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The Limits on Class Action Settlements: Fourth Circuit Holds Class Member’s Personal Injury Claim Can Proceed Despite Settlement Agreement

When a products manufacturer spends nearly $40 million to settle a class action regarding alleged defects in its products and alleged misconduct in their marketing, it might reasonably expect that a class member could not subsequently bring a lawsuit about the same product. This may especially be true where a federal appellate court has already affirmed the fairness and adequacy of the settlement agreement.  However, earlier this year, the Fourth Circuit held that such a settlement did not bar the class member’s subsequent suit.  Kappel v. LL Flooring, Inc., 91 F.4th 174 (4th Cir. 2024). This post explores the Fourth Circuit’s decision and discusses the implications for defendants negotiating class action settlements.

Background of Class Action Settlement

In 2015, individuals throughout the United States filed several lawsuits against LL Flooring, Inc., both as individual lawsuits and as putative class actions. The plaintiffs’ two main allegations were: (1) that LL Flooring falsely marketed its laminate flooring as compliant with applicable regulations when in fact the laminate flooring emitted illegal and unsafe levels of formaldehyde (a known carcinogen); and (2) that the laminate flooring suffered from deficiencies in terms of durability and longevity. These lawsuits were ultimately consolidated and transferred to the Eastern District of Virginia by order of the Judicial Panel on Multidistrict Litigation (“JPML”).

In 2018, after mediation, class representatives and LL Flooring agreed to a $36 million settlement. The settlement agreement included a broad release of “any and all claims … that have been, could have been, or in the future can or might be asserted in any court … (including but not limited to any … personal injury claim) … related to Chinese-manufactured flooring sold by [LL Flooring] between January 1, 2009 and May 31, 2015.”  This release applied to all class members and their “heirs, assigns, and successors-in-interest.” 

The district court certified the class for settlement purposes and approved the settlement agreement. On appeal by objectors challenging the settlement, and in particular the award of attorneys’ fees, the Fourth Circuit approved the fairness and adequacy of the settlement. [*]

Having settled the class action—and with the Fourth Circuit’s approval of the settlement’s fairness and adequacy—LL Flooring probably thought it had resolved any liability it might have to class members regarding its flooring products. However, a subsequent wrongful death lawsuit brought on behalf of a class member proved this to be a false hope.

Mr. Tarabus’s Wrongful Death Lawsuit  

On December 14, 2014, Ozan Tarabus purchased laminate flooring that was manufactured and sold by LL Flooring. After Mr. Tarabus installed the flooring, he began to experience health problems. In April 2017, he was diagnosed with inoperable Stage 4 liver and pancreatic cancer, and on June 27, 2018, he entered hospice care. 

On June 29, 2018, Mr. Tarabus received an email notice from LL Flooring informing him that he was a class member and of his right to opt out of the settlement. Mr. Tarabus passed away on July 18, 2018. No one opted him out of the settlement before or after he died.

On July 20, 2020, Mr. Tarabus’s wife and mother of their two children filed a wrongful death lawsuit against LL Flooring in Illinois state court, alleging that Mr. Tarabus contracted cancer as a proximate result of his exposure to LL Flooring’s laminate flooring, which was alleged to contain formaldehyde.

The District Court’s Dismissal

Mr. Tarabus’s case was ultimately transferred by the JPML to the Eastern District of Virginia, the same court that adjudicated the class action. LL Flooring moved to dismiss the lawsuit on the grounds that Mr.Tarabus had already settled his claims against LL Flooring. After all, the settlement agreement explicitly included a release from personal injury claims and Mr. Tarabus did not opt out of the settlement. The district court agreed and dismissed the lawsuit. Mr. Tarabus’s wife appealed to the Fourth Circuit.

The Fourth Circuit’s Reversal

On appeal, Mr. Tarabus’s attorneys argued that despite the clear and broad language of the settlement agreement, the wrongful death lawsuit was not barred because no class representative of the settlement classes ever pursued a personal injury or wrongful death claim. 

To analyze this argument, the Fourth Circuit turned to the “identical factual predicate” doctrine. This doctrine limits the scope of class action settlements to claims that depend upon the same set of facts alleged in the class action complaint. As Judge Friendly of the Second Circuit explained, “if a judgment after trial cannot extinguish claims not asserted in the class action complaint, a judgment approving a settlement in such an action ordinarily should not be able to do so either.” National Super Spuds, Inc. v. New York Mercantile Exchange, 660 F.2d 9, 18 (2d Cir. 1981).

So, the question for the Fourth Circuit was whether the wrongful death suit on behalf of Mr. Tarabus arose from the same set of facts that were alleged in the class action. The court recognized that the wrongful death lawsuit and the class action shared some factual allegations, including that LL Flooring had marketed and sold flawed flooring products. However, the Fourth Circuit leaned more heavily on the distinction that the class representatives never alleged that the flooring caused personal injuries or death. For that reason, the Fourth Circuit concluded that Mr. Tarabus’s wrongful death lawsuit did not involve the same set of facts as the settled claims. LL Flooring would now have to defend the wrongful death suit despite having obtained court approval of a broad settlement agreement that explicitly released LL Flooring from personal injury claims.

Implications for Future Class Action Settlements

 As demonstrated by the Fourth Circuit’s decision, the identical factual predicate doctrine can impose serious hurdles on companies seeking to rely on the preclusive effect of a class action settlement agreement. In a concurring opinion, Judge Wilkinson recognized the general harm from restricting class action settlements but did not read the majority’s decision as creating such a harm.

Judge Wilkinson emphasized that “[t]o restrict releases unduly risks undermining the utility of an important tool in class action litigation, one which assists the settlement of claims and alleviates the need for go-for-broke trials.” However, he ultimately concurred with the majority, because he was “persuaded that [the decision] does no serious damage to the utility of class action [settlements].” Judge Wilkinson did not read the majority to say that class action settlements are limited to claims that were brought or fully litigated, but rather class action settlements cannot include releases from claims that “lie distinctly outside the ambit of the class action proper.” Additionally, in Judge Wilkson’s view, the majority did not “announce a per se rule that a release in every products liability suit necessarily allows subsequent actions for injuries arising from the product itself.” However, the majority did state that “as a general rule, consumer protection claims … are not likely to depend upon the very same facts as personal injury or wrongful death claims.”

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Only time will tell if Judge Wilkinson is correct in predicting that the decision will do no “serious damage” to the utility of class action settlements. However, before entering into a class action settlement, companies may want to carefully consider the language and scope of the release, and confer with their counsel about any subsequent claims a class member could bring against the company. Companies might consider pointing to this decision in negotiating a reduced settlement amount given that class counsel may be unable to offer complete resolution with the class members. As the Fourth Circuit’s decision demonstrates, courts may not always give preclusive effect to the broad language of a class action settlement.

 

[*] The Fourth Circuit’s earlier decision on the fairness of the settlement was discussed in a prior Best in Class post. Andrew Parks Carter, A Review of Fourth Circuit Class-Action Opinions of the Past Year

**Ellis & Winters’s Best in Class Blog covers developments in class action developments in courts across the United States, providing insights about their application to class-action practice that reach a nationwide audience.**

March 28, 2024 Ty Jameson
Posted in  Class Action Settlements