WASHINGTON-The Supreme Court's rejection of a $1.3 billion class-action settlement of asbestos claims will likely chill future efforts to settle mass tort claims with agreements that bind future claimants.

The result of the Supreme Court's 6-2 decision last week in Amchem Products Inc. et al. vs. Windsor et al. will mean more personal injury cases jamming already overcrowded courts, say some observers. That will bring extra pressure on Congress to step in to clarify how such "future-looking" settlements can be structured to meet the needs of claimants as well as defendants.

But, says the attorney who argued against the asbestos settlement before the Supreme Court earlier this year, the decision should not hamper Congress' ability to deal with something like the proposed $368.5 billion settlement of liability claims between 40 states and the tobacco industry.

The Amchem case turned on the question of whether Rule 23 of the Federal Rules of Civil Procedure, which governs civil cases, allowed the certification of a class for purposes of a global settlement of future asbestos-related claims.

As Justice Ruth Bader Ginsburg wrote for the majority, "the class proposed for certification potentially encompasses hundreds of thousands, perhaps millions, of individuals tied together by this commonality: Each was, or some day may be, adversely affected by past exposure to asbestos products manufactured by one or more of 20 companies."

The 20 former asbestos manufacturers had formed the Asbestos Claims Facility, which was the forerunner of the Princeton, N.J.-based Center for Claims Resolution, to handle claims made against them by people exposed to asbestos. The consortium offered to compensate future victims according to the diseases they manifested (BI, Jan. 25, 1993). The agreement also allowed compensation for some claims that did not fall into the four categories of compensable diseases. Everyone who had been exposed to asbestos but who had not filed a claim against any CCR member could either opt out of the class formed for the settlement purpose or remain in the class and agree to use the settlement to resolve any future claim.

A federal district court judge approved the settlement in 1994, but a three-judge panel of the 3rd U.S. Circuit Court of Appeals in Philadelphia overturned it in 1996 (BI, May 20, 1996). The appeals court held that the $1.3 billion settlement violated Rule 23 because disparity among the claimants' illnesses was greater than their commonality. The judges also said classes formed for settlement purposes had to meet the same standard as classes formed for litigation.

The CCR members appealed to the Supreme Court, but a 6-2 majority agreed with the lower court. Writing for the majority, Justice Ginsburg said that what she described as the "sprawling class" did not meet the requirements of Rule 23. The named parties in the class "with diverse medical conditions sought to act on behalf of a single giant class rather than on behalf of discrete subclasses. In significant respects, the interests of those within the single class are not aligned. Most saliently, for the currently injured, the critical goal is general immediate payments. That goal tugs against the interest of exposure-only plaintiffs in ensuring an ample, inflation-protected fund for the future," she wrote.

The justice also wrote that "many persons in the exposure-only category, the Appeals Court stressed, may not even know of their exposure, or realize the extent of the harm they may incur. Even if they fully appreciate the significance of class notice, those without current afflictions may not have the information or foresight needed to decide, intelligently, whether to stay in or opt out."

The majority did note, however, that "the argument is sensibly made that a nationwide administrative claims processing regime would provide the most secure, fair and efficient means of compensating victims of asbestos exposure. Congress, however, has not adopted such a solution." Rule 23 "cannot carry the large load CCR, class counsel and the District Court heaped upon it," the opinion said.

In a partial dissent in which he was joined by Justice John Paul Stevens, Justice Stephen Breyer wrote that, "I believe that the need for settlement in this mass tort case, with hundreds of thousands of lawsuits, is greater than the court's opinion suggests."

After detailing his concerns about the case, Justice Breyer wrote: "The issues in this case are complicated and difficult. The District Court might have been correct. Or not. Subclasses might be appropriate. Or not. I cannot tell. And I do not believe this court should be in the business of trying to make these fact-based determinations."

Justice Sandra Day O'Connor did not participate in the case.

Lawrence Fitzpatrick, president and chief executive officer of the CCR, said the immediate impact on the facility would be slight.

"With one possible exception, I don't expect any change in the membership. The exception is the trust created as a result of the National Gypsum bankruptcy, and that trust is currently weighing its options, and may or may not continue as a center member. I personally feel that they probably will," he said.

"We are in discussions to try to restructure the settlement," he added.

But the impact on similar attempts to create forward-looking settlements will be considerable, said Mr. Fitzpatrick.

"Obviously what the court did in our case was to set up some fairly stringent road maps that settlements must follow in order to obtain judicial approval, and I think it's going to be difficult in some instances to structure settlements that meet all of the court's criteria."

Said Steve Bokat, executive vp of the National Chamber Litigation Center in Washington: "It's unfortunate. I think it may leave room for some settlements in some of these cases, but it clearly will make it harder to settle. I think it's unfortunate for the companies settling, the plaintiffs, and I think it's unfortunate for the courts, because I think these cases are going to continue to clog the courts." The center had filed a brief supporting CCR's position with the Supreme Court.

On the other side of the debate, a self-described public interest law group called the decision a "huge victory for millions of asbestos victims and all Americans.

"It creates important safeguards against class-action abuse, establishes critical limits on the use of class actions to settle personal injury claims, and raises serious doubt as to whether class actions can ever be used to eliminate future victims' rights. This court's ruling truly enhances our system of justice," said the Washington-based Trial Lawyers for Public Justice in a statement issued shortly after the decision.

But Laurence Tribe, the Harvard Law School professor who had argued against the CCR before the Supreme Court, said the decision won't hamper another high-profile proposed mass-tort settlement, that between state attorneys general and the tobacco industry (BI, June 23).

"Nothing in this decision casts a shadow over the authority of Congress to approve something like the tobacco settlement," said Mr. Tribe.

"The asbestos decision underscores how indispensable the role of Congress is, because in the absence of the asbestos ruling, it might have been possible, at least in theory, for the people who negotiated the tobacco settlement to obtain the blessing of one or more courts around the country in order to impose that settlement on the nation without bothering to have the matter debated and perhaps changed in Congress."

Mr. Fitzpatrick and Mr. Bokat agreed that Congress should examine how such mass-tort settlements can be carried out.

"I think there was an understandable backlash in the judiciary to what I call sham class-action settlements," said Mr. Fitzpatrick. He described sham settlements as those class-action suits where individual members of the class receive very little compensation while the attorneys walk away with millions of dollars in fees.

"I think it's time for Congress to step in and do something that eliminates the bogus class-action settlements but still makes it possible to use the class-action settlement mechanism as a tool to solve serious and vexing social problems that cannot really be solved any other way," he said.

Mr. Bokat agreed.

"I think the chamber would support some kind of congressional action" that would protect such future-looking settlements, he said.

"If they want to have a specific rule about asbestos, that should be tailored by Congress," said Victor E. Schwartz, counsel to the Arlington, Va.-based Product Liability Coordinating Committee. "For legislation for asbestos to pass in this Congress, you would probably have to have the trial lawyers, the principal defendants and the unions to agree," he said.

After its Amchem ruling, the court declined to review a proposed mass-tort settlement between Fibreboard Corp. and thousands of people who could file asbestos-related injury claims against the company.

Late Friday, the high court ordered the case-Flanagan vs. Ahearn-back to the 5th U.S. Circuit Court of Appeals for review in light of the Amchem decision, even though the two settlements raised different legal questions. A second asbestos-related case, Ortiz vs. Fibreboard, was also remanded to a lower court for further review.

Amchem Products Inc. et al. vs. Windsor et al., U.S. Supreme Court. No. 96-270. June 25, 1997.