The recent Supreme Court class action case of Ortiz v. Fibreboard Corp., 527 U.S. 815, 119 (1999) holds that a 'mandatory' class (a class that generally does not give individual notice to members or allow them to opt out) may not be certified, or a settlement approved, under Federal Rule of Civil Procedure 23(b)(1)(B) based simply on an unconventional 'limited fund' created by the defendants through a settlement of their liability. The traditional 'limited fund' is a pool of money coming from an outside source, the amount of which is not subject to manipulation by the parties. In Ortiz, the Supreme Court was faced with a large class of asbestos claimants suing a manufacturer, which had, in turn, sued its two insurance carriers for funds to pay the claimants. Negotiations between the lawyers for the class and the manufacturer and the two insurance companies produced a settlement fund of $1.525 billion, contingent on certification under Rule 23(b)(1)(B) as a mandatory class, and approval of the settlement on a limited fund theory. The lower courts certified the claimants as a Rule 23(b)(1)(B) mandatory, non-opt-out class and approved the settlement because they believed that on balance it was in the best interests of the claimants who otherwise stood to lose the fund should the insurance companies win their pending no-coverage cases. The Court concluded that applicants for certification on a limited fund theory under Rule 23(b)(1)(B) 'must show that the fund is limited by more than the agreement of the parties.' The Court reached this conclusion because such a mandatory class-action settlement runs headlong into long-established principles of due process, the Seventh Amendment right of trial by jury and the 'principle of general application in Anglo-American jurisprudence that one is not bound by a judgment in personam in a litigation in which he is not a designated party or to which he has not been made a party by service of process.' Hansberry v. Lee, 311 U.S. 32, 40 (1940).
This products liability class-action litigation was brought on behalf of individuals implanted with the Telectronics Accufix Atrial 'J' pacemaker lead. TPLC-manufactured leads of this type were implanted in about 40,000 persons worldwide, including about 25,000 persons in the United States. TPLC (D), a Delaware corporation, manufactured and distributed these leads in the United States between 1988 and 1994. Telectronic Pacing Systems is the sole owner of TPLC. Telectronic Pacing Systems' sole business is to hold certain industrial property rights, real estate and the equity interest in TPLC. Additional named defendants are Pacific Dunlop, Ltd. and Nucleus, Ltd, both Australian companies. Nucleus is a holding company that owns companies that design, manufacture and sell medical products, including pacemakers and pacemaker leads. It was the holding company for D and Telectronic Pacing Systems. Pacific Dunlop purchased Nucleus in 1988 and became the beneficial owner of D and Telectronic Pacing Systems. Pacific Dunlop is a publicly-held Australian company consisting of over 225 separate corporate affiliates and subsidiaries. It has annual worldwide sales of about $5.5 billion. Nucleus and Pacific Dunlop were made defendants on the ground that they are alter egos or agents of their subsidiary, D. In 1996, TPLC sold all its assets, but not its liabilities, to Pacesetter, Inc. Accufix Research Institute, Inc. became the successor company to D. The amended and consolidated master class action complaint asserted claims against D, Nucleus and Pacific Dunlop for negligence, strict liability, failure to warn, breach of implied and express warranty, fraud, medical monitoring, fear of future product failure, intentional and negligent infliction of emotional distress, loss of consortium, misrepresentation and compensatory and punitive damages. The Australian defendants, Pacific Dunlop and Nucleus, moved to dismiss for lack of personal jurisdiction. In February 1997, the district court denied the motion, finding that the companies maintained sufficient contacts with the United States for the court to exercise personal jurisdiction over them. The district court later certified the class with respect to defendants Pacific Dunlop and Nucleus on Ps' claims of alter ego and agency. A one-week, nonbinding, summary jury trial was held in February 1998. The summary jury found D liable under theories of strict liability, negligence and negligence per se and awarded class members between $150,000 and $3 million each, depending on the extent of their injuries. The summary jury did not award monetary damages to Ps whose leads had not broken but did find that D should pay $265 million for medical monitoring of all implant recipients. The summary jury did not find Nucleus or Pacific Dunlop liable as alter egos of D or under any agency theory. Defendants and the Plaintiffs' Steering Committee entered into settlement negotiations shortly after the summary trial. The parties filed a joint motion for certification of a mandatory class and approval of the proposed settlement. On July 22, 1998, the district court preliminarily approved the class action settlement proposed by the parties. D's assets, determined to be about $78 million, were divided into four funds: (1) a Patient Benefit Fund of about $47 million out of which class member would be compensated; (2) an Operating Fund of about $20 million that D will use to pay operating expenses; (3) a Litigation Fund of about $7 million that D would use to pay expenses related to non-lead-related litigation and (4) a Reserve Fund of $4 million to be used by Ds to pay expenses in other, unrelated litigation. Pacific Dunlop agreed to contribute $10 million to the Patient Benefit Fund, raising that fund to $57 million and the parties agreed that any unused funds from the other three funds would be added to the Patient Benefit Fund. The defendants and Ps' Steering Committee also determined categories of class members, based on the extent of injury to date and whether a lead was still implanted in the class member. The district court approved the settlement and ultimately certified the class as a mandatory, non-opt-out class under Rule 23(b)(1)(B) as requested by the parties. The district court certified the no-opt-out class because it found, based on economic information provided by D, that there was a 'limited fund' from which injured Ps could be paid. The district court stated that it did not take into account the assets of Nucleus or Pacific Dunlop in determining the total assets available to the settlement fund because (1) it believed that the court was unlikely to obtain jurisdiction over the Australian companies, (2) the time and cost of litigating against a foreign defendants made litigation infeasible and (3) the jury in the summary trial had not found the two Australian companies liable. As required by Rule 23(e), the district court held a fairness hearing. It reviewed the settlement for fairness, reasonableness, and adequacy and found that the settlement as a whole satisfied the standards of Rule 23(e). Fifty-three class members objected to the settlement. The district court also approved an award of 28%, or about $19 million, of the net Patient Benefit Fund as attorney fees. As part of the settlement agreement, defendants did not object to this fee request. The attorney fee amount was objected to by various unnamed class members. Five different groups of class members have appealed the approval of the settlement, and their appeals have been consolidated. The five issues on appeal: (1) whether the district court abused its discretion in certifying the class as a 'limited fund' class action under Federal Rule of Civil Procedure 23(b)(1)(B) where solvent and potentially liable companies were released from liability; (2) whether the settlement and certification violates due process because it does not allow plaintiffs with claims for money damages to opt-out of the settlement; (3) whether the class representatives and class counsel adequately represented the interests of all class members; (4) whether the district court erred in awarding class counsel fees of 28% of the total settlement fund; and (5) whether the district court abused its discretion in denying the motions to intervene by various class members/objectors.