## Facts

- After Hurricanes Katrina and Rita, levee and floodwall failures caused severe flooding in the greater New Orleans area, generating hundreds of consolidated lawsuits.
- A group of levee district entities and their insurer, St. Paul Fire & Marine Insurance Co., negotiated a global settlement to resolve claims against them.
- The district court treated available insurance proceeds and related assets as a finite “limited fund,” certified a mandatory (non-opt-out) class under Federal Rule of Civil Procedure 23(b)(1)(B), and approved the settlement.
- Objecting class members appealed, arguing that the settlement’s structure and information provided to class members did not satisfy Rule 23 and the standards governing limited-fund classes.

## Issues

1. Whether the district court properly certified a mandatory “limited fund” class under Rule 23(b)(1)(B) consistent with the requirements for limited-fund treatment.
2. Whether the settlement was “fair, reasonable, and adequate” under Rule 23(e), given the mandatory nature of the class and the settlement’s allocation and disclosure features.

## Decision

- The Fifth Circuit reversed the order certifying the Rule 23(b)(1)(B) mandatory class.
- The court held the settlement did not provide a distribution procedure that treated class claimants equitably among themselves, as required for limited-fund certification.
- The Fifth Circuit also reversed approval of the settlement under Rule 23(e), concluding proponents failed to show class members would receive a meaningful benefit in exchange for surrendering due process protections in a mandatory settlement class.

## Legal Principles

- A Rule 23(b)(1)(B) limited-fund class requires: (1) an actually inadequate fund relative to total claims, (2) commitment of the entire fund to satisfy class claims, and (3) a distribution procedure that treats class members equitably among themselves.
- Because Rule 23(b)(1)(B) classes are mandatory, courts must apply heightened scrutiny to ensure the limited-fund device is used only to resolve competing claims to a fixed fund through equitable allocation.
- Under Rule 23(e), settlement proponents must demonstrate the settlement is fair, reasonable, and adequate; in a mandatory class settlement, they must show class members receive a concrete benefit sufficient to justify loss of individual control and related due process interests.
- Settlement approval is vulnerable where the information provided to absent class members is insufficient for informed evaluation and meaningful objection.

## Conclusion

The Fifth Circuit reversed both mandatory limited-fund class certification and settlement approval because the settlement failed to ensure equitable intra-class distribution and did not establish that class members received sufficient value to justify the compulsory surrender of due process rights.


In re Katrina Canal Land Breaches Litigation, 628 F.3d 185 (5th Cir. 2010)