Appeals Court Rejects $21M Katrina Settlement

A federal appeals court has rejected a $21 million settlement of Hurricane Katrina damage claims that some residents had complained was unfair, and that one group said would have entitled residents and businesses to as little as $40 each.

U.S. District Judge Stanwood Duval Jr. in New Orleans had approved last year’s settlement of class-action lawsuits against three Louisiana levee boards and their insurer, St. Paul Fire & Marine Insurance Co.

But a three-judge panel from the 5th U.S. Circuit Court of Appeals ruled the settlement isn’t fair because its backers failed to show plaintiffs would benefit in any way in exchange for surrendering their claims.

The panel said Duval erred by approving the settlement without any assurances that attorneys’ costs and administrative costs wouldn’t “cannibalize” the entire $21 million.

A court-appointed “special master” was in charge of distributing shares of money from the settlement with the Orleans Parish, East Jefferson and Lake Borgne Basin levee districts. But the settlement didn’t specify a method for how to treat different kinds of claimants, the 5th Circuit concluded.

“This arrangement simply punts the difficult question of equitable distribution from the court to the special master, without providing any more clarity as to how fairness will be achieved,” the panel wrote.

Public Citizen Inc., a non-profit group representing three former New Orleans residents who objected to the settlement’s terms, said roughly 500,000 households and 41,000 businesses in greater New Orleans would have been entitled to shares of as little as $40 each.

“You shouldn’t force people to give up a claim for nothing without giving them a chance to opt out,” said Public Citizen attorney Michael Kirkpatrick.

Joseph Bruno, one of the lawyers who helped broker the settlement, expressed confidence that the deal can be reworked to satisfy the 5th Circuit’s objections.

“We are absolutely going back to the drawing board,” he said. “The only alternative is to give the money back to the insurance company and let them keep it. What’s the benefit of that?”