The Fifth Circuit rejected a settlement after an appeal by objectors of the district court’s certification of a settlement class of numerous consolidated lawsuits brought on behalf of residents of New Orleans, Louisiana who suffered harm during the levee breaches during hurricanes Katrina and Rita. In re: Katrina Canal Breaches Litigation, 2010 WL 5128640 (C.A. 5 (La.)). The defendants at issue in these settlements were various levee districts and their boards of commissioners. The insurer for the levee districts tendered the limits of insurance for the settlement fund, $21,000,000.00. The parties sought to certify a limited fund mandatory settlement class under Federal Rule of Civil Procedure 23(b)(1)(B). The district court approved the settlement and certified the class. A group of class members objected and appealed to the 5th Circuit; the Court of Appeals reversed the district court and denied certification.
The 5th Circuit relying heavily on Ortiz v. Fibreboard Corp., 527 U.S. 815, 119 S.Ct. 2295, 144 L. Ed.2d 715 (1999) slammed the settlement for its failure to comply with the procedural safeguards mandated by Ortiz. The Court held that one of the essential elements of a limited fund settlement is that the “claimants [be] identified by a common theory of recovery [and are] treated equitably among themselves.” Id. at 839, 119 S.Ct. 2295. In this case the settlement did not provide for an apportionment of the proceeds of the settlement between class member who suffered wide ranging types of injuries and damages. Instead, the settlement passed the buck to a “special master” who would determine how to divide the proceeds between the class members, provided that there were proceeds to divide.
The Court also disapproved of the settlement’s failure to disclose that the class members might not receive any direct benefit from the settlement. The 5th Circuit declared the settlement to be unfair and unreasonable because the settlement fund might be completely depleted by the cost of administering the settlement and the notice failed to disclose this possibility. The Court also took issue with other portions of the notice which it labeled misleading or borderline misleading: 1. Enhanced recovery of costs = attorneys fees; 2. The notice failed to clearly spell out that instead of money the class might get the “benefit” of a cy pres distribution; and, 3. The notice failed to disclose the fact that the levee districts could contribute more money to the limited fund, but they chose not to do so and rely just on their insurance coverage.
