Wednesday, September 28, 2011

Hayden v. Elf Atochem North America

Sep 27: In the U.S. Court of Appeals, Fifth Circuit, Case No. 10-20305. Appeal from the United States District Court for the Southern District of Texas. The appeal arises from the settlement of a class action. The defendant paid substantial sums for res judicata [already judged by a competent court] protection from the claims of persons assertedly injured by the toxic emissions of an industrial plant near Bryan, Texas. The monies were allocated among three subclasses, one of which was to receive medical monitoring. Upon the monitoring program's completion, substantial sums remained unused.
    The district court denied the settlement administrator's request to distribute the unused medical-monitoring funds to another subclass of persons suffering serious injuries. Instead, the court repaired to the doctrine of cy pres [i.e. "as near as possible" to that intended] and ordered that the money be given to three charities suggested by the defendant and one selected by the court. The gift of class funds to charity is attacked on two fronts: that the district court moved too quickly from the terms of the settlement agreement to a cy pres distribution, and alternatively that the district court neglected a prerequisite of the cy pres doctrine by not selecting charities with a sufficient nexus to the underlying substantive objectives of the class suit.
    The Appeals Court said, "Persuaded by the first contention, we do not reach the second. We hold that the district court abused its discretion by ordering a cy pres distribution in the teeth of the bargained-for terms of the settlement agreement, which required residual funds to be distributed within the class. We reverse the district court's order distributing the unused medical-monitoring funds to third-party charities and remand with instructions that the district court order that the funds be distributed to the subclass comprising the most seriously injured class members."
    By way of background, Lillian Hayden and five others instituted this action in April of 1992 by filing suit in State district court in Brazos County, Texas. Seeking to represent themselves and a class of others similarly situated, they sought compensation for exposure to arsenic and other toxic chemicals alleged to have been emitted into the air around Bryan, Texas, by an agrochemicals plant owned and operated by the defendant, Arkema, Inc. (formerly known as Elf Atochem North America, Inc.). The defendant removed the case to Federal court supported by diversity jurisdiction.
    At issue in the appeal is the district court's use of the cy pres doctrine to dispose of approximately $830,000 that went unused during the administration of the medical-monitoring program created for the benefit of Subclass B -- one of three subclasses created in the settlement. The program allowed members of Subclass B to forego receipt of a small cash payment and instead enroll in a program through which they would receive regular checkups and physician visits over a five-year period. The aim was to assist members of the subclass in monitoring their health for any indication that they were developing an arsenic-related illness. Two primary factors contributed to the program's not exhausting its allocated funds. First, the initial participation rate was low. Some 329 members of Subclass B -- less than three percent of the total subclass membership -- opted to receive medical monitoring in lieu of a cash payment; just 221 attended their first monitoring examination. Second, in the course of this monitoring, no significant health problems were found. Among those who initially chose to participate, demand for monitoring greatly diminished, yielding a high dropout rate. Only 46 class members participated in all three rounds of screening as scheduled.
    Access the complete opinion (click here). [#Toxics, #Air, #CA5]
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