The court, by a 7-2 vote, ruled that a federal judge in Texas wrongly allowed a class-action settlement involving Fibreboard, a vinyl siding manufacturer.
The decision is of great importance to resolving massive and complex product-liability lawsuits, such as those over breast implants, cigarettes and other allegedly dangerous products. The new guidelines may make it more difficult for manufacturers and other defendants to obtain settlements of such lawsuits.
Writing for the court, Justice David H. Souter said that in such proposed settlements in which a limited amount of money is available, those seeking the settlement "must show that the fund is limited by more than the agreement of the parties, and has been allocated to claimants belonging within the class by a process addressing any conflicting interests of class members."
"With Fibreboard retaining nearly all its net worth, it hardly appears that such a regime is the best that can be provided for class members," Souter added.
Dallas-based Fibreboard, a subsidiary of Owens Corning, manufactures vinyl siding and other building materials at 21 plants in the United States and Canada. Its products once contained asbestos, for decades used extensively in insulation and fireproofing before it was linked to severe and sometimes deadly respiratory problems.
In 1993, U.S. District Judge Robert Parker in Tyler, Texas, approved a so-called global settlement of about 186,000 potential future claims and several related agreements negotiated by Fibreboard, its insurers and some people with asbestos-related health claims. Parker has since been elevated to the 5th U.S. Circuit Court of Appeals.
The settlement was upheld by the 5th Circuit court, but the Supreme Court last June told the appeals court to restudy the case in light of a 1997 ruling in which the justices made it more difficult to find nationwide solutions in massive product-liability litigation.
That decision said judges lack the authority to allow a class-action settlement in a lawsuit that, under federal rules of civil procedure, would be denied class-action status at trial.
After restudying the Fibreboard case in light of the 1997 Supreme Court ruling, a three-judge panel of the 5th Circuit court again upheld the $1.5 billion global settlement, by a 2-1 vote.
People opposed to the settlement then successfully sought Supreme Court review, accusing the appeals court of "insubordination" by essentially ignoring the 1997 ruling.
Joining Souter's opinion Wednesday were Chief Justice William H. Rehnquist and Justices Sandra Day O'Connor, Antonin Scalia, Anthony M. Kennedy, Clarence Thomas and Ruth Bader Ginsburg.
Rehnquist wrote a concurring opinion that said the federal judge made "near-heroic efforts ... to make the best of a bad situation." But he sad the court was restricted by federal civil trial rules, adding that the situation "cries out for a legislative solution."
Dissenting were Justices Stephen G. Breyer and John Paul Stevens. Writing for the two, Breyer said that in complicated cases such as asbestos claims, "our court should allow a district court full authority to exercise every bit of discretionary power that the law provides."
The case is Ortiz vs. Fibreboard, 97-1704.
Written By Laurie Asseo