In Re Orthopedic ( 2003 )

Opinions of the United
2003 Decisions States Court of Appeals
for the Third Circuit
11-24-2003
In Re Orthopedic
Precedential or Non-Precedential: Precedential
Docket No. 02-3978
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PRECEDENTIAL
Filed November 24, 2003
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 02-3978
IN RE: ORTHOPEDIC BONE SCREW PRODUCTS
LIABILITY LITIGATION
(MDL No. 1014)
*DANIEL FANNING, on behalf of himself and all others
similarly situated; *MARGARET SCHMERLING, on behalf
of herself and all others similarly situated
v.
*ACROMED CORPORATION;
*GIBRALTER NATIONAL INSURANCE
(Intervenor in District Court)
*(D.C. Civil No. 97-cv-00381)
Joyce Custer, Robert Deniken,
Rebecca Hill, Marie Wells Iacono,
Katherine D. Morris and Brenda Willette,
Appellants
*(Amended in accordance with Clerk’s Order
dated 01/03/03)
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
MDL No. 1014 and D.C. Civil Action No. 97-cv-00381
(Honorable Ronald L. Buckwalter)
Argued: July 29, 2003
Before: SCIRICA, Chief Judge, RENDELL and AMBRO,
Circuit Judges
2
(Filed November 24, 2003)
BRIAN S. WOLFMAN, ESQUIRE
(ARGUED)
Public Citizen Litigation Group
1600 20th Street, N.W.
Washington, D.C. 20009
Attorney for Appellants
ARNOLD LEVIN, ESQUIRE
FRED S. LONGER, ESQUIRE
Levin, Fishbein, Sedran & Berman
510 Walnut Street, Suite 500
Philadelphia, Pennsylvania 19106
JOHN J. CUMMINGS, III, ESQUIRE
Cummings, Cummings &
Dudenhefer
416 Gravier Street
New Orleans, Louisiana 70130
Attorneys for Appellees,
Plaintiffs’ Class and Plaintiffs’
Legal Committee
RICHARD I. WERDER, JR.,
ESQUIRE (ARGUED)
Jones Day
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Attorney for Appellee,
AcroMed Corporation
OPINION OF THE COURT
SCIRICA, Chief Judge.
At issue is application of an indemnification clause in a
$100 million Fed. R. Civ. P. 23(b)(1)(B) class action
settlement involving class members implanted with
orthopedic bone screws. This is an appeal of a District
Court order permitting defendant AcroMed Corporation to
3
be indemnified, with money from a fixed settlement fund,
for costs associated with related individual cases. We will
affirm.
I.
A.
This appeal is brought by six class members—termed
“Custer Objectors” after the first-listed appellant, Joyce
Custer—who have valid claims for compensation from the
settlement fund. The objectors challenge the application of
an indemnity provision that was included in the class
action settlement.
Appellee, AcroMed, is one of several bone screw
manufacturers that were defendants in Multidistrict
Litigation 1014. In 1996, AcroMed reached agreement with
the Plaintiffs’ Legal Committee. A class action complaint
was filed together with the proposed settlement. In 1997,
the District Court certified the class for settlement purposes
and approved the settlement. In re Orthopedic Bone Screw
Prod. Liab. Litig. (Fanning), 176 F.R.D. 158 (E.D. Pa. 1997).
An appeal of the settlement was voluntarily dismissed,
rendering the District Court’s order final and unappealable.
The certified class included all persons having a claim
against AcroMed relating to bone screws that were
implanted anywhere in the United States before December
31, 1996. Finding that AcroMed’s potential resources to
settle claims were sufficiently restricted that they amounted
to a “limited fund,” the District Court certified the class
under Fed. R. Civ. P. 23(b)(1)(B), as a non-opt-out class.
The settlement provided the only avenue for recovery for
class members subject to the settlement, who were enjoined
from bringing individual actions.
The settlement specified $100 million, plus certain
insurance proceeds, for payment of settled claims. The
District Court approved this figure largely because of its
finding that AcroMed was worth $104 million, based on
what a willing buyer would pay for the company
independent of the financial constraints and uncertainty
4
associated with the bone screw litigation. The District Court
found the $100 million fund amount to represent the upper
limit of what AcroMed could afford.1
The agreement included an indemnification provision,
permitting AcroMed to request money from the settlement
fund for defending certain related lawsuits. It provides:
AcroMed . . . will be indemnified by the AcroMed
Settlement Fund, by appropriate petition to the Court,
for all reasonable costs and services incurred in
defending, settling, or satisfying judgments entered in
any claims or proceedings involving Settled Claims of
Settlement Class Members . . . that are not terminated
as a result of this Agreement or that are filed in the
future despite this Agreement.
The agreement also provided for a “Settlement Contingency
Fund” to ensure that, as the settlement fund was depleted,
sufficient funds would be set aside to protect AcroMed’s
indemnification rights for costs associated with related
lawsuits.
In approving the settlement, the District Court stressed
limiting indemnification under these provisions, noting that
the purpose of the agreement was to maximize recovery for
the class members. Under the indemnification provision,
AcroMed is only granted the right to request payment, while
the District Court retains ultimate discretion to determine
whether indemnification is appropriate. The District Court
further stated that the provision’s indemnification of
“reasonable costs” would be “given a strict and narrow
construction upon any requests made for indemnification
or payment from the settlement fund.” Orthopedic Bone
Screw, 176 F.R.D. at 167. At issue is application of the
indemnification provision.
B.
Melissa Lloyd is a West Virginia resident who had surgery
involving bone screw implantation on December 14, 1996.
1. Appellants contest this finding, claiming that AcroMed was
subsequently sold for a considerably higher price.
5
In 1999, she sued AcroMed in West Virginia state court,
alleging she had not received notice of the national class
action settlement. AcroMed removed the case to federal
court, seeking to have it joined with MDL 1014. The
attempt to keep it in federal court failed. See Lloyd v. Cabell
Huntington Hosp., Inc., 58 F. Supp. 2d 694 (S.D. W. Va.
1999). Following remand, AcroMed filed a motion to show
cause why Lloyd and her counsel should not be held in
contempt for prosecuting the state court action. AcroMed
contended that Lloyd was a class member and, as such,
was subject to the District Court’s injunction against class
members filing actions separate from the class action.
The District Court agreed, concluding that Lloyd was a
class member, and holding her in contempt. The only
sanction the District Court imposed was an injunction
against further prosecution of the West Virginia case. Lloyd
appealed that ruling. Before the appeal was decided,
however, Lloyd and AcroMed reached a settlement, under
which AcroMed paid Lloyd $200,000—several times more
than class members received under the class settlement.
AcroMed then sought indemnification from the settlement
fund for the costs of the Lloyd settlement. It also requested
that $1 million be set aside in the settlement contingency
fund for future indemnification of similar collateral actions.
The Plaintiffs’ Legal Committee did not oppose these
requests, both of which the District Court granted.2
Appellants are six class members who object to the
indemnification of the Lloyd settlement, as well as the $1
million set-aside. After the District Court had granted the
indemnification, the Custer Objectors moved to alter or
amend the District Court’s order under Fed. R. Civ. P.
59(e). The objectors contended that indemnification was not
“reasonable” under Judge Bechtle’s prior interpretation;
that Lloyd was not a settlement class member with settled
claims, so not within the indemnification provisions; and
that any interpretation of the provision that would cover
2. MDL 1014 was presided over by Judge Louis Bechtle from its
inception. By the time of the indemnification motion, however, Judge
Bechtle had retired. The case was reassigned to Judge Ronald L.
Buckwalter.
6
Lloyd was at odds with general class action principles. The
District Court denied their motion.
II.
As noted, the District Court’s order approving the
AcroMed Fed. R. Civ. P. 23(b)(1)(B) class action settlement
is final and unappealable. Any challenges to the legality of
the settlement agreement itself, including the
indemnification provision, are no longer timely. The
indemnification provision is valid and binding on the
parties. To the extent the objectors challenge not the
provision itself, but the interpretation and application of it
to the Lloyd case, however, the finality of the agreement
does not prevent review.3
3. AcroMed contends the challenge to the Lloyd indemnification is moot,
because the payment has already been made. But that payment did not
resolve the dispute; it is the subject-matter of the dispute itself. The
objectors claim that the payment made to Lloyd cost them money to
which they are entitled. AcroMed’s citation to a case in which an
insurance company resolved the underlying dispute by paying a claim is
inapposite. See Phillips v. Cheltenham Township, 575 F.2d 72, 73-74 (3d
Cir. 1978). In Phillips, the defendant lacked specific injury, id. at 73,
while objectors here claim they will receive less money due to the
application of the indemnification provision. AcroMed further claims the
challenge to the set-aside is not yet ripe, as that money has not been
paid out to anyone, and the money may be used for cases of a kind not
challenged here. As noted, the challenge to the reserves depends on the
objectors’ challenge to the Lloyd case. If the Lloyd indemnification is
acceptable, then the objectors lack a basis for challenging the $1 million
reserve. Because we conclude the Lloyd indemnification was reasonable,
we need not resolve this question.
We have some doubt whether objectors have standing to represent the
interests of the settlement class in challenging the application of
settlement terms previously agreed to by the Plaintiffs’ Legal Committee.
This issue was not fully briefed by the parties. However, because
objectors likely have standing to challenge the application of the
indemnification provision on their own behalf, we will reach the merits
of their argument. The Supreme Court recently held that a nonnamed
member of a class who objected at the fairness hearing could appeal the
approval of the settlement without moving to intervene in the case.
Devlin v. Scardelletti, 536 U.S. 1, 14 (2002). Objectors here neither
7
We review the District Court’s construction of the
provision de novo. Pennwalt Corp. v. Plough, Inc., 676 F.2d
77, 79 (3d Cir. 1982). But as noted, the provision itself
grants a measure of discretion to the District Court in
determining when indemnification is appropriate. To the
extent we review such a determination, we review for abuse
of discretion.
III.
After the settlement was approved and final, the Supreme
Court enunciated a narrow view of acceptable limited-fund
class settlements, see Ortiz v. Fibreboard Corp., 527 U.S.
815 (1999), raising the question whether this settlement
would have been approved under current class action
doctrine. See In re Orthopedic Bone Screw Prods. Liab. Litig.
(Sambolin), 246 F.3d 315, 317 n.3 (3d Cir. 2001) (“Since
[the settlement approval], the ‘limited fund’ of a defendant
to meet claims has been substantially circumscribed by the
Supreme Court as a basis for the maintenance of a class
action.”). Nevertheless, the AcroMed Settlement is an
agreement approved by a final, and now unappealable,
order that binds all of the parties to the present dispute. To
the extent the objectors wish to challenge the
indemnification provision itself, their opportunity to do so
was at the approval stage and on appeal from that order,
and has now long passed. See Hodge v. Hodge, 621 F.2d
590, 591-93 (3d Cir. 1980) (finding res judicata barred
challenges to order enforcing terms of settlement).
The only question before us, then, is whether the
indemnification provision was properly applied in this case.
The Lloyd matter appears to fall within the language of the
indemnification provision. The provision permits requests
for reasonable costs associated with “defending, settling, or
objected at the fairness hearing nor appealed the settlement, which is
now final. In Scardelletti, however, the Court declined to frame the issue
as one of standing, but rather as “whether petitioner should be
considered a ‘party’ for the purposes of appealing the approval of the
settlement.” Id. at 7. Objectors here do not qualify as a party for
purposes of appealing the original settlement.
8
satisfying judgments entered in any claim or proceedings
involving Settled Claims of Settlement Class Members . . .
that are not terminated as a result of this Agreement or
that are filed in the future despite this Agreement.” At issue
is whether Lloyd was a “settlement class member,” and
whether her claims were “settled claims” within the
meaning of the agreement.
These are both defined terms in the agreement. Lloyd
falls squarely within the definition of a settlement class
member, as one who has a claim relating to bone screws
implanted in the United States before December 31, 1996.
And “any and all Orthopedic Bone Screw Related claims” by
settlement class members are “settled claims” under the
agreement. Consequently, Lloyd is a settlement class
member, whose claim in West Virginia is one of the “settled
claims.” AcroMed is entitled to seek compensation for the
costs of defending and settling such claims “that are not
terminated as a result of this Agreement or that are filed in
the future despite this Agreement.”
Objectors maintain that Lloyd was not a settlement class
member for purposes of the indemnification provision.
Contending she never received adequate notice of the class
certification and settlement, objectors argue that Lloyd was
not subject to the jurisdiction of the District Court and was
never a proper party to the action. The objectors’ argument,
in other words, is that even though Lloyd appears to fall
under the agreement’s definition of a settlement class
member, she is not within this group, all things considered,
because of the operation of due process and jurisdictional
constraints. And because her claims were not, in fact,
settled by the agreement, her claims allegedly were not
“settled claims,” despite the definition in the agreement.
We disagree. The objectors’ interpretation cannot be
squared with the entire indemnification provision. The
provision expressly recognizes “Settled Claims . . . that are
not terminated as a result of this Agreement.” It must,
therefore, be possible for a claim to be a “Settled Claim”
without, in fact, being settled by the agreement.4 And the
4. We note that in referring to settlement class members and settled
claims, the indemnification provision places both in capital letters,
clearly indicating that they are meant to refer to the agreement’s
definition of those terms.
9
reason such claims might not be terminated would
presumably be the kinds of reasons Lloyd claimed
exempted her from the settlement. Lloyd’s action is
precisely the kind of action the agreement appears to
contemplate as at least a candidate for indemnification.
As noted, however, the provision is limited to
“reasonable” costs associated with such cases. Objectors
contend that, giving “reasonable” the “strict and narrow”
interpretation the District Court insisted upon in approving
the settlement, the indemnification of the Lloyd settlement,
and cases like it, is not reasonable.5 At the same time,
however, objectors do not press the argument that the
amount of money paid for Lloyd’s suit was unreasonable.
The amount Lloyd received was substantially higher than
she would have received as a class member, and was fully
indemnified from the settlement fund. Nevertheless,
$200,000 is not unreasonable on its face, and there is
nothing in the record on which to challenge its
reasonableness. In any event, the objectors’ primary
argument is that it was unreasonable to view Lloyd’s case
as an appropriate candidate for indemnification at all.
Fundamental to this argument is objectors’ contention
that in approving the AcroMed Settlement under Rule
23(b)(1)(B), the District Court’s finding of a limited fund was
erroneous. This argument rests on a challenge to the
propriety of the settlement agreement and its terms,
including the indemnification provision. As such, it can no
longer be raised. As noted, the settlement agreement has
been approved in a final, unappealable order. For the same
reason, judicial decisions circumscribing mass-tort limited-
fund class action settlements decided after the agreement
5. We note that when the District Court approved the indemnity
provision, it emphasized that the “overriding” purpose of the agreement
was to maximize the recovery for the class members. Of course, any
money drawn from the fund to satisfy the indemnification provision
would reduce class members’ recovery. But an indemnity provision in a
limited-fund case makes sense. Where the fund is truly limited, the
defendant may not have additional money to defend collateral suits, and
those suits may threaten the entirety of the fund. In this sense,
indemnification provisions appear reasonable in limited-fund cases.
10
was reached cannot alter what is “reasonable” under the
agreement.
The Lloyd case falls squarely within the definition of
cases eligible for indemnification under the agreement.
Therefore, we see no basis for overturning the District
Court’s judgment that this was a reasonable request.
For the foregoing reasons, we will affirm the orders of the
District Court.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit