflicts demonstrated that the subgroups' interests largely coincided in maximizing the total settlement and avoiding coverage loss. Other conflict-free counsel did not exist in the brief negotiation window.
The Court of Appeals correctly held subclasses were not required under the circumstances. The District Court viewed appointment of experienced asbestos attorneys as crucial given the extremely short window of opportunity.61
Whether a defendant may retain substantially all of its net worth while obtaining limited fund treatment under Rule 23(b)(1)(B)?62
The limited fund rationale requires that the whole of the inadequate fund be devoted to the class claims.63 The defendant therefore has no opportunity to benefit by retaining assets that could have been used to increase distributions.64 This ensures the class receives the best deal possible rather than one inferior to what seriatim litigation might have produced.65
No. Fibreboard was permitted to retain virtually its entire net worth of approximately $235 million while contributing only $10 million to the settlement fund.66 The District Court valued Fibreboard's assets at that amount as part of the purported limited fund.67 The settlement allowed Fibreboard to keep all but $500,000 of its equity despite the mandatory class compromising jury trial rights and capping recoveries.68
Certification fails because the defendant retained substantially all of its net worth rather than devoting the whole fund to the class.69
Related opinions on this issue
Joined by Justice Stevens
Justice Breyer dissented on the whole-fund issue.70 He argued that the settlement made far more money available to satisfy asbestos claims than was likely to occur in its absence.71 The District Court found that administering the fund would involve transaction costs of only 15 percent.72
That figure compared favorably with the 61 percent transaction costs applicable to asbestos cases in general.73 The settlement therefore produced hundreds of millions of dollars in savings that benefited the class.74