In re Diet Drugs Prods Liability Litigation

• Decision Date: 25 May 2004
• Docket Number: No. 03-2033.,No. 02-4582.,No. 03-4362.,No. 03-2936.,02-4582.,03-2033.,03-2936.,03-4362.
• Parties: In re: DIET DRUGS (PHENTERMINE/FENFLURAMINE/DEXFENFLURAMINE) PRODUCTS LIABILITY LITIGATION Linda Smart, a class member who has exercised her intermediate opt-out rights Appellant In re: Diet Drugs (Phentermine/Fenfluramine/Dexfenfluramine) Products Liability Litigation Clara Clark, Linda Smart, George M. Fleming, Fleming & Associates, L.L.P., Mike O'Brien and Michael C. Abbott, Appellants In re: Diet Drugs (Phentermine/Fenfluramine/Dexfenfluramine) Products Liability Litigation Keith K. Barlow, Ruby S. Barlow, Cherry Barnes, Joe Wayne Burton, Nora K. Burton, Lonelle S. James, Michael J. Miller, Kenneth W. Smith, Miller & Associates, Edward A. Williamson, Fenton B. DeWeese, II, The Law Office of Edward A. Williamson, Merrida Coxwell, Charles R. Mullins, Coxwell & Associates, PLLC, and Eugene C. Tullos, Appellants In re: Diet Drugs (Phentermine/Fenfluramine/Dexfenfluramine) Products Liability Litigation Linda Eichmiller, Brenda Cook, Richard Cook, Doris Caldwell, Susan McCarty, Jim McCarty, Jr., Julia Campbell, Carolyn Winters, Bobby G. Winters, Macy Houston, and John F. Houston, III, Appellants.
• Court: U.S. Court of Appeals — Third Circuit

369 F.3d 293

In re: DIET DRUGS (PHENTERMINE/FENFLURAMINE/DEXFENFLURAMINE) PRODUCTS LIABILITY LITIGATION

Linda Smart, a class member who has exercised her intermediate opt-out rights Appellant

In re: Diet Drugs (Phentermine/Fenfluramine/Dexfenfluramine) Products Liability Litigation

Clara Clark, Linda Smart, George M. Fleming, Fleming & Associates, L.L.P., Mike O'Brien and Michael C. Abbott, Appellants

In re: Diet Drugs (Phentermine/Fenfluramine/Dexfenfluramine) Products Liability Litigation

Keith K. Barlow, Ruby S. Barlow, Cherry Barnes, Joe Wayne Burton, Nora K. Burton, Lonelle S. James, Michael J. Miller, Kenneth W. Smith, Miller & Associates, Edward A. Williamson, Fenton B. DeWeese, II, The Law Office of Edward A. Williamson, Merrida Coxwell, Charles R. Mullins, Coxwell & Associates, PLLC, and Eugene C. Tullos, Appellants

In re: Diet Drugs (Phentermine/Fenfluramine/Dexfenfluramine) Products Liability Litigation

Linda Eichmiller, Brenda Cook, Richard Cook, Doris Caldwell, Susan McCarty, Jim McCarty, Jr., Julia Campbell, Carolyn Winters, Bobby G. Winters, Macy Houston, and John F. Houston, III, Appellants.

No. 02-4582.

No. 03-2033.

No. 03-2936.

No. 03-4362.

United States Court of Appeals, Third Circuit.

Argued December 10, 2003.

Filed May 25, 2004.

COPYRIGHT MATERIAL OMITTED

John G. Harkins, Jr. (Argued), Steven A. Reed, Harkins Cunningham, Philadelphia, PA, for Appellant Linda Smart.

George M. Fleming, Sylvia Davidow, Rand P. Nolen, Scott A. Love, Fleming & Associates, L.L.P., Houston, TX, Mike O'Brien, Mike O'Brien, P.C., Houston, TX, for Appellants Linda Smart, Clara Clark, et al., and Linda Eichmiller, et al.

Michael J. Miller, Christopher A. Gomez, Michelle DeMartino, Kenneth W. Smith, Michael J. Miller & Associates, Alexandria, VA, for Appellants Keith Barlow, et al.

Fred S. Longer, Arnold Levin, Michael D. Fishbein, Levin, Fishbein, Sedran & Berman, Philadelphia, PA, for Appellees Plaintiff Class and Class Counsel.

Robert D. Rosenbaum, Arnold & Porter, Washington, D.C., Peter L. Zimroth, (Argued), Arnold & Porter, New York, NY, for Appellee American Home Products Corporation.

Robert S. Conrad, National Chamber Litigation Center, Inc., Washington, D.C., Miriam Nemetz, Carl J. Summers, Mayer, Brown, Rowe & Maw LLP, Washington, D.C., for Amicus The Chamber of Commerce of the United States.

Ellen A. Presby, Steve Baughman Jensen, S. Ann Saucer, Baron & Budd, P.C., Dallas, TX, for Amicus Class Members Represented by Baron & Budd, P.C.

W. Lewis Garrison, Ursula Tracy Doyle, Garrison Scott Gamble & Rosenthal, P.C., Birmingham, AL, for Amicus Opt-Out Plaintiffs' Counsel.

Leslie A. Brueckner, Michael J. Quirk, Trial Lawyers for Public Justice, P.C., Washington, D.C., for Amicus Trial Lawyers for Public Justice.

Denise A. Rubin, Napoli, Kaiser, Bern & Associates, Great River, NY, James H. Pearson, M. Bain Pearson, Pearson & Pearson, L.L.P., M. Bain Pearson, Houston, TX, for Amicus Opt-Out Plaintiffs' Counsel.

Before AMBRO, FUENTES and CHERTOFF, Circuit Judges.

CHERTOFF, Circuit Judge.

This appeal arises out of the settlement of a complex multidistrict federal mass tort class action. As part of the complicated settlement agreement, class members were entitled to opt out at various stages. Those who chose to opt out initially were freed to pursue their remedies elsewhere. Those who did not opt out at the beginning were afforded opportunities to opt out "downstream" at an intermediate stage or at the "back-end." But those downstream opt-out rights were not absolute. Rather, members who elected to delay an opt-out beyond the initial stage were informed that they would not have unfettered ability to litigate all claims elsewhere. Instead, among other things, these so-called intermediate and back-end class "opt-outs" were precluded under the settlement agreement from pursuing punitive, exemplary, or multiple damages.

The questions presented here arise from the District Court's efforts to enforce the terms of the settlement against intermediate opt-out class members now litigating their claims in various state courts. What appellee class counsel and appellee defendant fear is that counsel for intermediate opt-outs will undermine the efficacy of the settlement by evading or circumventing the punitive damages restrictions to which they are bound under the agreement. Appellants, who are individual intermediate opt-outs now pressing claims in state court, complain that the District Court has gone beyond enforcing the plain restrictions of the settlement and has taken steps that will hamper or defeat plaintiffs' ability to pursue claims that are not barred by the settlement.

In one sense, the issues framed in the appeal reflect efforts by creative counsel on both sides to interpret and apply settlement terms so as to gain advantage in the individual lawsuits brought by intermediate opt-outs in various state courts. But larger institutional and fairness issues are at stake.

The nationwide class settlement is a device that holds the promise of resolving millions of claims in a way that affords deserving claimants some measure of relief while preserving a defendant business as a viable entity that can actually pay compensation. See In re Gen. Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 784 (3d Cir.1995). All claimants benefit from such an outcome, because each has a fair opportunity at recovery. Later claimants need not fear that the fund will be exhausted before their turn comes, or that the defendant will undertake a scorched earth defense that consumes assets otherwise available for compensation, or simply turn off the spigot by filing for bankruptcy. The defendant, too, obviously benefits from a limit to liability that ensures corporate survival. For this type of global settlement to work, however, the district court must successfully discharge the herculean task of enforcing the terms of the class settlement agreement against the constant pressure of some settlement class members who, having obtained part of a loaf through the agreement, now pursue alternative avenues to obtain additional slices. Otherwise, individual class members' activities "would be disruptive to the district court's ongoing settlement management and would jeopardize the settlement's fruition." Carlough v. Amchem Prods., Inc., 10 F.3d 189, 204 (3d Cir.1993).

As appealing as the efficiencies of a nationwide mass tort class settlement may be, however, the Supreme Court has repeatedly cautioned that they cannot override fundamental principles of due process or faithful application of controlling law. See Ortiz v. Fibreboard Corp., 527 U.S. 815, 845-48, 119 S.Ct. 2295, 144 L.Ed.2d 715 (1999); Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 620, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997); Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 812, 105 S.Ct. 2965, 86 L.Ed.2d 628 (1985). Because a class settlement disposes of the rights of many people who are absent from the proceeding and only virtually represented by class counsel, due process considerations such as adequacy of notice and adequacy of representation have special force. Ortiz, 527 U.S. at 847-48, 119 S.Ct. 2295. As we observed in our opinion in Georgine v. Amchem Prods., Inc.-in a passage endorsed by the Supreme Court, see 521 U.S. at 628, 117 S.Ct. at 2252 — inadequacies in the quality of notice raise "serious fairness concerns." 83 F.3d 610, 634 (3d Cir.1996).

Moreover, when a federal court seeks to effectuate a settlement agreement by way of enjoining state court proceedings, additional constraints qualify its authority. We have held that district courts have the authority under the All Writs Act, 28 U.S.C. § 1651, to protect their jurisdiction by enjoining state court proceedings that interfere with a judicially approved settlement. See In re Prudential Ins. Co. Sales Practices Litig., 314 F.3d 99, 103-05 (3d Cir.2002) (hereinafter Prudential II); In re Diet Drugs Prods. Liab. Litig., 282 F.3d 220, 233-39 (3d Cir.2002) (hereinafter Diet Drugs I). But the Anti-Injunction Act, 28 U.S.C. § 2283, and federalism concerns circumscribe this power and require that it be "construed narrowly" and invoked sparingly. Diet Drugs I, 282 F.3d at 233-34. The power of federal courts to intrude into the domain of state courts administrating their own laws implicates a host of sensitive concerns and is therefore limited. See, e.g., Rizzo v. Goode, 423 U.S. 362, 379-80, 96 S.Ct. 598, 46 L.Ed.2d 561 (1976); Huffman v. Pursue, Ltd., 420 U.S. 592, 600-01, 95 S.Ct. 1200, 43 L.Ed.2d 482 (1975).

In addition, as with any injunction, traditional principles of equity apply. The terms of any injunction, for example, must be commensurate with the violation the court seeks to remedy. And practical considerations such as manageability and enforceability militate against an order that enmeshes a district court in protracted micromanagement of litigation in a state court. These principles of equity counseling restraint take on particular significance when issues of federalism are involved. When federal courts are confronted with requests for relief that require interference with state civil functions, "they should abide by standards of restraint that go well beyond those of private equity jurisprudence." Huffman, 420 U.S. at 603, 95 S.Ct. 1200.

All of these concerns come to bear on our resolution of the appeal from the District Court's orders in this case. For the reasons stated in this opinion, we agree that the District Court had power under the All Writs Act to supervise and curtail the actions of intermediate opt-out class members in pursuing their individual claims. But we believe that the injunctions imposed some restrictions not fairly comprehended within the terms of the settlement agreement and class notice and, in certain ways, transgressed the limits of federalism and prudence that confine the exercise of federal judicial authority.

Emphatically, the District Court is...