The 'Fair' is the Enemy of the Good: Ortiz V. Fibreboard Corporation and Class Action Settlements
George M. Cohen
University of Virginia School of Law
UVA Law School, Legal Studies Working Paper No. 00-09
This article examines the Supreme Court's decision in Ortiz v. Fibreboard Corporation, which struck down a massive asbestos class action settlement as inconsistent with the requirements of Rule 23, in particular the requirements for a mandatory class action based on a limited fund under Rule 23(b)(1)(B). Although agreeing with the Court's decision, the article criticizes the Court for relying too much on abstract principle rather than directly responding to the pragmatic concerns raised by the dissent. The article considers the incentives of Fibreboard, its insurers, the claimants and their lawyers in the negotiations leading up to the settlement and argues that Fibreboard could not settle its coverage dispute with its insurers without also resolving the asbestos claims themselves. The article then examines the group settlements that Fibreboard entered into before negotiating the class settlement and shows how these settlements could have facilitated a collusive class settlement. With respect to the Court's limited fund analysis, the article shows how a more detailed appreciation of the background could have improved the Court's reasoning. First, the article shows why there could not have been a limited fund. Second, the article argues that the Court's analysis of "extraclass" conflict was too narrow, while its analysis of "intraclass" conflicts was too broad. Third, the article examines the failure of the class settlement to exhaust Fibreboard's assets and relates that failure to Fibreboard's obligations to the asbestos claimants. Fourth, the article explains why the Court should have paid more attention to a companion class action settlement to Ortiz. The article concludes by arguing that courts should continue the task set by Ortiz of developing a meaningful law of class action settlements and in doing so should pay more attention to the details of the deals they oversee.
JEL Classification: K13, K41
Date posted: May 31, 2000