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THE U.S. SUPREME COURT'S recent rejection of a $1.3 billion class action settlement because it ran afoul of rules of civil procedure underscores the need for federal reform of our legal system.
Unless federal legislation is enacted giving courts clearer guidance for separating valid mass tort settlements from frivolous actions, all settlements will be tarred with the same brush in the eyes of the courts and will be in jeopardy of being rejected.
Until Congress acts, however, the courts are losing a potential tool for unclogging litigation-heavy dockets, and companies and claimants will duel for years one case at a time before claims are paid. This laborious and contentious process also will surely deplete funds available to pay valid claims while excessively enriching attorneys who take advantage of this flawed system.
The court's action came in the case of Amchem Products Inc., et al. vs. Windsor, et al., which was an appeal of a 1996 3rd U.S. Circuit Court of Appeals decision throwing out the $1.3 billion settlement between the Center for Claims Resolution and asbestos plaintiffs. The majority in the 6-2 ruling agreed with the 3rd Circuit that the claimants in the class-action settlement were so diverse that they would be unable to meet requirements for forming a class for litigation purposes.
It is unfortunate that the majority has chosen to narrowly focus on whether this settlement meets the strict rules set out by the Federal Rules of Civil Procedure for class action litigation, rather than look at the underlying fairness of the deal for claimants and the asbestos companies that belong to the Center for Claims Resolution.
We agree with two justices who partially dissented. Justice Stephen Breyer wrote, "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."
Ironically, the judiciary itself is leaning toward new standards for approving class action settlements in recognition of their potential benefits. A panel of The Judicial Conference of the United States, which establishes rules of procedure for state and federal courts, a year ago published a draft paper that recommends permitting judges to approve class-action settlements, even if that same class would not be certified for trial purposes.
The largest potential mass tort settlement to date-the tobacco companies' proposed $368.5 billion settlement with states-relies on this concept to swiftly and comprehensively settle the morass of litigation over smoking-related illnesses.
Unfortunately, those developments won't protect the ability of other companies and claimants to rely on this tool without congressional action. Already, other class-action settlements are being called into doubt as a result of the Supreme Court's decision. After its Amchem ruling, the court declined to review a proposed mass tort settlement between Fibreboard Corp. and thousands of asbestos claimants. That case, while it raised different legal questions, last year won approval from the 5th U.S. Circuit Court of Appeals, which focused on the fairness of the offer rather than the composition of the class.
Congress needs to act-and act swiftly-to give all courts the latitude to judge such settlements on their fairness to claimants. That would preserve the ability of the courts to reject settlements structured to let companies off the hook lightly or to primarily enrich attorneys. But most importantly, it also would preserve the courts' ability to approve such settlements where appropriate so that those who have indeed suffered harm will be compensated for their injuries in an equitable and timely manner.