In Re: Katrina Canal Breaches

Filing 920101217

Opinion

Case: 09-31156 Document: 00511324024 Page: 1 Date Filed: 12/16/2010

IN THE UNITED STATES COURT OF APPEALS United States Court of Appeals FOR THE FIFTH CIRCUIT Fifth Circuit FILED
December 16, 2010 N o . 09-31156 Lyle W. Cayce Clerk

I N RE: KATRINA CANAL BREACHES LITIGATION ----------------------------------P L A IN T I F F S CLASS, P la in t iffs - Appellees v. B O A R D OF COMMISSIONERS OF THE ORLEANS PARISH LEVEE D I S T R I C T ; ORLEANS LEVEE DISTRICT; BOARD OF COMMISSIONERS O F THE LAKE BORGNE BASIN LEVEE DISTRICT; LAKE BORGNE B A S I N LEVEE DISTRICT; BOARD OF COMMISSIONERS OF THE EAST J E F F E R S O N LEVEE DISTRICT; EAST JEFFERSON LEVEE DISTRICT; S T PAUL FIRE & MARINE INSURANCE COMPANY, D e fe n d a n t s - Appellees v. M A R Y BRINKMEYER; MICHELLE LEBLANC; THOMAS C. STUART, I n t e r e s t e d Parties - Appellants -----------------------------------

c o n s o lid a te d w/ N o . 09-31188

I N RE: KATRINA CANAL BREACHES LITIGATION

Case: 09-31156 Document: 00511324024 Page: 2 Date Filed: 12/16/2010

No. 09-31156 N o . 09-31188 ----------------------------------L E S L I E SIMS, JR.; ROSA MARQUEZ; FLOYD AARON III; HASSAR S L E E M ; MADELINE BERTUCCI; ET AL, P la in t iffs - Appellants vs. B O A R D OF COMMISSIONERS OF THE ORLEANS LEVEE DISTRICT; S E W E R A G E AND WATER BOARD OF NEW ORLEANS; EAST J E F F E R S O N LEVEE DISTRICT; ORLEANS LEVEE DISTRICT; UNITED S T A T E S ARMY CORPS OF ENGINEERS; ST. PAUL FIRE & MARINE I N S U R A N C E COMPANY, D e fe n d a n t s - Appellees ----------------------------------V E R A D. RICHARD; ET AL, P la in t iffs - Appellants vs. O R L E A N S LEVEE DISTRICT; UNITED STATES ARMY CORPS OF E N G IN E E R S , D e fe n d a n t s - Appellees ----------------------------------E L I Z A B E T H H. DEPASS; ET AL, P la in t iffs - Appellants vs. B O A R D OF COMMISSIONERS OF THE ORLEANS LEVEE DISTRICT; S E W E R A G E AND WATER BOARD OF NEW ORLEANS; EAST J E F F E R S O N LEVEE DISTRICT; ORLEANS LEVEE DISTRICT; UNITED S T A T E S ARMY CORPS OF ENGINEERS; ST. PAUL FIRE & MARINE I N S U R A N C E COMPANY, D e fe n d a n t s - Appellees

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No. 09-31156 N o . 09-31188 ----------------------------------M A R I E ADAMS; ET AL, P la in t iffs - Appellants vs. O R L E A N S LEVEE DISTRICT; UNITED STATES ARMY CORPS OF E N G IN E E R S , D e fe n d a n t s - Appellees ----------------------------------L IN D A C. BOURGEOIS; ET AL, P la in t iffs - Appellants vs O R L E A N S LEVEE DISTRICT; UNITED STATES ARMY CORPS OF E N G IN E E R S , D e fe n d a n t s - Appellees ----------------------------------K E I T H C. FERDINAND, M.D., A.P.M.C.; ET AL, P la in t iffs - Appellants vs. O R L E A N S LEVEE DISTRICT; UNITED STATES ARMY CORPS OF E N G IN E E R S , D e fe n d a n t s - Appellees ----------------------------------M A R Y CHRISTOPHE; ET AL, P la in t iffs - Appellants vs.

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No. 09-31156 N o . 09-31188 O R L E A N S LEVEE DISTRICT; UNITED STATES ARMY CORPS OF E N G IN E E R S , D e fe n d a n t s - Appellees ----------------------------------S U S A N WILLIAMS; ET AL, P la in t iffs - Appellants vs. O R L E A N S LEVEE DISTRICT; UNITED STATES ARMY CORPS OF E N G IN E E R S , D e fe n d a n t s - Appellees ----------------------------------R H E A L Y N D A PORTER; ET AL, P la in t iffs - Appellants vs. O R L E A N S LEVEE DISTRICT; UNITED STATES ARMY CORPS OF E N G IN E E R S , D e fe n d a n t s - Appellees ----------------------------------X I O M A R A AUGUSTINE, doing business as Bright Minds Academy; ET AL, P la in t iffs - Appellants v. O R L E A N S LEVEE DISTRICT; UNITED STATES ARMY CORPS OF E N G IN E E R S , D e fe n d a n t s - Appellees

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Case: 09-31156 Document: 00511324024 Page: 5 Date Filed: 12/16/2010

No. 09-31156 N o . 09-31188

A p p e a l from the United States District Court fo r the Eastern District of Louisiana

B e fo r e KING, GARWOOD, and DAVIS, Circuit Judges. K I N G , Circuit Judge: A p p e lla n t s , objecting members of a proposed settlement class of plaintiffs d a m a g e d or injured by Hurricanes Katrina or Rita, seek review of the district c o u r t's certification of a limited fund mandatory class under Federal Rule of C iv il Procedure 23(b)(1)(B) and its approval of a final class settlement. We hold t h a t the Supreme Court's opinion in Ortiz v. Fibreboard Corp., 527 U.S. 815 (1 9 9 9 ), requires decertification of the mandatory class because the settlement fa ils to provide a procedure for distribution of the settlement fund that treats c la s s claimants equitably amongst themselves. We further hold that the

s e t t le m e n t is not fair, reasonable and adequate because its proponents fail to s h o w that the class members will receive some benefit in exchange for the d i v e s t m e n t of their due process rights in a mandatory class settlement. We t h e r e fo r e reverse. I . BACKGROUND I n the wake of Hurricanes Katrina and Rita, a plethora of lawsuits were file d against public and private entities by residents of the greater New Orleans a r e a who were harmed by the catastrophic flooding caused by levee and flo o d w a ll failures. These complaints were consolidated in the District Court for t h e Eastern District of Louisiana as In re Katrina Canal Breaches Consolidated

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No. 09-31156 N o . 09-31188 L itig a tio n , and divided for case management purposes into several categories. This appeal involves the"Levee" and "MRGO" categories.1 F o llo w in g the dismissals of various defendants, the Levee and MRGO p la in tiffs sought certification of a limited fund mandatory settlement class under R u le 23(b)(1)(B) and concomitant approval of a settlement with the defendant le v e e districts, their respective Boards of Commissioners, and their insurer, St. P a u l Fire and Marine Insurance Company.2 The putative class consisted of a ll Persons (a) who at the time of Hurricane Katrina and/or H u r r ic a n e Rita (i) were located, present or residing in the Hurricane A ffe c t e d Geographic Area [Jefferson, Orleans, Plaquemine, and St. B e r n a r d Parishes], or (ii) owned, leased, possessed, used or o t h e r w is e had any interest in homes, places of business or other im m o v a b le or movable property on or in the Hurricane Affected G e o g r a p h ic Area, and (b) who incurred any losses, damages and/or in ju r ie s arising from, in any manner related to, or connected in any w a y with Hurricane Katrina and/or Hurricane Rita and any alleged L e v e e Failures and/or waters that originated from, over, under or t h r o u g h the Levees under the authority and/or control of all or any o f the Levee Defendants. T h e class was further divided into three geographical subclasses corresponding t o the particular levee defendant that allegedly caused its damages. A claimant c o u ld be a member of more than one subclass by virtue of some overlap among t h e s e three areas.

The Levee litigation concerns breaches of floodwalls around the outfall canals in and around New Orleans. The settling levee districts and Boards of Commissioners are the only remaining defendants in the Levee action. The MRGO litigation concerns the various failures and overtopping of the levees and floodwalls along the Mississippi River Gulf Outlet, the east bank of the Inner Harbor Navigational Canal, and the area bordering New Orleans East. The MRGO action continues to proceed in the district court against the U.S. Army Corps of Engineers and Washington Group International, Inc., which are not parties to this settlement. The three levee district defendants are the Orleans Levee District, the Lake Borgne Basin Levee District, and the East Jefferson Levee District.
2

1

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No. 09-31156 N o . 09-31188 U n d e r the relevant terms of the settlement, the class would receive rou g h ly $21 million--representing the limits of the available insurance proceeds, p lu s interest--in exchange for releasing all claims against the settling d e fe n d a n t s related to the hurricanes and/or levee failures. The levee districts t h e m s e lv e s would not contribute to the settlement. The settlement fund would b e administered and distributed by a special master under the court's s u p e r v is io n . Finally, class counsel would waive their attorneys' fees, while r e t a in in g the right to seek "enhanced costs." The district court issued a preliminary order of certification for settlement purposes, to which Appellants-- t w o groups of dissenting class

m e m b e r s -- o b je c te d . First, Appellants argued that the proposed class did not q u a lify as a Rule 23(b)(1)(B) class under the standards established by the S u p r e m e Court in Ortiz v. Fibreboard Corp. Second, Appellants averred that c e r t ify in g a mandatory settlement class in a mass tort damages action violates d u e process. Finally, Appellants opposed the settlement on the grounds that the c o n t e n t of the notice was deficient and misleading, and that the settlement itself p r o v id e d no benefit to the class while allowing counsel to seek an enhancement o f costs. F o llo w in g the subsequent class certification and settlement fairness h e a r in g , the district court certified the class and approved the settlement. In c e r t ify in g the class, the court first determined that the Rule 23(a) prerequisites fo r all class actions had been met.3 The court next analyzed whether the class c o m p lie d with the "stringent standards" for 23(b)(1)(B) classes set by the

These prerequisites are numerosity, commonality of issues, typicality of the class representatives' claims in relation to the class, and the adequacy of the representatives and their counsel to represent the class. See FED. R. CIV. P. 23(a); Langbecker v. Elec. Data Sys. Corp., 476 F.3d 299, 306 n.10 (5th Cir. 2007). The parties do not dispute that these requirements are met in this case.

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No. 09-31156 N o . 09-31188 S u p r e m e Court in Ortiz. Noting that the Supreme Court had explicitly refrained fr o m deciding the constitutionality of a mandatory mass tort class certification, t h e district court held that certification under Rule 23(b)(1)(B) was proper b e c a u s e all three Ortiz requirements--a fund demonstrably insufficient to s a t is fy all claims, devotion of that fund to the payment of claims, and intra-class e q u it y in distribution of the fund--had been met. Finally, the district court a p p r o v e d the settlement based on its determination that notice was reasonable a n d that the settlement was fair, adequate, and reasonable under this circuit's s ix -fa c t o r test in Reed v. General Motors Corp., 703 F.2d 170 (5th Cir. 1983): the c o u r t found no evidence of fraud or collusion behind the settlement; litigation w o u ld be immensely complex; the cases had been proceeding for nearly four y e a r s ; success on the merits would be difficult; plaintiffs were settling for the m a x im u m amount they could win through litigation; and class counsel and class r e p r e s e n t a t iv e s all agreed to the settlement. I n this consolidated appeal, Appellants renew their challenges to the d is t r ic t court's class certification and approval of the settlement. I I . DISCUSSION A . Certification of the Class Under Rule 23(b)(1)(B) W e review a district court's decision to certify a class for abuse of d is c r e t io n . Langbecker v. Elec. Data Sys. Corp., 476 F.3d 299, 306 (5th Cir. 2 0 0 7 ) (citation omitted). A district court abuses its discretion, inter alia, when it "rests its legal analysis on an erroneous understanding of governing law." Id. (c it a t io n omitted). In addition to satisfying the prerequisites of Rule 23(a), a class must also m e e t the requirements of one of the subdivisions of Rule 23(b) in order to be c e r t ifie d . At issue here is subdivision (b)(1)(B), which provides for certification o f a mandatory class, whose members have no right to opt out, when

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No. 09-31156 N o . 09-31188 p r o s e c u t in g separate actions by or against individual class members w o u ld create a risk of . . . adjudications with respect to individual c la s s members that, as a practical matter, would be dispositive of t h e interests of the other members not parties to the individual a d ju d ic a t io n s or would substantially impair or impede their ability t o protect their interests . . . . F ED. R. CIV. P. 23(b)(1)(B). A "limited fund" action, which aggregates numerous c la im s against a fund insufficient to satisfy them all, is one type of class action t r a d it io n a lly encompassed by Rule 23(b)(1)(B). Ortiz, 527 U.S. at 834; 2 ALBA C ONTE & HERBERT NEWBERG, NEWBERG ON CLASS ACTIONS § 4.9 at 33­34 (4th ed. 2 0 0 2 ) (hereinafter "NEWBERG"). T h e nub of this case, as it was in Ortiz, is the certification of the class u n d e r Rule 23(b)(1)(B) on a limited fund rationale. We do not decide the general c o n s t it u t io n a l question, left open in Ortiz, whether a mandatory limited fund r a t io n a le could--under some circumstances--be applied to a settlement class of t o r t claimants. 527 U.S. at 864. Such circumstances do not exist here because t h e settlement does not "seek equity by providing for procedures to resolve the d i f f i c u lt issues of treating . . . differently situated claimants with fairness as a m o n g themselves," id. at 856, and thereby fails to satisfy one of "the essential p r e m is e s of mandatory limited fund actions," id. at 848. Ortiz involved a large class of asbestos claimants suing a manufacturer, F ib r e b o a r d , which had in turn sued its two insurance carriers for funds to pay t h e claimants. See id. at 821­23. Eleventh hour negotiations between class c o u n s e l, Fibreboard and the two insurance companies produced a settlement fu n d of $1.525 billion, funded nearly entirely by the insurance companies and c o n t in g e n t on certification under Rule 23(b)(1)(B) as a mandatory limited fund c la s s . See id. at 823­25. The district court certified the class under Rule

2 3 (b )(1 )(B ), reasoning that, without certification and settlement, the class ran t h e risk that the insurance companies would prevail against Fibreboard in their 9

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No. 09-31156 N o . 09-31188 p e n d in g coverage cases, leaving a much smaller fund available to the class. See id . at 827­28. We affirmed. Flanagan v. Ahearn (In re Asbestos Litig.), 90 F.3d 9 6 3 (5th Cir. 1996), vacated and remanded, 521 U.S. 1114 (1997). On remand fo r further consideration in light of Amchem Products, Inc. v. Windsor, 521 U.S. 5 9 1 (1997), we again affirmed. Flanagan v. Ahearn (In re Asbestos Litig.), 134 F .3 d 668 (5th Cir. 1998), reversed by Ortiz, 527 U.S. 815. The Supreme Court reversed. The Court expressed "serious constitutional c o n c e r n s that come with any attempt to aggregate individual tort claims on a lim it e d fund rationale," Ortiz, 527 U.S. at 845: First, the certification of a mandatory class followed by settlement o f its action for money damages obviously implicates the Seventh A m e n d m e n t jury trial rights of absent class members. ... Second, and no less important, mandatory class actions aggregating d a m a g e s claims implicate the due process "principle of general a p p lic a t io n in Anglo-American jurisprudence that one is not bound b y a judgment in personam in a litigation in which he is not d e s ig n a t e d as a party or to which he has not been made a party by s e r v ic e of process," it being "our `deep-rooted historic tradition that e v e r y o n e should have his own day in court.' " I d . at 845­46 (quoting Hansberry v. Lee, 311 U.S. 32, 40 (1940); Martin v. Wilks, 4 9 0 U.S. 755, 762 (1989)) (citations omitted). In light of these concerns, the Court counseled against "adventurous a p p lic a t io n of Rule 23(b)(1)(B)," id. at 845, stressing that a limited construction o f the Rule, "stay[ing] close to the historical model . . . avoids serious c o n s t it u t io n a l concerns raised by the mandatory class resolution of individual l e g a l claims . . . ." Id. at 842; see also 5 NEWBERG § 17:15 at 339. The Court d e s c r ib e d this "historical model" of a limited fund as "a `fund' with a definitely a s c e r t a in e d limit, all of which would be distributed to satisfy all those with liq u id a t e d claims based on a common theory of liability, by an equitable, pro rata 10

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No. 09-31156 N o . 09-31188 d is t r ib u t io n ." Ortiz, 527 U.S. at 841. From its discussion of the historical model, t h e Court identified three "presumptively necessary" characteristics of a t r a d it io n a l limited fund. Id. at 842. Those characteristics are: (1) "the totals of the aggregated liquidated claims and the fund a v a ila b le for satisfying them, set definitely at their m a x im u m s , demonstrate the inadequacy of the fund to pay all t h e claims," id. at 838; " t h e whole of the inadequate fund [is] to be devoted to the o v e r w h e lm in g claims," id. at 839; and " t h e claimants identified by a common theory of recovery [are] t r e a t e d equitably among themselves," id.

(2) (3 )

T h e Court's phrasing and discussion of this third requirement differs n o tic e a b ly from the other two requirements in that it departs from a strict in t e r p r e t a t io n of the traditional limited fund. To cleave to the traditional model o f a true limited fund, the third element of intra-class equity should require that t h e class claims be capable of liquidation and pro rata distribution. See id. at 8 4 1 (describing classic limited fund actions as "present[ing] straightforward m o d e ls of equitable treatment, with the simple equity of a pro rata distribution p r o v id in g the required fairness"). However, the Court contemplated that the u n a t t a in a b ilit y of straightforward pro rata distribution would not necessarily d is q u a lify a class action from adhering to the historical model, as long as the s e t t le m e n t otherwise provided for fair distribution amongst the claimants in the c la ss : F a ir treatment in the older cases was characteristically assured by s t r a ig h t fo r w a r d pro rata distribution of the limited fund. While e q u it y in such a simple sense is unattainable in a settlement c o v e r in g present claims not specifically proven, . . . at the least such a settlement must seek equity by providing for procedures to resolve t h e difficult issues of treating such differently situated claimants w it h fairness as among themselves. I d . at 855­56 (internal citation omitted). 11

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No. 09-31156 N o . 09-31188 T h e settlement proponents argue, and we agree, that this class does not s u ffe r from the particular defects that led the Ortiz Court to find the "procedures t o resolve the difficult issues" unsatisfactory in that settlement. The Court id e n tifie d two structural conflicts obstructing the fairness of distributions within th a t class. The first conflict was between present claimants--whose interest was in generous immediate payments--and future claimants, whose interest was to e n s u r e an ample fund for the future. Id. at 856. This type of temporal conflict b e tw e e n present and future classes is not applicable in this case, which involves a n identified class that has suffered a presently identifiable harm. The other c o n flic t in Ortiz was between class members whose claims accrued before the l a p s e of the insurance policy providing the bulk of the insurance funds, giving t h e m more valuable rights to the insurance proceeds, and those who were in ju r e d after this policy lapsed. Id. at 857. The settlement before us avoids this s e c o n d concern through the creation of sub-classes providing that the funds from o n e insurance policy providing coverage to a particular levee district will not be a v a ila b le to any class member who does not have a claim against that levee d is t r ic t . Nevertheless, freedom from the particular infirmities identified in Ortiz is insufficient to issue a clean bill of health for intra-class equity here. T h e class members in this case suffered a wide variety of injuries, ranging fr o m property damage to personal injury and death, and no method is specified fo r how these different claimants will be treated vis-à-vis each other. The d is t r ic t court acknowledged that fairness of distribution was a significant c o n c e r n in this settlement. The issue was addressed during the fairness hearing, w h e r e the court received an amicus brief, and heard testimony, from Dean E d w a r d Sherman--a class action expert--who suggested the use of grids or m a t r ic e s to differentiate between the various class members, using factors such a s the particular kind of damage suffered--death, personal injury, property

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No. 09-31156 N o . 09-31188 d a m a g e -- t o create, in essence, subclasses of claimants. Sherman suggested that t h e s e categories could be further subdivided; for example, by partitioning the c a t e g o r y of property damage according to the extent of damage, as measured by t h e depth of water that caused the damage. While opining that such a method w o u ld be fairly inexpensive given the existence of certain data already available t o the court, Sherman also stated that, should the administrative costs a s s o c ia t e d with this differentiation threaten to consume the fund, the court m ig h t find that the class would benefit more from a cy pres distribution that was r e la t e d in some way to the levees, such as levee protection or beautification. None of these procedures made their way into the settlement agreement. Instead, the settlement provides for the appointment of a special master to " p r o v id e to the Court a recommended disposition and protocol with regard to the r e m a in in g [settlement fund], and treatment of Claims of Class members." This a r r a n g e m e n t simply punts the difficult question of equitable distribution from t h e court to the special master, without providing any more clarity as to how fa ir n e s s will be achieved. The lack of any "procedures to resolve the difficult

is s u e s of treating such differently situated claimants with fairness as among t h e m s e lv e s ," id. at 856, leads us to reverse the district court's order certifying t h is class. By failing to meet one of the three "essential premises of mandatory lim it e d fund actions" identified by the Supreme Court in Ortiz, id. at 848, this s e t t le m e n t class strays too far from the historical model to avoid the Court's c o n s t it u t io n a l concerns. B. Approval of the Settlement under Rule 23(e) 4 T h e objecting class members separately challenge the district court's a p p r o v a l of the class action settlement on the grounds that the settlement does

We address Appellants' challenges to the settlement to deal with the possibility that the problem with certification is somehow remedied and the settlement is reinstated.

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No. 09-31156 N o . 09-31188 n o t benefit the class, allows counsel to seek an enhancement of actual costs, and p r o v id e d inadequate and misleading notice to the class members. We review the d is t r ic t court's approval of the settlement for an abuse of discretion. Newby v. E n r o n Corp., 394 F.3d 296, 300 (5th Cir. 2004) (citation omitted). 1. B e n e fit to the Class

Rule 23(e)(2) states that a court may approve a settlement proposal that w o u ld bind class members "only after a hearing and on finding that it is fair, r e a s o n a b le , and adequate." FED. R. CIV. P. 23(e)(2). Six factors guide our review o f a decision to approve a class action settlement agreement: (1) evidence that the settlement was obtained by fraud or collusion; (2 ) the complexity, expense, and likely duration of the litigation; (3) t h e stage of the litigation and available discovery; (4) the probability o f plaintiffs' prevailing on the merits; (5) the range of possible r e c o v e r y and certainty of damages; and (6) the opinions of class c o u n s e l, class representatives, and absent class members. N e w b y , 394 F.3d at 301 (citing Reed, 703 F.2d at 172; Parker v. Anderson, 667 F .2 d 1204, 1209 (5th Cir. 1982)). Based on its wealth of experience in Hurricane K a t r in a litigation and the evidence it received before and during the certification a n d settlement hearing, the district court found that all six factors weighed in fa v o r of approving the settlement. Without quarreling with the district court's findings, we nevertheless c o n c lu d e that this settlement is not fair, reasonable, and adequate under Rule 2 3 (e ) because there has been no demonstration on the record below that the s e t t le m e n t will benefit the class in any way, either through the disbursement of in d iv id u a l checks or through a cy pres distribution. "The court must be assured t h a t the settlement secures an adequate advantage for the class in return for the s u r r e n d e r of litigation rights against the defendants." 4 NEWBERG § 11:46 at 1 3 3 ; see also id. at 142­43 ("Often, the settlement benefits are somewhat s p e c u la t iv e in nature and capable of only approximate valuation. Nevertheless, 14

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No. 09-31156 N o . 09-31188 t h e settlement may be approved if it is clear that it secures some adequate a d v a n ta g e for the class." (emphasis added)); In re Compact Disc Minimum A d v e r tis e d Price Antitrust Litig., 216 F.R.D. 197, 221 (D. Me. 2003) (holding that " a settlement is not fair where all the cash goes to expenses and lawyers, and t h e [class] members receive only discounts of dubious value," even when the la w s u it itself has dubious value). The settlement provides that the following administrative costs may be p a id out of the $21 million settlement fund: Notice Costs, Special Master fees and costs, Escrow Agent costs and fe e s , CADA [Court Appointed Disbursing Agent] fees and costs, the fe e s and costs of any Person retained by the Special Master or C A D A , and other costs, fees and expenses incurred in the im p le m e n t a t io n of the Class Settlement Agreement (including but n o t limited to the costs and fees of all experts of the Parties up to an a m o u n t to be agreed to by the Settling Defendants in their sole and a b s o lu t e discretion). No estimate was given as to what these costs might be. Nevertheless, the court r e c o g n iz e d that "[i]t is a reasonable fear that the mere cost of adjudicating in d iv id u a l claims may swallow the entire settlement." In re Katrina Canal B r e a c h e s Consol. Litig., 263 F.R.D. 340, 358 (E.D. La. 2009). The settlement further provides class counsel with the right to seek r e im b u r s e m e n t of "enhanced" costs and expenses, and counsel of any class m e m b e r with the right to seek attorneys' fees: C la s s counsel and counsel of any Class Member shall have the right t o seek an award from the [settlement fund] for fees, costs and e x p e n s e s (including any enhancement of costs and expenses as may b e awarded by the Court) and shall have the right to make an a p p lic a t io n to the Court for same . . . . Class Counsel agree to r e c o m m e n d to the Court that no attorneys' fees should be awarded fr o m the [settlement fund], and shall oppose any such request(s).

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No. 09-31156 N o . 09-31188 T h e r e is no indication in the record as to what these attorneys' costs and e x p e n s e s will be. At the certification and fairness hearing, class counsel could n o t provide any estimate of the costs incurred thus far, other than to admit that lit ig a t io n had been "expensive." Class counsel conceded, and the court accepted, t h a t "a lot of depositions were taken, a lot of costs were incurred, and we don't k n o w what the plaintiffs are going to seek." We have previously affirmed a district court's approval of a settlement in w h ic h costs and attorneys' fees had not been determined as of the date of s e t t le m e n t . See Newby, 394 F.3d at 300. However, we were able to definitively s t a t e in that case, upon a record that was "exceptionally well-developed," id. at 3 0 7 , that the class would receive some monetary benefit from the settlement. See id. at 304 ("It is untrue that there will be nothing left in the [settlement fu n d ] for the class members."). This was in part because there was a separate s u b -fu n d of $15 million set apart for past and future litigation expenses. Here, w e are unable to definitively state, based on the record below, that the class will r e c e iv e any benefit from the settlement. Moreover, Newby did not concern a m a n d a t o r y class. "Because limited-fund classes do not permit opt-outs,

c e r t ific a t io n for settlement imposes particularly stringent standards." Federal J u d ic ia l Center, Manual for Complex Litigation § 21.132 at 252 (4th ed. 2007). We hold that the district court erred by approving the settlement without a n y assurance that attorneys' costs and administrative costs will not cannibalize t h e entire $21 million settlement. In doing so, we express no opinion as to w h e t h e r such a result would occur; but the burden is on the settlement p r o p o n e n t s to persuade the court that the agreement is fair, reasonable, and a d e q u a t e for the absent class members who are to be bound by the settlement. 4 NEWBERG § 11:42 at 118; AMERICAN LAW INSTITUTE, PRINCIPLES OF THE LAW: A GGREGATE LITIGATION § 3.05(c) at 204 (2010) (hereinafter "AGGREGATE

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No. 09-31156 N o . 09-31188 L ITIGATION" ). In our judgment, the settlement proponents have not met this b u r d e n because they have failed to provide any basis for their assertion that t h e r e will be money remaining after payment of these costs to effect even a cy p r e s distribution, let alone a monetary distribution. Nor do we consider whether a cy pres distribution of the settlement fund, w it h o u t any monetary distribution, would be fair, reasonable, and adequate u n d e r Rule 23(e). That decision would be premature here, where the very p o s s i b ilit y of such a distribution is in question. Furthermore, without any s p e c ific proposal for a cy pres distribution before us, we are unable to determine w h e t h e r such a distribution would be "for the next best use which is for indirect c la s s benefit," 4 NEWBERG § 11:20 at 28, and would be for uses "consistent with t h e nature of the underlying action and with the judicial function," In re Agent O r a n g e Prod. Liab. Litig., 818 F.2d 179, 186 (2d Cir. 1987). 2. E n h a n c e m e n t of Costs

W e agree with Appellants that any "enhancement" of costs is the fu n c tio n a l equivalent of a fee. See Fogleman v. ARAMCO, 920 F.2d 278, 286 (5th C ir . 1991) ("To the extent that counsel charges a party more than actual cost for a n y service, be it reproduction of documents or telephone calls, counsel is r e c o v e r in g additional fees."). We have repeatedly held that a district court a b u s e s its discretion if it approves a class action settlement without determining t h a t any attorneys' fees claimed as part of the settlement are reasonable and t h a t the settlement itself is reasonable in light of those fees. See, e.g., Strong v. B e llS o u th Telecomm. Inc., 137 F.3d 844, 849 (5th Cir. 1998) ("To fully discharge it s duty to review and approve class action settlement agreements, a district c o u r t must assess the reasonableness of the attorneys' fees." (citation omitted)); P ia m b in o v. Bailey, 610 F.2d 1306, 1328 (5th Cir. 1980) (holding that the district c o u r t has a "responsibility to assess the reasonableness of attorneys' fees

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No. 09-31156 N o . 09-31188 p r o p o s e d under a settlement of a class action," and that, where it abdicates its r e s p o n s ib ilit y to do so, "its approval of the settlement must be reversed on this g r o u n d alone"). As noted above, we have also previously affirmed a district court's a p p r o v a l of a settlement agreement in which attorneys' fees were unknown at t h e time of approval. See Newby, 394 F.3d at 300. In that agreement, as here, a t t o r n e y s retained the right to request fees and reimbursement of past and f u t u r e litigation expenses, to be paid from the gross settlement fund upon a p p r o v a l of the district court. Again, however, we were able to definitively state in that case that there would be money remaining in the settlement fund after p a y m e n t of those costs and fees. See id. at 304. Because there is no such a s s u r a n c e here, it was error for the district court to approve the settlement. 3 . Notice to the Class R u le 23(e) states that a court must "direct notice in a reasonable manner t o all class members who would be bound by the proposal" before approving a s e t t le m e n t .5 FED. R. CIV. P. 23(e)(1). Appellants argue that the notice apprising t h e class of the proposed certification and settlement was inadequate and m is le a d in g because it: (i) failed to provide class members with any way of e s t im a t in g the amount of money that they could expect to receive in exchange fo r releasing their claims, nor warned them that it was unlikely that they would r e c e iv e any recovery at all; (ii) wrongly represented that class counsel would not

Rule 23(c), which relates to class certification, separately states that "[f]or any class certified under Rule 23(b)(1) or (b)(2), the court may direct appropriate notice to the class." FE D . R. CIV. P. 23(c)(2)(A) (emphases added). Rule 23 therefore does not specify any notice requirement for 23(b)(1)(B) actions beyond that required by subdivision (e) for settlement purposes. See 3 NEWBERG § 8:21 at 230; but see In re Orthopedic Bone Screw Prods. Liab. Litig., 246 F.3d 315, 327 n.11 (3d Cir. 2001) (stating that "Ortiz seems to imply (although it specifically declined to rule) that the level of notice required for a [mandatory settlement] is the same as is required in a Rule 23(b)(3) [opt-out] action: the best notice practicable").

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No. 09-31156 N o . 09-31188 b e seeking attorneys' fees from the settlement fund; and (iii) incorrectly informed c la s s members that they were barred by law from receiving compensation from t h e levee districts. U n d e r Rule 23(e), a settlement notice need only satisfy the "broad r e a s o n a b le n e s s standards imposed by due process." Petrovic v. Amoco Oil Co., 2 0 0 F.3d 1140, 1153 (8th Cir. 1999) (citation and internal quotation marks o m it t e d ); 3 NEWBERG § 8:18 at 223 ("[T]he court's formulation of an adequate n o tic e procedure under Rule 23(e) is limited only by constitutional due process c o n s id e r a t io n s ." ). The minimum of due process, as interpreted by the Supreme C o u r t , is that "deprivation of life, liberty or property by adjudication be preceded b y notice and opportunity for hearing appropriate to the nature of the case." Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 313 (1950). Notice o f a mandatory class settlement, which will deprive class members of their c la im s , therefore requires that class members be given information reasonably n e c e s s a r y for them to make a decision whether to object to the settlement. a. P o s s ib ility of Cy Pres Distribution

W e have previously held, in the context of non-mandatory class s e t t le m e n t s , that a notice "is not required to provide a complete source of s e t t le m e n t information," Maher v. Zapata Corp., 714 F.2d 436, 452 (5th Cir. 1 9 8 3 ) (citations and emphasis omitted), and that a court does not abuse its d is c r e t io n by omitting estimates of unit recovery if it concludes that such e s t im a t e s were "too unreliable to submit," Adams Extract Co. v. Pleasure Hours, I n c . (In re Corrugated Container Antitrust Litig.), 643 F.2d 195, 224 (5th Cir. 1 9 8 1 ). However, we find that the court did not direct reasonable notice to the c la s s here because--assuming that a cy pres distribution was permissible and fe a s ib le -- th e notice did not inform class members of the possibility that they w o u ld not receive any direct benefit from the settlement. 19 See AGGREGATE

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No. 09-31156 N o . 09-31188 L ITIGATION § 3.07 at 220, comment b ("Nothing in this Section [on cy pres s e t t le m e n t s ] would require that a settlement actually recover money for class m e m b e r s , so long as the class is apprised of that fact in a properly constructed s e ttle m e n t notice." (emphasis added)). By failing to apprise class members of this in fo r m a t io n , the notice did not provide interested parties with knowledge critical t o an informed decision as to whether to object to class certification and s e t t le m e n t . U n d e r the heading "Who's Included?" the class notice described the m e m b e r s h ip of the proposed settlement class as all those who either lived or had p r o p e r t y in the greater New Orleans area and were harmed by Hurricanes K a t r in a and Rita. Under the heading "What Does the Settlement Provide?" the n o tic e then stated: A settlement fund that includes all insurance money available to the S e t t lin g Defendant will be established in the amount of $20,839,115 (p lu s any additional interest) for the benefit of the Settlement Class, a s well as to cover costs, and expenses. The settlement fund (plus a n y interest) will be divided among the Subclasses as follows: S u b c la s s 1 - $2,371,467; Subclass 2 - $5,924,284; and Subclass 3 $ 1 2 ,5 4 3 ,3 6 3 . . . . If the settlement receives final Court approval, an independent " S p e c ia l Master" appointed by the Court will recommend how to a d m in is t e r the settlement fund for the benefit of the Settlement C la s s . The Court may request that a second notice be issued to S e t t le m e n t Class members explaining how the settlement fund will b e used or administered. T h is language does not clearly inform class members of the real possibility, a c k n o w le d g e d by all parties, that there may be a cy pres distribution in lieu of a n y direct distribution of funds to the class members. This is particularly p r o b le m a t ic because no estimate is given of the costs and expenses that will be p a id out of the settlement fund, a sum that may greatly reduce the amount a v a ila b le for distribution to the class. Stating that the fund will be administered 20

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No. 09-31156 N o . 09-31188 " fo r the benefit of the Settlement Class," and hinting that the settlement fund m a y be "used" rather than "administered," is insufficient to communicate the p o s s ib ilit y of a cy pres distribution, which is a key aspect of the settlement that m ig h t have led more members to object. Therefore, contrary to the district c o u r t's judgment, the notice did not contain "all necessary information for any c la s s member to become fully apprised and make any relevant decisions." In re K a tr in a , 263 F.R.D. at 360. b. A tto r n e y s ' Fees

W e also find that the notice was misleading insofar as it informed class m e m b e r s that class counsel and other counsel for class members would not seek a n y attorneys' fees from the settlement. Under the heading "How will the la w y e r s be paid?" the notice stated: C la s s counsel will not request any attorneys' fees from the s e t t le m e n t fund. However, Class Counsel may ask the Court for r e im b u r s e m e n t of their costs and expenses out of the settlement fu n d . Other counsel for Settlement Class members may also r e q u e s t costs and expenses. Requests for costs and expenses will be m a d e after the settlement is granted final approval by the Court. The Court may award more or less than the actual costs and expen ses. T h e settlement agreement, however, provides both class counsel and other c o u n s e l with the right to seek "enhanced" costs. As explained above, an

e n h a n c e m e n t of actual costs and expenses is essentially a fee, and unless class c o u n s e l will not seek any such "enhanced" costs, it is inaccurate to assert that t h e y will not request any attorneys' fees from the settlement fund. See

F o g l e m a n , 920 F.2d at 286; 3 NEWBERG § 8:32 at 265 ("In regard to attorneys' fe e s , the [Rule 23(e)] notice should at a minimum generally apprise class m e m b e r s that fees will be sought and awarded by the court at the settlement h e a r in g or a subsequent hearing and indicate whether the defendants or the

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No. 09-31156 N o . 09-31188 s e t t le m e n t fund will bear such costs."). Moreover, it is unfaithful to the

s e t t le m e n t agreement to omit the fact that all counsel may seek such fees; simply s t a t in g that the court "may award more . . . than the actual costs and expenses" im p lie s that any such action would be entirely sua sponte. c. L e g a l Limits to the Fund

In the same section describing the settlement fund, the class notice stated: " P le a s e note that, under law, the Settlement Class can get no additional money o r property in this settlement because the Settling Defendants are governmental b o d ie s ." Appellants are correct that this statement is slightly misleading, although in our judgment the district court's approval of this language does not rise to the le v e l of abuse of discretion. As political subdivisions of the State of Louisiana, t h e levee districts' assets are statutorily exempt from seizure to satisfy a ju d g m e n t against them. LA. CONST. art. XII, §10(C); LA. REV. STAT.

§ 13:5109(B)(2); see Specialty Healthcare Mgmt., Inc. v. St. Mary Parish Hosp., 2 2 0 F.3d 650 (5th Cir. 2000) (recognizing and enforcing the Louisiana antis e iz u r e provisions). Nor are the levee districts subject to a writ of mandamus r e q u ir in g them to appropriate additional funds to satisfy potential judgments in t h is case. See Hoag v. Louisiana, 889 So. 2d 1019, 1023 (La. 2004) (citations o m it t e d ). However, Louisiana law does not prevent the levee districts from a p p r o p r ia tin g additional money to contribute to the settlement. See LA. REV. S TAT. § 13:5109(B)(2)). Therefore, perhaps a more precise statement would have b e e n that, "under law, the Settlement Class can exact no additional money or p r o p e r t y from the Settling Defendants in this settlement because the Settling D e fe n d a n t s are governmental bodies." H o w e v e r , the statement as written is accurate in its essential point: that $ 2 1 million is the most that the class can expect to receive in the settlement. 22

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No. 09-31156 N o . 09-31188 T h e choice of words, while less than one hundred percent accurate, does not r e n d e r the notice so clearly misleading that the district court abused its d is c r e t io n in approving this portion of the notice. I I I . CONCLUSION F o r the reasons stated above, we reverse the district court's order c e r t ify in g this mandatory limited fund class and approving the class settlement. The judgment of the district court is therefore REVERSED.

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