We represented three objectors to a class action settlement that would have created a fund of about $21 million to resolve all claims against the defendant levee districts and their insurer for billions of dollars of damage resulting from levee failures following Hurricane Katrina, and which would have denied any class member the right to opt-out.
In our objections submitted on March 11, 2009, we explained that the settlement agreement should not be approved because 1) the notice failed to provide class members any means of estimating their individual recoveries, which are likely to be insignificant; 2) the settling parties proposed to resolve the case by designating the defendants’ assets “limited funds,” thereby binding all class members to the settlement without affording them a right to opt out, even though the settling parties have not shown that the settlement meets the requirements for limited fund treatment; 3) the settlement does not provide value to the class members; and 4) the agreement allows the lawyers to seek reimbursement of more than their actual costs and expenses.
On April 2, 2009, we participated in the class certification and fairness hearing. We filed a post-hearing brief on May 5, 2009, urging the Court to deny certification of a mandatory settlement class and disapprove the proposed agreement. We suggested that the settling parties refashion the proposal to allow class members a right to opt out.
On September 8, 2009, the district court overruled our objections, certified the class on a non-opt-out basis under Fed. R. Civ. P. 23(b)(1)(B), and approved the proposed class action settlement. We appealed.
On December 16, 2010, the Court of Appeals for the Fifth Circuit reversed the district court’s decision certifying a mandatory limited fund class and approving the class settlement. The Fifth Circuit held that the district court should not have certified a non-opt-out class on a limited fund rationale because there is no procedure to fairly distribute the fund among differently situated class members (as opposed to a traditional limited fund situation where the fund is amenable to pro rata distribution). The Court also held that the settlement was not fair because it was unlikely that class members would receive any benefit. Specifically, the Court held that “the district court erred by approving the settlement without any assurance that attorneys’ costs and administrative costs will not cannibalize the entire $21 million settlement.” The Court also held that the notice to the class was inadequate because it “did not inform class members of the possibility that they would not receive any direct benefit from the settlement.”