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One (Really) Good Class Action

One (Really) Good Class Action

Michael A. Caddell, Lead Counsel, Caddell & Chapman
Arthur Bryant, Chairman, Public Justice

Over 320,000 homes completely re-plumbed, repaired, and inspected at no cost to the homeowner. A 96% homeowner satisfaction rate. Over $1.14 billion spent in settlement, with 92% paid directly to homeowner relief and only 8% consumed by administrative costs and attorneys fees. Fifteen years of court-supervised administration without a single instance of court intervention.

Sound too good to be true? That is the power of a really good consumer class action–in this case the Polybutylene (PB) plumbing class action spearheaded by Public Justice in 1993 and achieving settlement in 1995.

The story begins much earlier. In the 1970s, Shell Oil Company and Hoechst Celanese were exploring uses for plastic by-products of their petrochemical refining processes. One such by-product for Shell was Polybutylene, while Celanese had a somewhat similar by-product, acetal, marketed as Celcon. Because of their differences at the chemical level, the polybutylene resin generated by Shell was sold to pipe manufacturers for extrusion as home plumbing pipe, and Celcon was marketed by Celanese as a raw material for manufacturing fittings for plastic plumbing systems.

From 1978 until 1995, several million homes were plumbed with polybutylene, touted as “the best thing since sliced bread.” PB pipe was cheap to create, cheap to install, and believed to be extremely resistant to traditional wear and tear, unaffected by corrosion, and easy to maintain and replace.

Unfortunately, it turned out that polybutylene and acetal deteriorated and became brittle when they came in contact with chlorine and heat–a horrible problem for home plumbing. Across the United States, pipes and fittings began to fail in thousands of homes in areas with high chlorine levels and in applications where the plumbing was exposed to too much heat, such as pipes leading from hot water tanks.

Soon lawsuits were filed against the pipe and fitting manufacturers, many of which exhausted their insurance and in some instances filed for bankruptcy. Tens of millions of dollars in settlements were paid, but more than 50% of every dollar spent was consumed by legal fees and costs, with every home in litigation subject to inspections and homeowners being subjected to interrogatories and depositions. After paying their lawyers and expenses, and after years of litigation, many homeowners were left with barely enough to replace their home plumbing.

Enter Public Justice (then Trial Lawyers for Public Justice), which teamed up with lawyers from Houston and Philadelphia to file a national class action against Shell, Celanese, and DuPont, which sold a petrochemical raw material similar to Celcon used in plumbing fittings that were also failing. The case was filed in Houston in September 1993 and, over the next year, the Public Justice team negotiated a groundbreaking settlement, which incorporated several novel concepts unprecedented in class action practice:

1. A Soft Cap: The Public Justice team was presented with what seemed to be an intractable dilemma. On the one hand, while the number of homes with PB plumbing was estimated to be as many as 6 million, no one knew how many of those homes had already experienced plumbing leaks or would in the future. Yet the team was committed to achieving complete relief in settlement: a complete replumb and repairs at no cost for every homeowner who qualified. Of course, this goal conflicted with Shell, Celanese, and DuPont’s concern that their ultimate exposure under such a settlement could be many billions of dollars and impossible to predict.

The solution: a settlement cap of $750 million–eventually increased to $950 million–beyond which the defendant companies had no commitment. They could walk away after that number was reached, but, if they did so, they would receive no releases from homeowners who had not benefited from the settlement. The statutes of limitations for those homeowners’ claims would be tolled in the meantime. The key was to achieve in the settlement an Initial Settlement Amount large enough to ensure the defendants were invested in the repair/replumb process, and also large enough to generate enough information for an estimate of ultimate exposure. If it turned out that ultimate exposure was in the many billions of dollars, the defendants might very well return to litigation, but, if ultimate relief was in sight after the expenditure of the Initial Settlement Amount, the Public Justice team was confident that the defendants would finish the job, having invested such a significant sum already in the process. In the meantime, every class member who obtained relief would receive complete relief, and class members that received no relief would not have released their claims—which were tolled in the meantime—if the defendants walked away after expending the Initial Settlement Amount.

2. The Ombudsman: The team was also concerned that a settlement involving hundreds of thousands, if not millions, of individuals, with installations ranging from mobile homes to multiunit apartment homes and condominiums to expensive site built homes, needed flexibility to respond to individual circumstances that could not have been anticipated during the settlement negotiations. To meet this need, the settlement created an Ombudsman who was independent of the management team administering the settlement. The Ombudsman was charged with overseeing appeals of entitlement decisions and complaints and was also authorized to vary some of the settlement guidelines in extraordinary circumstances. Over the 15 years of the settlement administration, the Ombudsman reported directly to the plaintiffs’ and defendants’ representatives on the settlement’s Board of Directors, handled thousands of appeals (many of which were granted), and authorized millions of dollars in relief beyond the strict terms of the settlement.

3. Balanced Board of Directors: The settlement structure incorporated another unique feature that proved very beneficial. Administration of the settlement was overseen by a board of eight directors– four appointed by Class Counsel and two each by Shell and Celanese. Since the parties recognized that a board of eight members could result in deadlock on significant issues, the settlement provided that Chancellor Michael Maloan in Tennessee, who approved the settlement and entered the judgment, could break any ties. While there were several instances in which one side or the other threatened to bring an issue to the Chancellor for decision when the Board was deadlocked, the threat of doing so–and the unpredictability of the outcome–forced the parties in every instance to reach compromise.

4. Recurring Notice: Because the settlement provided relief for roughly 15 years, Class Counsel were concerned that members of the class would forget or not be aware of the settlement benefits once the initial notice had been given, particularly if problems with their home plumbing did not arise until years after the settlement was finalized. To address this concern, the team negotiated supplemental notice campaigns every few years after the initial notice. The supplemental notice campaigns were robust and cost millions of dollars. In every instance, there was a big spike of claims in the months following each notice campaign, demonstrating their benefit to the class.

Epilogue: While the settlement structure was essentially finalized in October 1994 when it was presented to the Houston court, a final settlement was not achieved and judgment entered until November 1995 in Tennessee. This was the result of a long odyssey which involved competing litigation in Alabama, California, and other jurisdictions, and the continued opposition of some plaintiffs’ attorneys who wanted to protect their individual-polybutylene-litigation business model.

Nevertheless, the final settlement, known as Cox v. Shell, became one of the most successful and largest consumer class action settlements in history. When the Initial Settlement Amount of $950 million was approached, Shell and Celanese agreed to increase the settlement cap to finish the program. Ultimately, $1.14 billion was spent and, of that amount, 92% went directly to homeowner relief, re-plumbing and repairing more than 320,000 homes across the United States, an outstanding achievement and a testament to the power of a good class action to provide relief to hundreds of thousands in an efficient manner.

Question: To those attacking class actions, how would you hold these corporations accountable and provide this relief to the homeowners?