The U.S. Supreme Court reversed the Fifth Circuit's affirmation of the certification of a mandatory settlement class in approximately 186,000 asbestos cases, in Ortiz v. Fibreboard Corp., 119 S. Ct. 2295 (June 23, 1999). The class was certified on a limited fund theory under Federal Rule of Civil Procedure 23(b)(1)(B) in a global class action against an asbestos manufacturer and its insurers. The Supreme Court said the class failed to demonstrate the fund was limited except by the parties' agreement, and the upper limit of the fund itself was not adequately demonstrated, without which no showing of the insufficiency of the finances for all litigants is possible. Additionally, the Court said no independent evaluation of the potential finances of the insurers occurred; instead, the fund was merely accepted as representing the insurers' limits. Such an assumption of the fund's fair value could not be made because the class counsel had a conflict of interest that encouraged settlement and eliminated the assumption that the fund was the best possible arrangement for the class. A separate settlement class that the class counsel represented would be paid in full only if the global settlement agreement was successful. Furthermore, the Court said, the manufacturer's retention of virtually its entire net worth seemed irreconcilable with the justification of necessity in a limited fund class. The class certification also failed on the equity principles of inclusiveness of the class and fairness of distribution to those within it. The definition of the class excludes a host of plaintiffs with present or foreseeable causes of action against the manufacturer. Finally, the Court found members of the class possessed disparate claims, and the class provided no procedures to resolve the issues of treating similarly situated claimants with equal fairness. Justices Breyer and Stevens dissented from the majority opinion.
In a second case involving asbestos, the U.S. Court of Appeals for the Fifth Circuit has reinstated a family's action against American Tobacco Company and several asbestos manufacturers, ruling the trial court erred in denying retroactive effect to a Louisiana Supreme Court decision making it easier to prove strict liability. In Hulin v. Fibreboard Corp., 178 F.3d 316 (5th Cir. June 9, 1999), the surviving widow and children of lung cancer victim Lenes Hulin, Jr., sued various asbestos manufacturers and American Tobacco, alleging defendants' products caused Hulin's cancer. The plaintiffs asserted causes of action for strict liability, ultrahazardous activities, and negligence. Six weeks after the complaint was filed on January 6, 1986, the Louisiana Supreme Court decided Halphen v. Johns-Manville Sales Corp., 484 So.2d 110 (La. 1986). In Halphen, the state supreme court answered a certified question from the Fifth Circuit, and held that if plaintiffs prove a manufacturer's products are unreasonably dangerous that company may be liable for injuries caused by its products, even if the company did not know and could not reasonably have known of the dangers associated with them. In the Hulins' case, the trial court dismissed their claims that defendants' products were unreasonably dangerous per se, deciding that Halphen could not apply retroactively to preserve those claims. In reversing that decision, the Fifth Circuit ruled that
the state's highest court has held that when it interprets the law in deciding a controversy between litigants in one case, that decision becomes the controlling interpretation of state law and must be given full retroactive effect in all other cases, unless the court declares otherwise or such application is barred by prescription or res judicata. . . . [U]nder the Erie doctrine, we conclude that the Louisiana Supreme Court, applying its long-standing rule, would determine that Halphen applies retroactively.
Note: In Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938), the U.S. Supreme Court announced the governing principle that was to become the heart of the Erie doctrine, i.e., that federal courts must apply the law of the state, except in matters governed by the Federal Constitution or by acts of Congress.