Whether future claims by individuals should be dismissed as a result of a class action settlement have been analyzed in many cases in Louisiana. On the other hand, there is paucity of Louisiana decisions on the issue of whether an individual, who falls within the class definition, is precluded from maintaining a lawsuit when that individual did not receive notice and was unaware of his or her claim until after a court has finally approved of a class action settlement. Moreover, until recently, there had been no decision by Louisiana Appellate Courts on the “exceptional circumstances” exception to res judicata in the framework of a class action settlement.
A recent decision rendered by the Louisiana Court of Appeal, First Circuit, on April 24, 2015, addresses these issues.
In Cepriano v. B Square Builders, et al, No. 2014 CA 1568 (April 24, 2015), the plaintiff purchased a newly constructed family home in Mandeville, Louisiana. Plaintiff alleged that approximately two years later, he learned that his house contained allegedly defective Chinese drywall. He named several defendants, including the seller of the property, the contractor/builder, their insurance companies. He amended his Petition to add Lowe's Home Centers, Inc., based on invoices related to purchases of drywall from Lowe’s in April, 2007. Lowe’s had been named as one of hundreds of defendants in the Chinese drywall MDL litigation, but was later dismissed when Lowe’s established that it had not sold Chinese drywall. Nonetheless, Lowe’s entered into a national class action settlement dismissing all claims related to the purchase of any type of drywall, whether it was manufactured domestically or in China. Lowe's filed an exception of res judicata,seeking dismissal on the basis of a final order and judgment of a Georgia state court approving a nationwide class action settlement and dismissing all present and future drywall claims. In opposition to the exception of res judicata, plaintiff argued that he was not barred from filing his claim against Lowe’s pursuant to the “exceptional circumstances” exception to res judicata, La. R.S. 13:4232(A)(1), which provides in pertinent part:
“A judgment does not bar another action by the plaintiff:
(1) When exceptional circumstances justify relief from the res judicata effect of the judgment. . . .”
The “exceptional circumstances” cited by the plaintiff were that he did not discover his claim until well after the settlement had been approved, that he did not receive notice of the settlement, did not have the opportunity to opt out, that he was not afforded due process because notice was not adequate, and that there was inadequate representation of absent class members.
The trial court granted Lowe’s exception of res judicata, dismissed the claims against Lowe’s with prejudice, and the plaintiff appealed that judgment.
The Court of Appeal for the First Circuit of Louisiana affirmed the district court’s dismissal of the action against Lowe’s. The court addressed the due process issues asserted by the plaintiff, holding that the language of the settlement confirmed that plaintiff was a member of the settlement class and was adequately represented in the settlement proceeding. Importantly, the court reasoned as follows:
It is irrelevant that Cepriano did not know about the defective drywall until June 6, 2011, after the class period ended. Because he is a member of the  class, he is bound by the release language in the final order and judgment that forever discharged Lowe's from any and all claims, "whether known or unknown, asserted or unasserted" that class members "now have, ever had, or may in the future have. . . ."
As to the adequate representation issue, the First Circuit deferred to the Georgia court and its thorough analysis and finding that there was fair and adequate representation of the interest of all class members. The First Circuit further reasoned that plaintiff’s claims need not be identical: “the central inquiry is whether the claims could have been asserted in the class action suit, which can be answered in the affirmative for Cepriano's claims.”
Next, the First Circuit noted that plaintiff’s complaints about inadequate notice were misplaced, again deferring to the Georgia’s court careful explanation of the notice plan, finding it to be adequate and appropriate. The First Circuit also recognized that Georgia and Louisiana law are both consistent with federal law in requiring that the best notice practicable under the circumstances be given to members of a large class action suit,” concluding that “Due process does not require actual notice to every single class member,” and reasoning that the failure of Cepriano “to receive personal or actual notice does not allow [him] to avoid the res judicata effect of the final class action judgment.” On the notice issue, therefore, the court concluded:
“Accordingly, despite Cepriano's alleged failure to receive actual notice of the class action settlement, the notice complied with due process and does not defeat the binding nature of the class action settlement.”
Finally, noting that maintaining this action would violate the Full Faith and Credit Clause of the United States Constitution, that plaintiff may not collaterally attack another court’s rulings regarding the nationwide settlement, and that the principle of achieving finality would discourage class action settlements in the future, the Court found the trial court’s granting of peremptory exception was not manifestly erroneous.
While some practitioners and claimants may find this result inequitable, it is based the balancing of interests and upon longstanding principles that must be applied in the class action settlement arena. Allowing claimants to maintain lawsuits for claims that were settled and released in a class action settlement, or authorizing collateral attacks of a final order approving that settlement would likely have a chilling effect on parties entering into a class action settlement. If, for instance, individuals or entities could bring lawsuits in Louisiana or elsewhere on the basis of not receiving actual notice, or claiming that notice was never received, the Louisiana courts would face a proliferation of such lawsuits. From the prospective of class counsel negotiating a class action settlement, the potential for such lawsuits being filed after a settlement was reached would result in few class action settlements or a reduction in the amounts paid in settlement. As noted above, finality and broad release of claims are part of the bargaining process during settlement negotiations; and thus, the attorneys on both sides of the negotiation must be careful to agree to language in the settlement agreement and motion for final approval that clearly and unambiguously explains the claims being released and dismissed, presently and in the future. They must also pay close attention to the notice mechanism to meet due process requirements.
About the Author: William B. Gaudet
William “Billy” Gaudet joined Adams and Reese as a clerk in 1979 and became an Associate in 1982. Now a Partner who leads the complex/class action practice across all offices, Billy often acts as an advisor or mentor on litigation and strategic issues to other lawyers in the firm.
He was involved in opening the Houston office and served on the committee that oversaw expansion to Birmingham and Nashville. Starting his career in maritime law on behalf of the oil and gas industry, Billy now has a diverse complex/class action litigation practice that includes consumer fraud claims, securities, health care, environmental claims, federal discrimination claims, ERISA, commercial disputes, civil RICO and fiduciary breaches.