The Fifth Circuit Court of Appeals recently reversed a district court’s approval of a class settlement involving a mandatory Rule 23(b)(1)(B) limited fund class after finding that the $21 million settlement was not fair, reasonable or adequate. In its analysis, the court focused on the lack of procedure for distributing the settlement fund among class members, and the failure to show that the settlement would benefit class members.

In In re Katrina Canal Breaches Litig., objectors of a proposed settlement class appealed the district court’s settlement approval and certification of a class consisting of plaintiffs in numerous lawsuits filed in the wake of the levee breaches during hurricanes Katrina and Rita. Relying on the Supreme Court’s opinion in Ortiz v. Fireboard Corp., the court held that the proposed settlement’s reliance on a special master rather than a specific set of procedures to resolve the difficult equitable distribution issues among the class members fell short of satisfying the essential element of a limited-fund settlement that class members be “treated equitably among themselves.”

The court also held that the district court abused its discretion because the proposed settlement provided no assurance that there would be any money left after the payment of attorneys’ fees, a possibility the notice to class members failed to disclose.