Case: 20-30596 Document: 00516072150 Page: 1 Date Filed: 10/27/2021
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
October 27, 2021
No. 20-30596 Lyle W. Cayce
Clerk
In re: Chinese-Manufactured Drywall Products
Litigation
______________________________
Valentine Frego; Kimberly Frego; Fred Nolte,
Plaintiffs—Appellants,
versus
Settlement Class Counsel,
Appellee.
Appeal from the United States District Court
for the Eastern District of Louisiana
USDC No. 2:09-MD-2047
Before Elrod, Southwick, and Costa, Circuit Judges.
Gregg Costa, Circuit Judge:
After ten years of litigation, a class of homeowners settled their claims
against a Chinese company for manufacturing and selling toxic drywall. The
agreement divided the settlement class into three groups based on when a
plaintiff joined the litigation. Each plaintiff then received an award under a
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No. 20-30596
formula that considered, among other factors, the group to which they
belonged.
Three of those plaintiffs, unhappy with their award, appeal to this
court. Their complaint is that the lawyers for the settlement class placed
them in the wrong plaintiff group and the district court did not fix the error.
Had they been correctly classified, their recovery would have been much
greater. But the class settlement waived a plaintiff’s right to appeal an award
determination beyond the district court, so we must dismiss.
I.
Between 2004 and 2006, the rebuilding efforts following Hurricanes
Katrina and Rita combined with the Florida housing boom to create a severe
shortage of domestic drywall. In response to the shortage, builders along the
Gulf and Atlantic Coasts resorted to importing drywall from China. But that
drywall soon damaged the homes where it was installed. It gave off foul
odors, corroded internal electrical wiring, and damaged home appliances.
Litigation ensued, with affected homeowners suing up and down the
drywall supply chain in state and federal courts. The federal cases were
consolidated for pretrial matters into a multidistrict proceeding in the
Eastern District of Louisiana. The district court appointed a Steering
Committee to, among other roles, conduct classwide discovery, pursue
settlement options, and communicate with plaintiffs and their counsel.
Most complaints focused on two defendants—Taishan and Knauf—
both of whom manufactured drywall in China and sold it in the United States.
To simplify the litigation, the Steering Committee grouped individual
complaints into a series of consolidated complaints based on the type of
drywall involved and when the homeowner entered the litigation. Three of
those complaints are relevant: the Amorin and Brooke complaints against
Taishan, and the Beane complaint against Knauf.
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Valentine Frego, Kim Frego and Fred Nolte owned homes in Alabama
that used Taishan drywall. They hired a lawyer in Alabama who filed
paperwork with the Steering Committee to trigger a claim against Taishan.
But the Steering Committee inadvertently filed appellants in the Beane
complaint—a complaint against Knauf, not Taishan.
This initial misstep set in motion years of miscommunication between
the Steering Committee and appellants’ counsel. Appellants repeatedly
asked the Steering Committee to confirm their status as Taishan plaintiffs.
But the Steering Committee never gave a firm answer. For example, in 2015,
appellants’ counsel contacted the Steering Committee to “confirm that there
is nothing further to do” to include appellants in the Amorin complaint. The
Steering Committee responded: “If all your Taishan clients are on [a named
complaint] and you have done [Plaintiff Fact Sheets] for them, you have
nothing more to do.” A few years later, the Steering Committee circulated
to all plaintiffs a spreadsheet listing every outstanding claim against Taishan.
After noticing that appellants were absent from the spreadsheet, their
counsel again contacted the Steering Committee. This time, the Steering
Committee responded that appellants were not on a Taishan complaint. But
rather than correct the mistake, appellants’ counsel added to it by responding
that he “got [his] wires crossed somewhere” and that appellants were indeed
“Knauf Plaintiffs, not Taishan.”
In 2019, after a decade of litigation, Taishan agreed to a $248 million
class settlement. The agreement devised a formula called the “Allocation
Model” to distribute the settlement funds among the class. One input in the
formula was the group a plaintiff belonged to—Amorin, Brooke, or “absent
class members,” defined as “all other property owners” with damages
attributable to Taishan drywall. When the case settled, each group was at a
different stage of litigation. In Amorin, the district court had already entered
judgment in favor of the plaintiffs. The Brooke litigation had not yet entered
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discovery. And absent class members were furthest away from a recovery.
So under the formula, an Amorin plaintiff would receive 100% of the damages
calculated using the rest of the inputs, a Brooke plaintiff would receive 20%,
and an absent class member would receive only 5%.
The agreement appointed a claims administrator to calculate each
award and allowed plaintiffs to appeal their awards to the district court. But
it prohibited further appeal to “any other court including the U.S. Court of
Appeals for the Fifth Circuit,” specifying that “such right of appeal [had]
been knowingly and intentionally waived by each Settlement Class
Member.”
A few months after the district court preliminarily approved the
settlement with Taishan, appellants’ counsel finally realized his mistake.
Because appellants had been erroneously listed on a Knauf complaint, they
were going to leave the Taishan class settlement empty-handed. The only
route for appellants to collect under the settlement was to file an absent class
member claim. Although a missed deadline seemed to prevent appellants
from filing as absent class members at this late juncture, the district court
allowed them to do so.
While being treated as absent class members was better than nothing,
it was not much. By recovering only 5% of their losses, appellants missed out
on tens of thousands of dollars they would have received as Amorin or Brooke
plaintiffs.1
To try and recover the larger amounts, appellants filed a motion under
Rules 59(e) and 60(b) for relief from the district court’s order allowing them
1
Settlement Class Counsel contend that appellants filed too late to be in the
highest-paying Amorin group even if their claims had been properly classified from the
beginning as ones brought against Taishan.
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to be absent class members. The motion asked to reclassify them as Amorin
or Brooke plaintiffs. Settlement Class Counsel—the lawyers for the class that
settled with Taishan and defendants on appeal—opposed the motion,
emphasizing that appellants’ counsel had several opportunities to correct the
omission but failed to do so until it was too late.
The district court rejected the motion. As an initial matter, the court
noted that although the appellants’ motion was styled as a motion for relief
from judgment under Rules 59(e) and 60(b), neither rule applied because the
district court had not entered an adverse judgment. The court instead
treated the motion as an “appeal of the Claims Administrator’s allocation
amount determination.” Although the court expressed sympathy for the
appellants’ plight, it could not overlook that their counsel missed several
opportunities to realize and correct his mistake. This appeal followed. 2
2
This case comes to the court with an odd caption. Although the underlying
litigation is between the class plaintiffs and Taishan, Settlement Class Counsel is listed as
the appellee. We do not see similar appeals from settlement fund distributions in which
class counsel is a party. Appeals like this one—those in which claimants appeal district
court decisions reviewing settlement awards—arose during the Deepwater Horizon
litigation. In those appeals, the claimants appealed against the party from whom they were
seeking money, not counsel for the settlement class. See, e.g., Claimant ID 100250022 v.
BP Expl. & Prod., Inc., 847 F.3d 167 (5th Cir. 2017); Claimant ID 100001528 v. BP Expl. &
Prod., Inc.,
688 F. App’x 272 (5th Cir. 2017). It is understandable, then, that Settlement
Class Counsel considered its brief to be “in the nature of an amicus submission.”
There is a distinction, however, between this case and the Deepwater Horizon ones.
The latter cases involved “open funds,” with each successful claim resulting in additional
money paid by BP. Samuel Issacharoff & D. Theodore Rave, The BP Oil Spill Settlement
and the Paradox of Public Litigation, 74 La. L. Rev. 397, 398 (2014) (noting the openended nature of the BP settlement fund). That gave BP an active stake in appeals from
amount allocation determinations. In contrast, the Taishan settlement involves “closed
funds,” which is a fixed amount of money that the defendant has already paid to the class.
See Francis E. McGovern, Second-Generation Dispute System Design Issues in Managing
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II.
We need not decide whether the district court erred when it refused
to reclassify appellants as Amorin or Brooke plaintiffs. That is because the
settlement agreement—to which appellants are parties—waives a plaintiff’s
right to challenge award determinations beyond the district court.
When a case settles, the parties give up their constitutional right to a
jury trial. See U.S. Const. amend. VII. It follows that they may also give
up their statutory right to appeal. 15A Charles Alan Wright et al.,
Fed Prac. & Proc. § 3901 (2d ed. 2021) (recognizing that parties can
waive the right to appeal “just as the parties by settlement can waive the right
to decision of their disputes by any court and can stipulate to entry of a
consent judgment”).
Although appeal waivers eliminate an avenue for error correction,
they also offer advantages. Among other things, appeal waivers promote
finality and timely resolution. By agreeing to abide by the decision of a trial
court, parties can “trade the risk of protracted appellate review for a one-shot
opportunity before the district court.” MACTEC, Inc. v. Gorelick, 427 F.3d
821, 830 (10th Cir. 2005). Appeal waivers can also serve as a bargaining chip
to facilitate negotiation. See United States v. Teeter,
257 F.3d 14, 22 (1st Cir.
2001). And if the time and expense appeal waivers save can make them
Settlements,
24 Ohio St. J. on Disp. Resol. 53, 66 (2008) (distinguishing between
the two types of funds).
Although the open/closed fund distinction might explain why Taishan has no
active stake in the case, it does not explain why Settlement Class Counsel does. Perhaps
the claims administrator is the proper appellee. In any event, we need not decide this
question because we conclude that appellants waived their right to appeal.
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attractive in ordinary litigation, 3 these benefits are exponentially greater in
the mass torts context.
In the Deepwater Horizon litigation that resulted in settlements with
claims administration procedures like this one, we recognized that courts
should “enforce an express waiver of the right to appeal from the district
court’s claim determinations.” In re Deepwater Horizon, 934 F.3d 434, 441
(5th Cir. 2019). But such a waiver had to be explicit. We thus rejected the
idea that the BP settlement contained an implicit waiver of the right to appeal
to the court of appeals when it only mentioned the district court’s
“discretionary right” to review decisions of the claims administrator. In re
Deepwater Horizon,
785 F.3d 986, 989, 997 (5th Cir. 2015). 4 This silence
about a possible appeal to our court meant the “parties [had] preserved their
right to appeal” the district court’s decisions.
Id. at 997.
The explicit waiver lacking in BP’s Deepwater Horizon settlement
exists in the Taishan settlement. The waiver states that any “decision of the
[district court] with respect to appeals from Allocation Amount
determinations shall be final and binding . . . and there shall be no appeal to
any other court including the U.S. Court of Appeals for the Fifth Circuit,
such right of appeal having been knowingly and intentionally waived.” It
would be hard to draft a more explicit waiver. Indeed, a similar waiver in
3
Appeal waivers are common in criminal cases, in which defendants exchange
them for plea bargains. We routinely enforce such waivers. See, e.g., United States v. Butler,
7 F.4th 408, 413 (5th Cir. 2021); United States v. Scallon,
683 F.3d 680, 683–84 (5th Cir.
2012); United States v. Bond,
414 F.3d 542, 545–46 (5th Cir. 2005).
4
Other settlement agreements in the Deepwater Horizon litigation, such as ones
entered into by Halliburton and Transocean, had express language stating that a district
court’s review of a claims administrator’s decision “shall be final and binding, and there
shall be no appeal to any other court including the United States Court of Appeals for the
Fifth Circuit.” 934 F.3d at 441 (not deciding whether this waiver was enforceable because
the appeal failed on the merits).
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another settlement that this multidistrict litigation produced prompted us to
dismiss an appeal. In re Chinese-Manufactured Drywall Prods. Liab. Litig., 794
F. App’x 387, 389 (5th Cir. 2019) (“[The district court’s] decision on any
objections will be final, with no further appeals permitted.”); see also Hill v.
Schilling,
495 F. App’x 480, 487 (5th Cir. 2012) (enforcing another waiver of
the right to appeal to this court). Not surprisingly, then, appellants do not
dispute the validity of the express waiver in the Taishan settlement.
Instead, to get around what they concede is a valid waiver, appellants
argue that they are not appealing their “Allocation Amount determination.”
They contend that the categorization of their claims is an administrative error
separate from, or preliminary to, the determination of how much they are
owed. The applicability of the waiver thus turns on whether the plaintiff’s
group classification is part of the “Allocation Amount determination.”
The classification of a plaintiff’s claim is a vital input in determining
how much they receive. The settlement agreement defines “Allocation
Amount” as the amount a class member is entitled to under the “Allocation
Model,” a mathematical formula that the claims administrator uses to
calculate individual awards. That formula calls for an input of several
variables, including “whether the claimant is an Amorin Plaintiff or a Brooke
Plaintiff, or an absent Class Member.” The amount that appellants are
entitled to thus depends in part—in fact, in large part—on their classification
as absent class members. By objecting to one variable in the allocation
formula, appellants are objecting to the determination of how much they are
owed.
Consider another input that is plugged into the formula—the square
footage of the affected property. According to appellants’ logic, plaintiffs
dissatisfied with the amount of their award could circumvent the appeal
waiver by framing their objection as an “administrative error” in inputting
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square footage rather than a challenge to an award determination. But
figuring out square footage is a key part of determining the allocation amount.
So is figuring out which group of plaintiffs a particular claimant falls within.
An appeal challenging an incorrect classification thus falls squarely
within the appeal waiver. It does not matter that plaintiffs labeled their
motion as one under Rules 59(e) or 60(b). The appeal waiver makes final any
decision of the district court “with respect to appeals from Allocation
Amount determinations.” It does not limit that waiver to certain procedural
devices. What matters is the substance—whether the district court
considered an appeal “from Allocation Amount determinations.” Because
appellants were challenging the determination of their award, the district
court had the last word. 5
…
Enforcement of the appellate waiver will no doubt seem unjust to
appellants. But foregoing the chance at error correction in this court is the
tradeoff for the finality, expedience, and perhaps larger overall settlement
that the appeal waiver achieved. Because appellants opted into the
settlement agreement as absent class members and thus waived their right to
appeal to this court, the appeal is DISMISSED.
5
Appellants argue for the first time in their reply brief that Settlement Class
Counsel breached a fiduciary duty. Although this argument is not barred by the appeal
waiver, it is forfeited because it was raised too late. F.D.I.C. v. Mijalis, 15 F.3d 1314, 1327
(5th Cir. 1994) (“If an argument is not raised to such a degree that the district court has an
opportunity to rule on it, we will not address it on appeal.”); Hollis v. Lynch,
827 F.3d 436,
451 (5th Cir. 2016) (“Reply briefs cannot be used to raise new arguments.”). And any such
claim against lawyers based on the failure to put the appellants in the correct category would
have to be asserted in a separate lawsuit.
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