In Re Deepwater Horizon-Appeals of the Economic & Property Damage Class Action Settlement , 756 F.3d 320 ( 2014 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
May 19, 2014
No. 13-30095
Lyle W. Cayce
Clerk
IN RE: DEEPWATER HORIZON – APPEALS OF THE ECONOMIC AND
PROPERTY DAMAGE CLASS ACTION SETTLEMENT
Appeals from the United States District Court
for the Eastern District of Louisiana
ON PETITION FOR REHEARING EN BANC
Before DAVIS, GARZA, and DENNIS, Circuit Judges.
ORDER:
The court having been polled at the request of one of its members, and a
majority of the judges who are in regular active service and not disqualified
not having voted in favor (Fed. R. App. P. 35 and 5TH Cir. R. 35), the petition
for rehearing en banc is DENIED. ∗
In the en banc poll, five judges voted in favor of rehearing (Judges Jolly,
Jones, Clement, Owen and Elrod) and eight judges voted against rehearing
(Chief Judge Stewart and Judges Davis, Dennis, Prado, Southwick, Haynes,
Graves and Higginson).
ENTERED FOR THE COURT:
/s/ W. Eugene Davis s
United States Circuit Judge
∗
Judge Smith is recused and did not participate in the consideration of the petition
for rehearing en banc.
No. 13-30095
EDITH BROWN CLEMENT, Circuit Judge, dissenting from Denial of
Rehearing En Banc, joined by JOLLY and JONES, Circuit Judges: 1
Today the court approves a class action settlement agreement that
permits payment for economic losses “without regard to whether such losses
resulted or may have resulted from a cause other than the Deepwater Horizon
oil spill.” This violates the fundamental Article III requirement that “there
must be a causal connection between the injury and the conduct complained
of,” Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992), and the principle
that Rule 23 “must be interpreted in keeping with Article III,” Amchem
Products, Inc., v. Windsor, 521 U.S. 591, 613 (1997). In this class settlement,
Rule 23 is not being used to aggregate similar constitutional cases and
controversies, but to impermissibly extend the judicial power of the United
States into administering a private handout program. We dissent from denial
of rehearing en banc. 2
I
The Claims Administrator’s policy interpretation, permitting payment
“without regard” to whether an injury was caused by the oil spill, creates the
principal defect in this case. 3 The interpretation yields an irreconcilable
conflict with Section 1.3.1.2 of the Class Definition (which appears identically
in the Settlement Agreement and Complaint), requiring that Business
1 Judge Garza would join this dissent if he had been able to vote as an active member
of the en banc panel.
2 Here, the focus is on the Article III standing deficiency resulting from the Claims
Administrator’s interpretation. Judge Garza’s initial dissent for this, the certification panel,
identifies several additional problems with the court’s treatment of Rule 23(a) and the Rules
Enabling Act. These remain significant issues in this case, and are incorporated by reference.
See In re Deepwater Horizon, 739 F.3d 790, 821–29 (5th Cir. 2014) (Garza, J., dissenting).
3 This Claims Administrator issued the interpretation on October 10, 2012. On April
9, 2013, the district court formally adopted the interpretation. See Order of April 9, 2013,
2:10-MD-2179, ECF No. 9232.
No. 13-30095
Economic Loss class members suffered injuries “as a result of the Deepwater
Horizon incident.” (emphasis added). Moreover, it creates an irreconcilable
conflict with Article III. The federal courts are not limited by the parties’
contentions when acting on Article III jurisdiction. Steel Co. v. Citizens for a
Better Env’t, 523 U.S. 83, 94 (1998) (“On every writ of error or appeal, the first
and fundamental question is that of jurisdiction, first, of this court, and then
of the court from which the record comes. This question the court is bound to
ask and answer for itself, even when not otherwise suggested, and without
respect to the relation of the parties to it.”) (emphasis added). Accordingly,
whether BP previously supported the Claims Administrator’s interpretation,
or whether it previously believed Article III standing to be satisfied, is not
germane. To maintain the role of the courts in our system of divided powers,
we have the independent duty to enforce the limitations of Article III.
The Settlement Agreement operates through a series of interconnected
legal documents, one of which is Exhibit 4B—“Causation Requirements for
Business Economic Loss Claims.” Section I of Exhibit 4B establishes that
certain individuals and entities, based solely on their geographical location or
the nature of their enterprise, “are not required to provide any evidence of
causation.” 4 This subset of claimants is entitled to a presumption of causation.
Standing alone, geographical proximity, or the nature of one’s enterprise, is
insufficient to satisfy Article III causation, which requires a “causal connection
between the injury and the conduct complained of.” Lujan, 504 U.S. at 560.
However, but for the Claims Administrator’s interpretation, Exhibit 4B’s
relationship to the Class Definition would have kept causation as an element
4 For example, Section I.1 states, “If you are a business in Zone A, you are not required
to provide any evidence of causation unless you fall into one of the exceptions agreed to by the
parties, and listed in footnote (1).” Section I.5 states, “If you are in Zone A, B, or C, and you
meet the ‘Charter Fishing Definition’ you are not required to provide any evidence of
causation.” (emphases added).
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No. 13-30095
of class members’ claims—claimants would have been required to have
suffered injury “as a result of” the oil spill.
The Claims Administrator’s interpretation fundamentally changed this
balance, establishing that he would:
“compensate eligible Business Economic Loss and Individual
Economic Loss claimants for all losses payable under the terms of
the Economic Loss frameworks in the Settlement Agreement,
without regard to whether such losses resulted or may have resulted
from a cause other than the Deepwater Horizon oil spill provided
such claimants have satisfied the specific causation requirements
set out in the Settlement Agreement.” (emphasis added).
This decision effectively negates the requirement that injuries be “as a result
of” the oil spill. These two positions—that injury must be “as a result of” the
oil spill, and that compensation is available “without regard to whether such
losses resulted” from the oil spill—are plainly irreconcilable. Thus, the Claims
Administrator’s interpretation renders Section 1.3.1.2’s causation language
nugatory—all that remains are the terms of Exhibit 4B. The district court
confirmed this understanding. On December 24, 2013, responding to a remand
order in No. 13-30315, the district court established “that whether a business
economic loss is ‘as a result of’ the Deepwater Horizon incident for purposes of
the Settlement is determined exclusively and conclusively by Exhibit 4B.” 5
Beyond geographical proximity or the nature of a claimant’s enterprise,
Exhibit 4B provides no specific causation requirements for a subset of the
class. 6 Because the Claims Administrator will pay claims to this subset
“without regard” to whether their injuries were caused by the oil spill, the class
includes members for which there is absolutely no requirement of causation.
5 See Order and Reasons [Responding to Remand of Business Economic Loss issues],
2:10–MD2179, ECF No. 12055, at 18.”).
6 In fact, the section header in Exhibit 4B for this group of claimants makes plain that,
“There is No Causation Requirement.”
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No. 13-30095
Consequently, this settlement class may include individuals or entities who
could never truthfully allege or establish an injury “fairly traceable to the
challenged action of the defendant, and not the result of the independent action
of some third party not before the court.” Lujan, 504 U.S at 660 (internal
quotations and alterations omitted). 7
The Claims Administrator’s interpretation of the Settlement’s causation
requirement is essential to determining whether this class certification is “in
keeping with Article III.” Amchem, 521 U.S. at 613. Notwithstanding this
significance, the certification panel majority did not address the interpretation
in concluding that Article III is satisfied. 8 This position is untenable.
While the interpretation does not directly reference Section 1.3.1.2’s
requirement that class members suffer losses “as a result of” the oil spill, it has
the clear effect of rendering that language void. The interpretation addresses
the requirements of Exhibit 4B, which is incorporated into the Class
Definition—a key portion of the Complaint. 9 Moreover, Exhibit 4B begins by
noting that it does not apply to “Entities, Individuals or Claims not included
within the Economic Class definition.” 10 So, when the Claims Administrator
interprets the Settlement Agreement to allow compensation “without regard to
whether such losses resulted . . . from a cause other than the Deepwater Horizon
7 Because the class definition can include those without allegations of causation
sufficient to satisfy Article III, it cannot be certified under the test for Article III standing at
the settlement class certification stage established in Denney v. Deutsche Bank AG, 443 F.3d
253, 263–64 (2d Cir. 2006). Deepwater Horizon, 739 F.3d at 822–26 (Garza, J., dissenting)
(citing Lujan, 504 U.S. at 560). See infra Part II.
8 In re Deepwater Horizon, 739 F.3d at 808 (“[T]he evidentiary standard to be applied
by the Claims Administrator . . . is not a matter of Article III standing,” but rather “a question
of interpreting the Settlement Agreement and applying it to each individual claim . . . .”).
9 Section 1.3.1 of the Class Definition states: “The following are summaries of the
Damage Categories, which are fully described in the attached Exhibits 1A-15.”
10 Footnote 1 of Exhibit 4B states: “This Causation Requirements for Business
Economic Loss Claims does not apply to (1) Start-up Businesses; (ii) Failed Businesses; (iii)
Entities, Individuals or Claims not included within the Economic Class definition; and (iv)
Claims covered under the Seafood Program.”
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No. 13-30095
oil spill,” its application is no longer limited to those within the class
definition—that is, to those with injury “as a result of” the oil spill. To the
contrary, claimants can participate “without regard” to the cause of their
claimed injuries. This defies the Article III requirement there must be an
injury “fairly traceable to the challenged action of the defendant.” Lujan, 504
U.S. at 560.
II
The Claims Administrator’s interpretation yields a settlement class that
may include individuals and entities without any ability to allege or establish
an injury fairly traceable to the oil spill. Whether this violates Article III
standing turns on the “manner and degree of evidence required at [this] stage
of the litigation.” Id. at 561. The elements of Article III standing, including
causation, “are not mere pleading requirements but rather an indispensable
part of the plaintiff’s case, [which] must be supported in the same way as any
other matter on which the plaintiff bears the burden of proof.” Id. In Lujan,
the Supreme Court identified three “stages of litigation” during which the
standing elements must be supported: pleading, summary judgment, and trial.
Id. Lujan does not identify the requisite standards for establishing standing
during a Rule 23 class certification, and the Courts of Appeals have now
adopted conflicting approaches on this important matter. 11
In Denney v. Deutsche Bank AG, 443 F.3d 253 (2d Cir. 2006), the district
court certified a settlement class and approved a settlement agreement
resolving claims arising from the defendant’s allegedly fraudulent marketing
of foreign currency options. In considering whether the certification satisfied
Article III standing, the Second Circuit held that “no class may be certified that
11 See In re Deepwater Horizon, 739 F.3d at 799–802 (describing “two analytical
approaches” for evaluating Article III standing for the purposes of class certification under
Rule 23).
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No. 13-30095
contains members lacking Article III standing,” and that Article III requires
the class to “be defined in such a way that anyone within it would have
standing.” Denney, 443 F.3d at 264. Denney requires courts to ensure that the
composition of the proposed class includes only those with claims that would
satisfy the standing elements—injury, causation, and redressability.
In Kohen v. Pacific Investment Management Co., 571 F.3d 672 (7th Cir.
2009), the Seventh Circuit adopted a different approach. The district court had
certified a pre-trial class to pursue claims alleging the defendant-investment
firm violated the Commodity Exchange Act by cornering a futures market for
Treasury Notes. The Seventh Circuit evaluated Article III standing by
analyzing the status of the named plaintiffs alone. Id. at 676. The Kohen test
evaluates Article III standing for a pre-trial class certification by looking only
at the status of the named plaintiffs. 12
Here, the panel opinion did not adopt either of these approaches, holding
that the settlement class certification satisfies Article III under either test. See
In re Deepwater Horizon, 739 F.3d at 802. There is no dispute that the named
plaintiffs have sufficiently alleged standing, and that the certification could
pass muster under Kohen. However, because the Claims Administrator’s
interpretation expands the class beyond those with plausible allegations of
causation, the certification fails the Denney test—the class now “contains
members lacking Article III standing.” Denney, 443 F.3d at 264. Because the
relevant stage of litigation in this case is the certification of a settlement class,
Denney provides the correct test.
There are sound reasons to evaluate Article III standing differently for
pre-trial and settlement class certifications under Rule 23. Primarily, the
12 Showing further division among the Circuits, in In re Prudential Ins. Co. Am. Sales
Practice Litig. Agent Actions, 148 F.3d 283, 306-07 (3d Cir. 1998), the Third Circuit evaluated
Article III standing for a settlement class by looking to the status of named plaintiffs alone.
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No. 13-30095
settlement certification stage is more advanced in the life cycle of a class action
than the pre-trial certification stage. When a settlement class is certified, all
is resolved at the point of certification. However, in a pre-trial certification, the
class must reach additional waypoints in the litigation—summary judgment,
trial on the merits, or ultimately a settlement—to resolve the dispute.
Accordingly, Lujan’s graduated approach for demonstrating the standing
elements compels holding settlement class certifications to a higher standard
than pre-trial certifications—the settlement certification stage has progressed
further into the “successive stages of the litigation.” Lujan, 504 U.S. at 561.
On its facts, Denney addresses Article III standing for a settlement class,
whereas Kohen concerns a pre-trial class. Furthermore, the nature of the test
adopted in each case reflects a distinction between these stages. At the pre-
trial certification stage, Kohen focuses exclusively on the status of named
plaintiffs, and explicitly assumes the standing elements will be held to greater
scrutiny at subsequent stages of the litigation. Kohen, 571 F.3d at 677 (“If the
case goes to trial, this plaintiff may fail to prove [Article III] injury.”). But
Denney checks compliance with Article III by looking to the entire composition
of the proposed class. In this, Denney requires the certifying court to carefully
scrutinize the class definition and project its potential makeup to determine
whether it could contain members without injury fairly traceable to the
defendant’s conduct. It is entirely appropriate that the two tests have different
focal points. This difference in focus shows judicial recognition that there are
no additional opportunities to address standing after a settlement class is
certified—settlement fully resolves the legal proceedings, leaving only
administrative processing. The Denney approach appreciates that Article III
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No. 13-30095
standing is a central component of a federal court’s power and, accordingly,
provides a more robust test for the conclusive settlement certification stage. 13
Accordingly, determining whether this Settlement Agreement complies
with the tenets of Article III standing required the panel to adopt the Denney
approach. It did not do so. And, to the extent it purported to apply Denney in
the alternative, it failed to evaluate the class definition as actually
implemented pursuant to the Claims Administrator’s interpretation. The en
banc court has refused to correct these jurisdictional errors.
III
The Claims Administrator and the District Court have established that
Exhibit 4B provides the sole methodology for determining which claimants are
eligible to recover. So long as the Settlement is interpreted to permit
compensation “without regard” to the cause of a claimant’s injuries, it is
insufficient to ensure that all members of the proposed class have adequately
alleged constitutional standing, a necessary component of our jurisdiction. See
Lujan, 504 U.S. at 560 (“[S]tanding is an essential and unchanging part of the
case-or-controversy requirement of Article III.”). Causation has been entirely
eliminated for a broad swath of Business Economic Loss claimants. The en
banc court could have easily corrected this error by decertifying the offending
segment of the Business Economic Loss class, or reversing the Claims
Administrator’s interpretation. However, it has eschewed both courses of
action. We respectfully dissent.
13Denney and Kohen provided different tests for Article III standing under Rule 23.
The conflict between these approaches can be patently resolved by applying them to different
stages of a class action litigation—settlement class certification and pre-trial certification.
However, no court has yet harmonized the cases in this way, and they remain in clear conflict.
9