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Safeco Insurance Company of America, et al v. American International Group

March 25, 2013

SAFECO INSURANCE COMPANY OF AMERICA, ET AL., PLAINTIFFS-APPELLANTS, AND LIBERTY MUTUAL INSURANCE CO., ET AL., COUNTERCLAIMANTS-APPELLANTS, AND ACE INA HOLDINGS, INC., ET AL., INTERVENING PLAINTIFFS-APPELLEES/ DEFENDANTS-APPELLEES,
v.
AMERICAN INTERNATIONAL GROUP, INC., ET AL., DEFENDANTS-APPELLEES/PLAINTIFFS-APPELLEES/ COUNTERDEFENDANTS-APPELLEES.



Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. Nos. 07 C 2898 & 09 C 2026--Robert W. Gettleman, Judge. 2 Nos. 12-1157, et al.

The opinion of the court was delivered by: Easterbrook, Chief Judge.

ARGUED NOVEMBER 29, 2012

Before EASTERBROOK, Chief Judge, and POSNER and MANION, Circuit Judges.

About 45 days after these appeals had been argued, the appellants asked us to dismiss them, see Fed. R. App. P. 42(b), informing the court that the dispute had been settled. All but one of the appellees (ACE INA Holdings) joined a stipulation of dismissal; ACE did not join it, but neither does it oppose dismissal. Because the litigation is a class action, however, we were concerned that the settlement might have adverse effects on other members of the class. So we asked for additional memoranda. These have been filed, and in the two months that have elapsed since the notice no member of the class has expressed opposi- tion. Having concluded that the settlement does not jeopardize the interests of the unrepresented class mem- bers, we dismiss the appeals.

The first sentence of Rule 42(b) provides that, if all parties agree to an appeal's dismissal, then the clerk of court may close the proceeding without judicial action. ACE did not join the stipulation, so the second sentence of Rule 42(b) applies: "An appeal may be dismissed on the appellant's motion on terms agreed to by the parties or fixed by the court." This sentence uses "may" rather than "must" so that the judges can protect the rights of anyone who did not consent to the dismissal. Although the members of the class are not technically parties, they have legally enforceable interests. See Devlin v. Scardelletti, 536 U.S. 1 (2002).

Companies underwriting workers' compensation insur- ance participate in a reinsurance pool administered by the National Workers Compensation Reinsurance Association (the Association). Insurers share in the pool's profit or loss according to the volume of business they underwrite. When the pool is profitable, it is beneficial to have a larger book of business; when the pool loses money, a smaller book means that the underwriter needs to contribute less toward the losses. The class in this suit contends that American International Group (AIG) underreported the size of its business in losing years, causing the pool's other members to bear a disproportionate share of the losses. The class asked for about $3.1 billion.

Some of the insurers had other business dealings. Liberty Mutual and its affiliates, including Safeco, have independent claims against AIG. For its part, AIG ad- vanced claims against Liberty Mutual (as we call the entire group). When Liberty Mutual caused Safeco to commence this class action as the representative plain- tiff, these other claims complicated the litigation. Once it became evident that Liberty Mutual had unacceptable conflicts, ACE INA Holdings intervened, with several other insurers, to take over as the class's representatives. Still, Liberty Mutual sought to use the class suit as a club to induce AIG to pay more on its separate claims against AIG, while AIG sought to minimize the sum of what it paid the class plus what it owed Liberty Mutual separately.

ACE (and the other new representatives, which we ignore from here on) eventually settled the class claims against AIG for $450 million. The settlement includes releases of all claims that pool members held against AIG in all lines of business (not just reinsurance of workers' compensation policies), plus releases of AIG's claims against the class's members. Liberty Mutual protested; it contended that its 22% share of the settlement

(some $99 million) is too small, given the value of its independent claims against AIG. The settlement pro- vides that any class member can opt out, and ACE antici- pated that Liberty Mutual would do so. The settlement agreement provides that, if Liberty Mutual were to opt out, AIG's payment would be reduced to $351 million.

Liberty Mutual elected to stay in the class. So did all but one other insurer. The district judge approved the settlement after a hearing under Fed. R. Civ. P. 23(e). 2012

U.S. Dist. LEXIS 25265 (N.D. Ill. Feb. 28, 2012). Liberty Mutual then appealed, arguing in this court that its share of the settlement does not compensate it adequately for the value of its stand-alone claims against AIG. It also contended that the conflicts of interest within the reinsurance pool meant that the case never should have been certified as a class. (This argu- ment appears in Safeco's brief rather than Liberty Mu- tual's, but as they are under joint control the main effect of filing separate briefs is to get extra words. None of the other parties contends that Safeco should be viewed as independent of its parent; after all, this is why Safeco was not a satisfactory class representative.) Appellants made some other arguments, which need not be de- scribed. None of the insurers outside the Liberty Mutual group complained about the class certification or the settlement, and the Association, on behalf of the entire pool, supported the district court's decision.

After argument, Liberty Mutual settled with AIG. The terms of the settlement do not matter to the other members of the class, who still split $351 million among them. ACE and the other representatives are content. Neither the Association (which manages the pool) nor any member of the class has protested. It is accordingly hard to see how a live controversy remains, and courts should not issue opinions resolving litigation that the parties no longer want to pursue. Since no one now wants us to adjudicate this dispute--or even suggests that there is a "dispute" left to adjudicate--dismissing the appeals is in order. Cf. U.S. Bancorp Mortgage Co. v. Bonner Mall Partnership, 513 U.S. 18 (1994).

We have considered, in the spirit of Rule 23 (e), whether this settlement has any potential to injure non- participants. Yet all of the pool's members outside the Liberty Mutual group still get exactly what they accepted before--and the district court found that reso- lution fair. Liberty Mutual's appeal principally con- cerns the way the district court's order affects its own claims against AIG. That's something Liberty Mutual had every right to resolve independently by opting out. A settlement between Liberty Mutual and AIG while the appeal was pending works as a belated opt-out, which has no greater potential to injure the pool's other members than an opt-out before the district court acted would have done. If, under the settlement, opt-out by Liberty Mutual meant undoing the pact and continuing the litigation, then a de facto opt-out on appeal might justify a remand. But the possibility of Liberty Mutual opting out and reaching a side deal with AIG was pro- vided for in the settlement itself. That this possibility now has been realized does not call into question the settlement's fairness to the pool's other members.

Could Liberty Mutual's appeal itself have injured other members of the class--perhaps by leading them to think that they needn't file their own appeals? ...


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