Mass asbestos settlement blocked by Supreme Court

Justices troubled by mandatory deal cut by class-action lawyers

June 24, 1999|By Lyle Denniston | Lyle Denniston,SUN NATIONAL STAFF

WASHINGTON -- Scuttling a $1.5 billion deal to settle thousands of asbestos cases, the Supreme Court limited the authority of federal judges yesterday to accept such deals that have been put together on the theory that not enough money is available to pay every claim.

For the second time in two years, the court thwarted efforts by attorneys and judges to settle masses of claims for injuries and deaths from asbestos exposure.

As it did in 1997, the court suggested that Congress should write a law to deal with "the elephantine mass of asbestos cases" clogging the nation's courts. Congress has not responded.

The settlement that was rejected yesterday by a 7-2 vote, with a slim chance of being saved by changes, is the first of its kind. It grew out of a "class action" lawsuit filed to carry out a settlement reached by lawyers, with every person who could make a potential claim forced to accept the deal's terms. No chance existed to opt out.

The deal involved potentially 186,000 claims against one asbestos manufacturer: Fibreboard Corp., a California-based company that has been taken over by Owens Corning.

Corning said in a statement that "it appears unlikely that the settlement can overcome the many hurdles" put up by yesterday's ruling. As a result, it said, a separate deal it has made with its insurers will take effect, providing about $1.9 billion to pay claims.

Federal judges limited

The court, in striking down the settlement, cast doubt on federal judges' authority to ever approve a one-deal-fits-all settlement of personal injury lawsuits like the one at issue yesterday. These settlements are based on the theory that there is not enough money to go around, so it must be divided.

The court was particularly troubled by the use of that theory in the case before it, because it said the money put up was not a true calculation of all that might be available. Rather, the court said, the total was what lawyers had agreed to put into a payment fund; they then claimed there was no more money available.

The case grew out of efforts by Fibreboard to find a way out of major asbestos lawsuits it faced in Maryland and three other states. It claimed it was running out of money from insurers to cover payments to those suing it.

It was unclear last night what effect the demise of the settlement would have on actual or potential claims in Baltimore. Attorneys involved in lawsuits in Maryland courts could not be reached.

Deal cut in coffee shop

Fibreboard had insisted that a settlement insulate it from all potential asbestos claims. The company, its insurers and lawyers for people who had sued it in tens of thousands of cases worked out the deal, agreeing on the final terms at a meeting with a federal judge at a coffee shop in Texas in 1993.

Soon after, a friendly lawsuit was filed, carrying out the settlement already worked out. It set up a $1.53 billion fund to pay off all personal injury or death claims against Fibreboard and its insurers in asbestos-related cases.

The Supreme Court nullified the deal as an improper use of federal class-action rules. The justices said the judge had done too little to determine how much money could have been put into the fund and had simply accepted the amount set out in the deal.

Terms called unfair

The court, in a ruling written by Justice David H. Souter, also said the lawyers who wrote the deal excluded tens of thousands of potential claims. And, it added, some people who might have had claims to the fund deserved to have lawyers of their own, to make sure their interests were protected. The terms of payment, it concluded, were not fair and equal for everyone with potential claims.

The court, while saying that Fibreboard need not have been pushed to the financial brink by a settlement, declared that the company would have been freed from asbestos liabilities without having to put much of its corporate assets at risk.

Justices Stephen G. Breyer and John Paul Stevens dissented.

Pub Date: 6/24/99

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