Class Dismissed

Examining Courts' Rejection of Certification

by Lawrence C. Waddington

In the quest for a solution to the volume of asbestos cases flooding federal and state courts, the parties in Georgine v. Amchem Products Inc., 878 F.Supp. 716 (E.D. Pa. 1994), sought to simultaneously certify and settle a class action. Neither party intended to litigate the causes of action alleged in the complaint or to conduct discovery. Instead,, the parties agreed to settle this case, which involved an enormous class of cancer-stricken plaintiffs exposed to asbestos and plaintiffs exposed but without cancer symptoms.

The District Court judge held several hearings, considered objections and ordered widespread publication of the proposed settlement and request for class certification. After declaring the class certification appropriate and approving the settlement’s fairness, the judge enjoined class members from initialing any asbestos litigation in federal or state court. 878 F.Supp. at 726.

In an extensive opinion, however, the 3rd U.S. Circuit Court of Appeals vacated the certification. It concluded that before the parties sought judicial approval of the settlement, they should have complied with the procedural requirements for class actions outlined in Rule 23 of the Federal Rules of Civil Procedure. Georgine v. Amchem Products Inc., 83 F.3d 610 (3d Cir. 1996). The Supreme Court substantially confirmed the analysis of the 3rd Circuit Amchem Products Inc. v. Windsor, 117 S.Ct. 2231 (1997).

Amchem directly affects the lives of vast numbers of people suffering from asbestos exposure. The decision increases the delay in compensating them for medical expenses. For those exposed but without cancer, the case portends an uncertain future.

Regarding defendants, the inability to resolve the litigation augurs increased costs, potential new class members and the prospect of business instability. Although insurance is likely to cover all or a substantial portion of the proposed settlement proceeds, the future litigation cost absent a settlement potentially reduces the amount of funds available to the plaintiffs.

Amchem also addressed the damage remedy for symptom-free asbestos-exposed persons. In Metro-North Commuter R.R. v. Buckley, 117 S.Ct. 2113 (1997), the court appeared to hold that emotional-distress damages unaccompanied by physical injury are not compensable under the Federal Employers’ Liability Act Thus, Amchem and Metro-North foreshadow significant legal problems in toxic-tort litigation.

The Supreme Court in Amchem focused on settlement prior to certification. It also identified conflicts of interest among parties with cancer and those without cancer who were exposed to asbestos. The differing goals of these groups (who incurred medical expenses) also had to be reconciled with others whose litigation was speculative. The court said this intra-class conflict demonstrated the need for compliance with rules that attempt to assure fairness among all parties.

Amchem is not the first decision to reject class certification on procedural grounds. In Castano v. American Tobacco Co, 84 F3d 734 (5th Cir. 1996), the court refused to confirm certification by a trial judge. The court insisted that the parties adhere to Federal Rule of Civil Procedure 23 prior to class certification. The Castano decision emphasized the need for the trial court to consider management of the trial as a factor in determining certification and stressed the differences in legal claims and issues.

In In re Rhone-Poulenc, 51 F.3d 1293 (7th Cir. 1995), the court vacated the trial court’s certification on the ground that the class action in the product-liability case amounted to economic blackmail. It criticized the use of class actions as a device to force settlement, particularly when plaintiffs were unsuccessful in prior individual trials.

These three product-liability cases illustrate a judicial reluctance to approve class actions whether involving irreconcilable class conflicts, insurmountable management problems in trial or substantive unfairness.

The Supreme Court in Amchem suggested that in asbestos litigation, the trial court could divide a class into subclasses to improve the settlement potential and certification. But, as the dissent noted, even this management technique may not eliminate intra-class conflicts in class actions.

In fact, the proposed settlement in Amchem included an elaborate system to calculate damages. Although the Supreme Court did not address administrative distribution of funds pursuant to the settlement agreement, that element always offers a possible compromise in class-action cases.

According to the court in Amchem, asbestos litigation will not disappear, for several years, as those exposed to asbestos but symptom-free potentially, may develop cancer. Accord, Richmond v. A.P. Green Ind. Inc., 55 Cal.App.4th 565 (1997). The number is unknown, but delay in objective manifestation of cancer from exposure to asbestos is common. Cases already filed, and those filed in the future, will continue to impose considerable burdens on the dockets of federal and state courts.

Because the Supreme Court in Amchem relied on the necessity for compliance with the Federal Rules in class-action cases, some plaintiffs may seek certification in state courts with more liberal rules. Most states, including California, cite federal rules to interpret their local class-action statutes. But state courts are free to apply their own rules differently. And the California class-action statute, C.C.P. Section 382, is broad enough to fulfill that goal despite additional guidelines specified by the California Supreme Court in Vasquez v. Superior Court, 4 Cal.3d 800,821 (1971).

Amchem is not based on federal constitutional grounds; the decision relied exclusively on an interpretation of the Federal Rules of Civil Procedure. However, the case addresses certain constitutional class-action requirements, Phillips Petroleum v. Shutts, 472 U.S. 797 (1985), but does not otherwise affect individual state class-action litigation.

One possible alternative to complete judicial management of class actions in California is the use of C.C.P. Section 639. That section authorizes the appointment of a referee in discovery disputes, even if the parties object, "to report findings and make a recommendation thereon." Unlike private arbitration or administrative panels, referees are subject to the direct jurisdiction of the court.

The Superior Court in state class actions could invoke C.C.P. Section 639 as a species of complex litigation under California Standards of Judicial Administrator Section 19. Although the standards also exempt class actions from judicial ordered arbitration, Section 1600.05[d], reference orders under C.C.P. Section 639 do not apply to arbitration.

Referees could manage some portion of class-action litigation under court supervision (that is, discovery disputes) and engage in settlement discussions without requiring inordinate court time.

Support for management by referees found in Lu v. Superior Court, 64 Ca..Rptr.2d 561 (1997). Pursuant to C.C.P. Section 639, the state Supreme Court approved a trial court’s ruling to appoint a referee to manage all discovery, and in effect conduct settlement conferences (mediation) in a complex construction defect case. That court cited the Standards of Judicial Administration.

Fifteen years ago, the California Supreme Court authorized arbitration of class actions in Keating v. Superior Court, 31 Cal.3d 584 (1982). Although the U.S. Supreme Court reversed this decision on other grounds, Southland Corporation v, Keating, 465 U.S. 1 (1984), Chief Justice Warren Burger’s comments confirmed that no judicial impediment exists to this procedure in state courts.

In a touch of irony, Keating is the seminal case, displacing state anti-arbitration statutes. It holds that the federal statute on arbitration preempts state law. Federal Arbitration Act, 9 U.S.C.A. Section 1 et seq. Keating would appear to support arbitration of class actions under federal law and simultaneously sanction arbitration as a national policy.

Arbitration of class actions is not without problems. Issues of jurisdiction, arbitrability, constitutional rights and certification are in question.

In the absence of agreement to referee or arbitrate class actions, counsel who attempt to propose a "settlement class" in federal court can achieve that objective if all parties adhere to the procedural requirements of Rule 23 of the Federal Rules of Civil Procedure.

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