The Supreme Court overturned a $1.5 billion asbestos settlement yesterday in a decision that on two fronts makes it more difficult for companies to resolve thousands of lawsuits through a single settlement. The justices ruled, 7 to 2, that a company cannot limit the amount it is willing to pay and that people in the group with conflicting interests must have separate lawyers.
The decision reined in a legal tool increasingly used by manufacturers and other defendants to settle claims seeking damages for a class of people, potentially affecting product-liability cases involving tobacco, pacemakers and silicone breast implants as well as civil rights and employment discrimination cases.
Trial lawyers generally praised the decision, saying companies had abused the class action procedure to limit the size of awards and protect themselves from financial harm. But others said it will drag out suits and leave victims waiting years for resolution of a claim.
While various courts have been extensively involved in crafting global settlements in these massive cases, the justices noted that only Congress can change the law that defines the limits of class actions. Justice David H. Souter, writing for the majority, pleaded with Congress to address the "elephantine mass" of asbestos claims legislatively.
"This litigation defies customary judicial administration and calls for national legislation," Souter wrote at the outset of his decision. In a footnote, he added: "To date, Congress has not responded." Yesterday was the third time in a decade the court has asked for the help of Congress in dealing with the issue.
In the case, Esteban Ortiz v. Fibreboard Corp., the justices overturned a 1993 global class settlement involving about 186,000 asbestos personal injury claims against the Fibreboard Corp., a maker of vinyl siding that is now a subsidiary of Owens Corning. In that settlement, the company established a limited fund to settle all claims. As part of the agreement, no one in the class could reject the settlement and sue the company as an individual.
But the justices said if a company is going to set aside limited money and not allow what are known as opt-outs, the fund must truly be limited. In this case, insurance companies were providing most of the funds for the settlement and Fibreboard retained virtually all its net worth. Thus, the justices said, the fund could not be considered limited.
In addition, Souter noted that there were a number of different types of claimants, including those who are currently sick and those who may get sick in the future. In such cases, claimants with different interests must be represented by different lawyers, Souter said.
Asbestos causes a lung disease called mesothelioma, which can have a latency period of as much as 40 years, so people currently in their sixties may have been exposed to asbestos in oil fields or shipyards decades ago and still not know whether they will develop the disease.
"This is very, very important," said Linda S. Mullenix, a professor at the University of Texas School of Law and a consultant on previous asbestos settlements. "Every class action lawyer in the country has been waiting for this decision."
It will prevent companies from "picking a number" to settle such cases, said Laurence Tribe, the Harvard lawyer who argued the case for the claimants who opposed the settlement. And it will mean that in all class action suits, people with different interests will have to have separate representation.
"This was a scary device," Tribe said, "creating by agreement with an insurance company a limited fund and selling down the river the rights of all sorts of people."
"This is absolutely a huge victory for asbestos victims, consumers and anybody concerned about class action abuse," said Arthur H. Bryant of the Trial Lawyers for Public Justice, a group that is supported by some of the country's biggest class action lawyers.
"I don't think this is a big victory for victims," said Mullenix, who said she generally favors class action settlements. "Asbestos victims have received nothing after all these years. This is a case where justice delayed is justice denied." Many asbestos victims die before their claims are settled.
Owens Corning, which bought Fibreboard after the case had been initiated, said it was pleased with the outcome. The company, which also formerly made asbestos, has already begun a national settlement program to resolve the claims.
Chief Justice William H. Rehnquist -- along with Justices Antonin Scalia, Anthony M. Kennedy, Clarence Thomas, Ruth Bader Ginsburg and Sandra Day O'Connor -- joined Souter in the decision.
Stephen G. Breyer and John Paul Stevens dissented. Breyer wrote for the two that in such complex cases, the district court should be given the discretion to reach an equitable resolution.
Although there have been various legislative proposals over the years regarding asbestos claims, none has ever made it to the floor of Congress.
"The majority of the Supreme Court is saying that if asbestos is going to be solved, Congress has to solve it," said one lawyer who is not involved in this case. But, he added: "Congress will never touch this with a 10-foot pole. The trial lawyers are too entrenched."