2005 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

8-11-2005

In Re: Comm Bank

Precedential or Non-Precedential: Precedential

Docket No. 03-4220

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"In Re: Comm Bank " (2005). 2005 Decisions. Paper 617.

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PRECEDENTIAL

UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT

____

Nos. 03-4220, 03-4221, 03-4275, 03-4294, 03-4316, 

03-4319, 03-4504, 03-4732, 03-4837, 04-4838, 03-4862, 

04-1002, and 04-1039

________

IN RE: COMMUNITY BANK OF NORTHERN VIRGINIA

AND GUARANTY NATIONAL BANK OF TALLAHASSEE

SECOND MORTGAGE LOAN LITIGATION

Stephanie Spann; Leonila T. Nini; Eufronio Nini; John Hardt; 

Robbin Verbeck; Stephanie Hafford; Charles B. Poindexter; 

Maureen F. Poindexter; David B. Walker; Shundra R. Walker; 

Jessie Dodd; James Beckius; Linda Whitehead; Lynell B.

Wingfield; Jario Ivan Sarrie; Beatriz Sarrie; Michelle K.

Morgan; Sharon Finnerty; Donald Appleton; Jeanette Appleton;

Edelman, Combs & Latturner, LLC;

Appellants in No. 03-4220

Walters, Bender, Strohbehn & Vaughan, P.C.,

Appellant in No. 03-4221

Scott C. Borison,

Appellant in No. 03-4294

Badeaux Class Member Opt-Outs,

Appellants in Nos. 03-4316 and 03-4838

Alabama Class Member Opt-Outs,

Appellants in No. 03-4319

Dickey, McCamey & Chilcote, P.C., David J. Armstrong, Esq.,

Douglas C. LaSota, Esq., Franklin R. Nix, Esq., 

Georgia Class Member Opt-Outs,

Appellants in Nos. 03-4275 and 03-4504
2

Ronald D. Gray; Ozy T. McDaniel; Jerline McDaniel; Tammy

and David Wasem; Richard and Margaret Harlin; Sylvester and

Patricia Watkins; Stephen D. Jensen; Joseph E. and Cynthia A.

Brownfield; Missouri Class Member Opt-Outs;

Illinois Class Member Opt-Outs,

Appellants in No. 03-4732

Michael Lane; Marcos Escalante; Cheryl White-Berry; 

William P. Gorny; Rinaldo Swayne,

Appellants in No. 03-4837

Franklin R. Nix, Esq.; Georgia Class Member 

Opt-Outs and Objectors,

Appellants in No. 03-4862

Marion Deloy Smith, 

Appellant in No. 04-1002

John W. Sharbrough, III, Esq.; The Sharbrough Law Firm; 

Alabama Class Member Opt-Outs

Appellants in No. 04-1039

________

On Appeal from the United States District Court

for the Western District of Pennsylvania

(D.C. Nos. 03-cv-00425, 02-cv-01201, 02-cv-01563, 

02-cv-01616, 02-cv-01999, 02-cv-02000)

District Judge: Honorable Gary L. Lancaster

 

Argued February 17, 2005

Before: SLOVITER, AMBRO, and ALDISERT, Circuit Judges

(Filed: August 11, 2005)

 

Daniel A. Edelman

Cathleen M. Combs (Argued)
3

James O. Latturner

Edelman, Combs & Latturner

Chicago, IL 60603

Attorneys for Appellants Stephanie Spann, et al., in No.

03-4220

J. Michael Vaughan (Argued)

David M. Skeens (Argued)

R. Frederick Walters

Walters, Bender, Strohbehn & Vaughan

Kansas City, MO 64105

Attorneys for Appellants Ronald D. Gray, et al., in Nos.

03-4732, et al.

Franklin R. Nix (Argued)

Law Offices of Franklin R. Nix

Atlanta, GA 30327

Attorney for Appellants Georgia Member Opt-Outs &

Objectors, et al., in Nos. 03-4862, et al.

John W. Sharbrough, III

The Sharbrough Law Firm

Mobile, AL 36601

Attorney for Appellants Alabama Class Member OptOuts, et al., in Nos. 03-4319, et al.

Brian S. Wolfman (Argued)

Charlotte Garden

Public Citizen Litigation Group

Washington, D.C. 20009

Scott C. Borison 

Legg Law Firm

Frederick, MD 21703

Attorneys for Appellants Badeaux Class Member Opt-
4

Outs, et al., in Nos. 03-4316, et al.

David G. Oberdick

Meyer, Unkovic & Scott

Pittsburgh, PA l5222

F. Douglas Ross

Odin Felman & Pittleman

Fairfax, VA 22031

Attorneys for Appellee Community Bank of Northern 

Virginia, in Nos. 03-4220, et al.

Gary P. Hunt

Richard B. Tucker, III

Tucker Arensberg

Pittsburgh, PA l5222

Attorneys for Appellee Guaranty National Bank of 

Tallahassee, in Nos. 03-4220, et al.

R. Bruce Carlson (Argued)

Carlson Lynch

Sewickley, PA l5l43

Eric G. Calhoun

Lawson, Fields & Calhoun

Addison, TX 75001

A. Hoyt Rowell, III

Daniel Myers

Richardson, Patrick, Westbrook & Brickman

Mt. Pleasant, SC 29464

Attorneys for Appellees Class Members in Nos. 03-4220, 

et al.

Thomas L. Allen (Argued)

Roy W. Arnold 

James C. Martin
5

Donna M. Doblick

Reed Smith

Pittsburgh, PA l5219

Attorneys for Appellee GMAC Residential Funding 

Corporation, in Nos. 03-4220, et al.

Lawrence H. Richmond

Federal Deposit Insurance Corp.

Washington, D.C. 20434

Attorney for Intervenor Federal Deposit Insurance 

Corporation in Nos. 03-4220, et al.

Table of Contents

I. Facts and Procedural History

A. The Alleged Illegal Lending Scheme

B. The Separate Class Actions

C. Consolidation of the Class Actions

D. The Opt-Out Solicitations

E. The Joint Motion to Invalidate Opt-Outs

F. The October 31, 2003 Conference Call

G. Appellants’ Motion to Intervene

H. Appellants’ Request for Discovery

I. The Fairness Hearing

J. The FDIC as Receiver for GNBT

II. Jurisdiction

III. Analysis

A. Class Certification

1. Certification Process Followed by the District

Court

2. The Appropriateness of Class Certification

i. The Rule 23(a) Criteria

ii. The Rule 23(b)(3) Criteria

iii. Summary of Rule 23 Analysis

B. The District Court’s October 14th and 17th Order
6

Invalidating Opt-Outs

C. The Motions to Intervene

D. Appellants’ Request for Discovery

E. The Fairness of the Settlement

F. The Petition for Mandamus

IV. Conclusion

____________

OPINION OF THE COURT

______________

SLOVITER, Circuit Judge.

This consolidated appeal arises from a “settlement only”

class action in the District Court for the Western District of

Pennsylvania that had consolidated six separate actions alleging

an illegal home equity lending scheme against two banks and a

company that acquired second mortgage loans from those banks

in the secondary market. Plaintiffs are persons who borrowed

from the two banks and signed second mortgages. On December

4, 2003, the District Court issued a Final Order approving a

proposed settlement, which awarded $33 million to a class of

44,000 borrowers and $8.1 million in attorney fees. Appellees in

this case are the settling parties. Appellants are a number of law

firms and plaintiff class members who challenge the District

Court’s jurisdiction, nearly every aspect of the settlement

process, and the fairness of the settlement itself. 

I. 

FACTS AND PROCEDURAL HISTORY

A. The Alleged Illegal Lending Scheme

This action alleges a pervasive predatory and illegal

lending scheme affecting borrowers nationwide. The alleged

mastermind of the scheme was the Shumway Organization

(“Shumway”), a residential mortgage loan business operating out

of Chantilly, Virginia. Through its several business forms,

including EquityPlus Financial, Inc. (“Equity Plus”), Equity
These misstatements were allegedly found in Sections 800 1

and 1100 of the banks’ HUD-1 Settlement Statements.

7

Guaranty, LLC (“Equity Guaranty”), and various title

companies, Shumway offered high-interest mortgage-backed

loans to debt-laden homeowners.

Shumway was subject to fee caps and interest ceilings

imposed by various state mortgage lending laws because it was a

non-depository lender. State and nationally chartered banks, by

contrast, are arguably not subject to the same restrictions. 

Plaintiffs allege that in an effort to circumvent the relevant state

fee and interest ceilings, Shumway formed associations with

several financially distressed banks, including two banks named

as defendants, the Community Bank of Northern Virginia

(“CBNV”) (a state chartered bank) and the Guaranty National

Bank of Tallahassee (“GNBT”) (a nationally chartered bank). 

CBNV and GNBT were allegedly paid for nothing more

than permitting Shumway to disguise the origin of their loans,

thus creating the appearance that fees and interest were paid

solely to a depository institution. In reality, the overwhelming

majority of fees and other charges associated with the loans were

funneled through the two banks to Shumway via Equity Plus (in

the case of loans purportedly made by CBNV) and Equity

Guaranty (in the case of loans purportedly made by GNBT). 

Plaintiffs further allege that both CBNV and GNBT uniformly

misrepresented the apportionment and distribution of settlement

and title fees in their HUD-1 Settlement Statement forms, issued

by the United States Department of Housing and Urban

Development, and that the stated fees in the HUD-1 Settlement 1

Statements included illegal kickbacks to Shumway that did not

reflect the value of any services actually performed.

GMAC Residential Funding Corporation (“RFC”), a

division of GMAC Financial Services (part of the General

Motors Corporation family), was alleged to be an essential coconspirator in the Shumway scheme. In the late 1990s, RFC

derived a substantial portion of its business by purchasing
8

“jumbo” mortgages (mortgages with loan balances above the

purchasing authority of Freddie Mac and Fannie Mae) and

especially High-LTV (loan-to-value) loans (loans where the

amount financed represented up to 125% of the value of the

securitized collateral) in the secondary market. By 1999,

Shumway, acting through CBNV and GNBT, had become the

largest producer of High-LTV loans in the country. Plaintiffs

allege that RFC purchased a majority and perhaps all of the

CBNV and GNBT originated loans, despite knowing that CBNV

and GNBT were mere “straw-parties” used to funnel origination

and title services fees to Shumway. The high origination fees on

the purchased loans generated profit not only for Shumway but

also for RFC; in most cases, fees were rolled into the principal

balance of the loans, thereby generating substantial interest

income.

In 2001, the United States Office of the Comptroller of

the Currency conducted an investigation and audit of GNBT,

resulting in the Comptroller’s imposition of tight restrictions on

the bank. Shortly thereafter, Shumway’s relationship with RFC

began to deteriorate. In a press release dated March 28, 2002,

RFC announced that it was no longer willing to purchase high

interest mortgage loans like the ones sold by Shumway. Without

a purchaser for its loan product and without adequate reserves to

maintain the loans in its own portfolio, the Shumway scheme

essentially shut down by early 2003. 

B. Separate Class Actions

The Community Bank class action began as the following

six separate actions:

Kessler v. GMAC-RFC, No. 03-0425 (W.D. Pa.) was

originally filed in the Court of Common Pleas of Allegheny

County, Pennsylvania on February 26, 2003. Plaintiffs, a class

of Pennsylvania borrowers, charged that RFC had assignee

liability under Pennsylvania state law for the “bogus” loan

origination and title service fees charged ostensibly by CBNV

and GNBT. On March 26, 2003, RFC removed the case to the

United States District Court for the Western District of

Pennsylvania, asserting that Sections 85 and 86 of the National
9

Banking Act (“NBA”), 12 U.S.C. §§ 85-86, and Section 521 of

the Depository Institutions Deregulation and Monetary Control

Act (“DIDA”), 12 U.S.C. § 1831d, completely preempt any state

law attempting to limit the amount of interest and fees a national

or federally insured state-chartered bank could charge. Plaintiffs

did not challenge removal.

Before the Kessler action was filed there were five other

related actions pending in the same District Court premised on

the same Shumway lending scheme. In Davis v. CBNV, No. 02-

1201, initially filed on May 1, 2001, different plaintiffs sought to

represent both a class of Pennsylvania borrowers and a class of

nationwide borrowers. They asserted claims against CBNV,

RFC, and Sovereign Bank (a purchaser of CBNV loans on the

secondary market). On behalf of the Pennsylvania class,

plaintiffs asserted that defendants violated Pennsylvania’s

mortgage lending usury statute, 41 Pa. Cons. Stat. §§ 101 et seq.,

and the Pennsylvania Unfair Trade Practices and Consumer

Protection Law, 73 Pa. Cons. Stat. §§ 201-1, et seq. On behalf

of the nationwide class, the Davis plaintiffs asserted a violation

of the fee split and disclosure provisions of the Real Estate

Settlement Procedures Act (“RESPA”), 12 U.S.C. § 2607(b). 

The case, originally filed in a Pennsylvania state court, was later

removed by defendants to the federal court based on the

existence of federal question jurisdiction.

In Sabo v. CBNV, No. 02-1563, filed on September 11,

2002, in the United States District Court for the Western District

of Pennsylvania, plaintiffs commenced a putative nationwide

class action suit against CBNV and RFC asserting claims under

RESPA. In Ulrich v. GNBT, No. 02-1616, filed on September

19, 2002, in the same federal court, plaintiffs filed a similar

putative nationwide class action suit asserting claims under

RESPA, but this one named as defendants GNBT and RFC. 

One month later, on November 16, 2002, plaintiffs filed

Mathis v. GNBT, No. 02-1999, in the Court of Common Pleas of

Allegheny County asserting various state law mortgage lending

claims against GNBT and RFC, including violations of

Pennsylvania’s mortgage lending usury statute, 41 Pa. Cons.
10

Stat. §§ 101 et seq., and the Unfair Trade Practices and

Consumer Protection Law, 73 Pa. Cons. Stat. §§ 201-1, et seq. 

On November 19, 2002, Defendants removed the Mathis case to

the federal court based on the doctrine of complete preemption. 

As in Kessler, these plaintiffs did not challenge removal.

Finally, on October 23, 2002, plaintiffs filed Picard v.

CBNV, 02-2000, in the Court of Common Pleas of Allegheny

County against CBNV, GNBT, and RFC. On November 19,

2002, Defendants removed the case to the federal court based on

the doctrine of complete preemption. Plaintiffs initially filed a

motion to remand, but on February 27, 2003, they filed an

amended class action complaint asserting claims under RESPA

and the Racketeer Influenced and Corrupt Organizations Act

(“RICO”), 18 U.S.C. § 1962, in addition to the various state law

mortgage claims asserted in the original state complaint. 

R. Bruce Carlson of the Pittsburgh, Pennsylvania law firm

Specter, Specter, Evans, & Manogue, P.C. (now with Carlson

Lynch), was the principal plaintiffs’ class attorney in each of the

above actions, including Kessler. 

C. Consolidation of the Class Actions

On July 11, 2003, and prior to any discovery, the named

plaintiffs in all six actions, together with defendants CBNV,

GNBT and RFC, filed a joint motion for preliminary approval of

a proposed nationwide class action settlement. Under the terms

of the settlement, the maximum total payout to the

approximately 44,000 member plaintiff class was $33 million,

and the agreed-upon attorney fees were $8.1 million. The

settlement payouts ranged from $250 to $925 per borrower

depending on the borrower’s residence and the date on which the

loan was entered. In exchange, the borrowers were to release

any and all state or federal claims that they might have relating

to their second mortgage loan, including the right to use a

violation of federal or state law as a defense to foreclosure or

any other action. See, e.g.,15 U.S.C. § 1641(d)(1); 815 Ill.

Comp. Stat. § 205/6; Kan. Stat. Ann. § 16a-5-202. The proposed

settlement states that if more that .5% of the class members opt

out of the settlement class, the settling defendants may terminate
Plaintiffs also agreed to dismiss Terry v. CBNV, 02-2534 2

GV (W.D. Tenn.), and Caton v. CBNV, CV 02 479286 (Court of

Common Pleas Cuyahogo County, Ohio), two cases alleging the

same fraudulent lending scheme as the current action. Plaintiffs in

Terry and Caton were represented by the same counsel as plaintiffs

in the consolidated action. 

11

the settlement.2

On July 17, 2003, less than a week after the motion was

filed seeking approval of the settlement, the District Court, in an

Order that in all material respects was a verbatim copy of the

proposed Order offered by the settling parties in their July 11,

2003 joint motion, preliminarily approved the proposed

settlement and consolidated all six actions listed above into the

Kessler action. The case was thus consolidated at No. 03-cv00425. 

The plaintiff class was “conditionally certified” for

settlement purposes only. The Order defined the class as: 

all persons . . . who (a) entered into a loan agreement with

Community Bank of Northern Virginia . . . and/or Guaranty

National Bank of Tallahassee . . .; (b) whose loan was secured

by a second mortgage or deed of trust on property located in the

United States; (c) whose loan was purchased by Residential

Funding Corporation . . . and, (d) who [were] not . . .

member[s] of the class certified in the action captioned Baxter

v. Guaranty National Bank, et al., Case No 01-CVS-009168, in

the General Court of Justice, Superior Court Division of Wake

County, North Carolina. 

JA at 132. 

Significantly, before issuing the July 17, 2003 Order, the

District Court did not analyze whether the proposed class

satisfied the prerequisites for a class action set forth in Fed. R.

Civ. P. 23 (a), (b)(3), or (c)(2), as the Court explicitly reserved

such analysis for a settlement hearing to be held on November
12

14, 2003.

The July 17, 2003 Order also provided for the mailing and

publication of the class notice. The class notice directed by the

District Court was verbatim the proposed class notice offered by

the settling parties; it described the action as:

A group of CBNV and GNB[T] borrowers, who are referred to

as the “Named Plaintiffs” in this Notice, claim in the Litigation

that CBNV and GNB[T] violated certain federal and state laws

in connection with the fees and interest charged on second

mortgage loans. These claims are asserted against the

Defendants CBNV, GNB[T] and RFC. 

JA 137. The notice also provided that all opt-outs must be

received by the Settlement Administrator by October 1, 2003. 

Finally, class members were specifically instructed that they may

discuss the settlement with their own attorneys.

D. The Opt-Out Solicitations

In September 2003, after the class notice was mailed,

several law firms mailed letters to members of the plaintiff class

urging them to contact the law firms regarding the above

settlement, and in some cases urging them to opt out of the class. 

These law firms and the members of the class whom they

solicited and who opted-out are the Appellants before us

(“Appellants”). The Appellant law firms are as follows:

Walters Bender, Strohbehn & Vaughan (“Walters”) ,

Nos. 03-4221, 03-4504, 03-4732, 04-1002 - 

Walters has represented two plaintiff classes in class

action suits related to the Shumway scheme. In June 2001, it

filed a class action suit in Jackson County, Missouri against

CBNV and assignees, alleging violation of the Missouri Second

Mortgage Loans Act (“MSMLA”), Mo. Rev. Stat. §§ 408.231, et

seq. The Circuit Court of Jackson County granted defendants’

motion to dismiss for failure to state a claim on the ground that

their MSMLA claim failed as a matter of law. The Missouri

Court of Appeals affirmed. Avila v. Community Bank of N.

Va., 143 S.N.3d 1 (Mo. Ct. App. 2003).
 The actual solicitation is not in the appendix. 3

13

On April 3, 2003, Walters filed a putative class action in

Clay County, Missouri against GNBT for violations of the

MSMLA, asserting the same claim that it had asserted against

CBNV. After GNBT removed that case to the United States

District Court for the Western District of Missouri, that court

held that plaintiffs’ MSMLA claims are preempted under

Sections 85 and 86 of the National Banking Act. See Phipps v.

GNBT, No. 03-420-CV-W-GAF, 2003 WL 22149646 (W.D.

Mo. Sept. 17, 2003). The Eighth Circuit affirmed. Phipps v.

FDIC, __ F.3d __, 2005 WL 17736118 (8th Cir. 2005). 

On September 18 and 19, 2003, the Walters firm mailed

solicitation letters to borrowers in Missouri and Illinois urging

them to object to the fairness of the settlement in the present

action but did not urge them to opt out. In an affidavit to the

District Court, Attorney J. Michael Vaughan of the Walters firm

declared that prior to the September 18, 2003 letter, Walters was

asked to advise and represent several Missouri borrowers (aside

from those in either of the two Missouri class actions) who had

obtained loans from GNBT. According to Walters, a total of

nineteen Missouri borrowers filed opt-outs. Following the

September 18 letter, thirty-five Missouri borrowers and eightynine Illinois borrowers filed objections to the settlement with the

District Court. 

Attorney Franklin Nix and The Sharbrough Law

Firm (“Nix”), Nos. 03-4725, 03-4319, 03-4862, 04-1039 - 

On September 17, 2003, Attorney Nix mailed a

solicitation letter to hundreds of Georgia class members setting

forth defendants’ potential liability under the Home Ownership

and Equity Protection Act (“HOEPA”), 15 U.S.C. §§ 1601, et

seq., and urging class members to opt-out or contact him

regarding their settlement claims. Included in the solicitation

was a Notice of Opt-Out form letter and a Representation & Fee

Agreement contract. The Sharbrough Law Firm sent

solicitations to Alabama class members.3
14

Legg Law Firm (“Legg”), Nos.03-4294, 03-4316, 03-

4837, 04-4838 - 

Maryland and Florida borrowers received solicitation

letters from Legg urging class members to contact the firm to

discuss the settlement. The original letter misstated the opt-out

date as October 15, 2003. A subsequent letter corrected the

mistake. In a Declaration to the District Court, Attorney Scott C.

Borison of the Legg firm declared that prior to sending out the

solicitation letters he had existing clients who had claims against

CBNV. Borison also declared that after he sent the solicitation

letters approximately 100 people asked him to assess their cases. 

After he reviewed their documents, he recommended that only

forty-four class members (collectively known as the Badeaux

opt-outs) opt out of the settlement and retain Borison as their

counsel against CBNV.

Edelman, Combs & Latturner, LLC (“Edelman”),

Nos. 03-4220 - 

Edelman sent solicitation letters to borrowers in Illinois

urging class members to contact them to assess their claims, and

to opt-out of the settlement. Edelman claims to have received

fifteen responses to its solicitations; thirteen of which it believed

had merit. On October 3, 2003, Edelman filed a suit on behalf of

these opt-outs in the Northern District of Illinois in a case

captioned Spann v. CBNV, No. 03 C 7022. 

By the October 1, 2003 deadline, 435 people had opted

out of the class action settlement. Stephen Tilghman, the

settlement administrator, declared that 419 of those opt-outs

were a result of the solicitation letters by the above law firms. 

Of those 419 opt-outs, 326 were submitted by Georgia class

members on opt-out forms provided by Nix. The 435 total optouts amounted to nearly 1% of the total class; nearly double the

.5% trigger that would allow defendants to terminate the

settlement. 

E. The Joint Motion to Invalidate Opt Outs

Fearing that their settlement was in jeopardy, on October

6, 2003, class counsel and defendants’ counsel (the “settling

parties”) filed a Joint Motion to Invalidate Solicited Opt-Outs
 We note that the second opt-out period ended only two 4

weeks after the Joint Motion was granted, leaving class members

little time to file their second opt-outs. 

15

and for Court Approved Notice to Address False, Misleading

and Deceptive Solicitations of Opt-Outs. The Joint Motion

asserted that the above law firms had improperly solicited and

misled class members, thus inducing them to opt out of the class

settlement. The settling parties asked the Court to invalidate all

prior opt-out decisions, send a curative notice to those class

members who had opted out, and prevent any communication

between Appellants and class members, except for written

communications pre-approved by the Court. The settling

parties’ brief in support of the Joint Motion, as expected,

targeted the Nix’s solicitations. 

The District Court granted the settling parties’ joint

motion on October 14, 2003. It did so without conducting a

hearing, setting a briefing schedule or otherwise allowing

Appellants any practical opportunity to be heard. The Order the

District Court entered on October 14, 2003 followed verbatim

the Order proposed by the settling parties, except that the District

Court extended the second opt-out deadline from the October 24,

2003 date proposed by the settling parties, to November 3,

2003.4

On October 15, 2003, one day after entry of the Order

invalidating the opt-outs, Appellants Walters, Nix, and Edelman

filed emergency motions asking the District Court to stay its

October 14 Order and to reconsider its decision. On October 16,

Legg submitted a proposed communication to its opt-out clients

to the District Court for approval.

On October 17, 2003, two days after the motion to

reconsider was filed, the District Court denied the motions. The

brief Order stated in full: 

Before the court are several motions to reconsider

our Order of October 14, 2003 [doc. Nos. 30, 31,
16

32, and 33]. The motions are DENIED.

The letters mailed by each of the firms named in

the October 14, 2003 Order of Court to plaintiff

class members in this case were direct solicitations

for prospective clients whom they knew to be

represented by another lawyer. If there is not a

rule of professional conduct that prohibits such

activity in the jurisdictions where these lawyers

practice, there should be. See generally, Georgine

v. Amchem Products, 160 F.R.D. 478[, 495 n.26]

(E.D. Pa. 1995). . . . 

JA at 145. 

The District Court apparently treated the Legg proposed

communication as a motion to reconsider, and denied it in the

same October 17, 2003 Order. The Court thereafter did not

specifically address why it would not permit Legg to send out its

proposed communications.

Pursuant to the October 14, 2003 Order, “curative

notices” were sent to all class members who had opted out

during the first opt-out period. These notices, which were

tailored to the communications sent by each Appellant law firm,

were verbatim copies of the proposed curative notices submitted

by the settling parties. Each notice stated that the Court has

concluded that the “[Appellant law firms’ solicitations]

contained a number of misleading and inaccurate statements”

and therefore that the “exclusion requests received after the date

of the letter are all void.” See, e.g., App. at 2062. The curative

notices also contained a number of detailed bases for the finding

that the Appellant law firms’ solicitations were misleading. 

Finally, the curative notices urged the recipients to reconsider

their decisions to opt out. The notice made clear that failure to

submit a second opt-out by November 3, 2003 would waive the

class member’s rights to opt out of the settlement.

The provision of the October 14, 2003 Order that

precluded the Appellant law firms from communicating with any

members of the class, except for written communications pre-
17

approved by the District Court, included a bar on communication

with class members who had retained the Appellant law firms

either before or during the first opt-out period. Several

Appellants declared in affidavits provided thereafter that when

their retained clients attempted to contact them for advice or for

explanation of the curative notice, they were compelled to reject

their clients’ attempts at communication. See, e.g. JA 2056-57

(declaration of Borison). In the particular cases of Walters and

Edelman, the October 14, 2003 Order prevented them from

communicating with class members whom they represented in

pending litigation. See Phipps v. GNBT, No. 03-420-CV-WGAF (W.D. Mo.); Spann, et al. v. CNBV, No. 03 C 7022 (N.D.

Ill). 

On October 21, 2003, Walters sought permission to

submit a proposed communication in camera to avoid waiver of

the attorney-client privilege. On October 22, 2003, the District

Court entered an Order granting Walters’ request to submit

the proposed communication to the Court but directed that it also

must be served on all counsel. Thereafter, Walters did not submit

the proposed communication for the Court’s approval.

All Appellant law firms except Walters complied with the

bar on communications. Walters sent letters by overnight

delivery to the nineteen Missouri opt-outs on October 30, 2003,

and informed the District Court of this action on October 31,

2003. There was no sanction by the Court. The record does not

show whether the letters Walters sent were the same as the

proposed communication referred to above.

By November 3, 2003, the end of the second opt-out

period, only 110 class members had opted-out a second time.

F. The October 31, 2003 Conference Call

On October 31, 2003, the District Court sua sponte

convened a conference call among plaintiffs’ class counsel,

counsel for RFC, CBNV, GNBT, and the Court (but not

including Appellants’ counsel) to address the issue of whether

the District Court had subject matter jurisdiction over the

settlement proceedings. 
18

The Kessler action had been removed to federal court on

the ground that Sections 85 and 86 of the NBA and Section 521

of the DIDA completely preempted Pennsylvania state law usury

claims. See Beneficial Nat’l Bank v. Anderson, 539 U.S. 1

(2003). Under settled precedent, where there is complete

preemption of a state law claim the result is “to convert

complaints purportedly based on the preempted state law into

complaints stating federal claims from their inception.” Krispin

v. May Dep’t Stores Co., 218 F.3d 919, 922 (8th Cir. 2000). 

The District Court informed the parties to the phone

conversation that he had examined the original complaint in the

Kessler action and concluded that plaintiffs had not asserted any

state law usury claims. Rather, the only claims asserted were

state law charges of “bogus” loan origination and title services

fees, which under the Court’s reasoning do not constitute interest

and therefore are not preempted by federal statute. See, e.g.,

Hancock v. Bank of Am., 272 F. Supp. 2d 608, 610 (W.D. Ky.

2003) (noting that preemptive force of NBA §§ 85 and 86 does

not exist with respect to claims based on unlawful assessment of

non-interest service fee). In the phone conference the District

Court stated: 

I have serious reservations as to whether or not I have subject

matter jurisdiction over that claim, for the simple reason is this. 

My understanding of that bank act is that it regulates the

amount of interest that a bank can charge for a mortgage loan. 

However, the claims here have nothing to do with interest. 

They are with these bogus filing fees. Those claims are not

interest. And the cases I have reviewed said that the National

Banking Act does not preempt those types of claims. 

App. at 127.

 Counsel for RFC responded that the “underlying claims

in the State court were attacking the fees and interests and,

therefore, [they] would give rise to subject matter jurisdiction

under the complete preemption doctrine.” App 127. When the

Court rejected this argument, counsel then suggested that

perhaps the Court had jurisdiction because the Kessler action
19

had been consolidated with several other actions which explicitly

asserted federal claims. The Court responded that “the Court of

Appeals from [sic] the Third Circuit has said pretty clearly that

simply consolidating claims where there’s proper federal

jurisdiction with one that there is not does not get us there.” App.

128; see, e.g., Brown v. Francis, 75 F.3d 860, 866 (3d Cir.

1996).

Faced with this perceived jurisdictional hurdle, the

District Court then suggested to the parties that, as he saw it, the

jurisdictional problem in the Kessler action could be remedied if

plaintiffs’ counsel filed an amended complaint under Fed. R.

Civ. P. 15(c)(2), which “[could] be deemed related back to [the]

original filing.” App. at 128. In other words, the District Court

suggested to the settling parties that plaintiffs file an amended

complaint explicitly asserting a federal claim.

On November 10, 2003, just four days prior to the date

scheduled for the fairness hearing, plaintiffs’ class counsel

heeded the District Court’s advice and filed a Consolidated

Amended Class Action Complaint asserting violations of

RESPA at Counts I and II, and violations of RICO at Count III.

G. Appellants’ Motion to Intervene

Meanwhile, on October 1, 2003, certain Missouri and

Illinois objectors represented by Appellant Walters had moved to

intervene as a matter of right under Fed. R. Civ. P. 24(a)(2) and

permissively under Fed. R. Civ. P. 24(b) for the purpose of

seeking a six-month stay of the fairness hearing in order to

conduct discovery into the adequacy and fairness of the

underlying settlement. Appellant Walters also filed a Complaint

in Intervention against CBNV, GNBT, and RFC asserting claims

under HOEPA and TILA on behalf of the nationwide class,

claims under MSMLA for the subclass of Missouri borrowers,

and claims under the Illinois Interest Act for the subclass of

Illinois borrowers. 

The settling parties filed an opposition to the intervention

on October 17, 2003. On October 21, 2003, the District Court

denied the motion to intervene under Fed. R. Civ. P. 24(a) and
 The appeal by the proposed intervenors from the District 5

Court’s October 21 Order, docketed at No. 03-4504 which remains

pending, is dismissed because the Order was not a final

adjudication of the issues involving intervention and was therefore

not appealable. See Carlough v. Amchem Prods., Inc., 5 F.3d 707,

712-14 (3d Cir. 1993). 

The renewed motion to intervene was filed after the appeal

was taken from the Final Order in this matter. We now have

jurisdiction to address the issue of whether the District Court’s

denial of intervention was proper. Stringfellow v. Concerned

Neighbors in Action, 480 U.S. 370, 380 (1987).

20

24(b) “without prejudice to its renewal following the submission

of evidence from objectors at the Fairness Hearing.” JA at 146-

47. At the November 14, 2003 fairness hearing, the proposed

intervenors orally renewed their motion to intervene and on

December 3, 2003 they renewed that motion by filing a written

motion to intervene. The District Court denied the renewed

motion on the same day without explanation. 

5

H. Appellants’ Request for Discovery

In early November 2003, Appellant Walters served

several deposition requests directed to some of the named

plaintiffs and class counsel and subpoenaed the same parties to

appear at the November 14, 2003 fairness hearing in an effort to

establish the inadequacy of the settlement. On November 5 and

then on November 10, 2003, the settling parties moved to quash

the deposition requests and witness subpoenas, and requested

that the District Court order that no other subpoenas be allowed

nor discovery taken. On November 10, 2003 (the day the second

motion was filed), the District Court granted these motions in an

Order which, with the exception of a redacted portion regarding

attorney sanctions, was verbatim the Order proposed by the

settling parties. Specifically, the November 10 Order provided

that “[t]he Missouri and Illinois Objectors, their attorneys, and

any person acting on their behalf [could] not issue any further

discovery requests or subpoenas” without prior approval of the
21

Court; that Appellants could not present testimony of any

witness at the final fairness hearing without prior approval of the

Court; and that all prior subpoenas purporting to require a

witness or party to attend and testify at the final fairness hearing

were thereby void. JA 150-51. 

I. The Fairness Hearing

On October 1, 2003, the original deadline for opt-outs,

several Appellants filed Notices of Objections to the Settlement

Agreement claiming that the conditionally certified class failed

to meet the requirements of Fed. R. Civ. P. 23 and that the

settlement was neither fair nor reasonable. On November 14,

Appellant Walters filed a supplement to and amendment of its

objections to the settlement agreement, arguing, inter alia, that

the average RESPA claim being released was worth $14,042.95

and that the average HOEPA claim being released was worth

$20,108.76. On the same day, it submitted an “Offer of Proof,”

detailing the Missouri and Illinois objections to the proposed

settlement. In a declaration dated November 12, Attorney Nix

claimed that the settlement was releasing “over a BILLION

DOLLARS of strict liability Truth-in-Lending damages owed to

44,000 Class members, who are all victims of predatory lending

subject to the federal Home Ownership and Equity Protection

Act (“HOEPA”) (15 U.S.C. §1639, et seq.).” JA at 1909. 

Attached to the Nix declaration was a spreadsheet detailing his

estimated TILA damages calculations for the class.

The District Court held a fairness hearing on November

14, 2003, and heard oral arguments from both class counsel and

objectors. Immediately prior to the fairness hearing, there was a

discussion in the District Court’s chambers between class

counsel and the Court. Appellants’ counsel were not invited. 

The following colloquy at that chambers meeting is in the

record:

Carlson [counsel for settling class]: We are in the process 

of preparing proposed findings of fact and

conclusions of law which we would submit

to Your Honor with the Court’s approval.
22

Court: Yes.

Carlson: That’s the primary —

Court: I have to write an opinion anyway —

Carlson: Right.

Court: —on this. But you want to submit

some findings of fact that I would

adopt basically?

Carlson: That would be our preference, Your

Honor.

Court: Have you prepared a final order?

Carlson: We included a final order in our

motion for preliminary approval.

Court: Okay. Are you satisfied it will meet

everything we need even after today?

Carlson: With the addition of the findings and

conclusions that we contemplate, we

believe that it’s perfectly adequate.

Court: How long do you need to have these

conclusions and findings submitted?

***

Court: We will go through the hearing, and

you have a week to ten days to get

the rest of this stuff in.

Carlson: I think we can have it in by next

Friday, Your Honor.

Court: Okay. Then I will, assuming they
 Appellants contend that FDIC should not be substituted for 6

GNBT as the true party in interest because GNBT was never a

named defendant in the Kessler action, No 03-0425. They are

correct that the District Court’s July 17, 2003 consolidation of the

five other class actions, where GNBT was a named defendant, into

the Kessler action does not make GNBT a party to the consolidated

action. See Cella v. Togum Constructeur Ensemleier En Industrie

Alimientaire, 173 F.3d 909, 912 (3d Cir. 1999) (noting that case

consolidation “does not merge the suits into a single cause, or

23

are fine, I will go ahead and adopt

them and put my reasons for

approving the settlement in a written

memorandum.

JA 1973-74, 1976. 

The District Court did indeed approve the proposed

settlement in a Final Order dated December 4, 2003. Filed with

the Order was a Memorandum prepared by the District Court

and Findings of Fact and Conclusions of Law prepared by the

settling parties. Although the Findings of Fact and Conclusions

of Law were not signed by the District Court, the Court’s

memorandum stated in a footnote that “[u]pon independent

review of the record in this case, the court finds that the

proposed findings and conclusions are fully supported by the

record adopted by the court and incorporated into this

memorandum by reference as if fully set forth.” JA at 176.

J. The FDIC as Receiver for GNBT

On March 12, 2004, after the events set forth above, the

Comptroller of the Currency declared GNBT to be unsafe and

unsound, and appointed the Federal Deposit Insurance

Corporation (“FDIC”) as receiver. The FDIC, on March 29,

2004, asked to be substituted for GNBT as the true party in

interest. This court gave the FDIC leave to intervene in this

appeal and granted the FDIC’s request for a ninety day stay from

the date of its appointment as receiver. See 12 U.S.C. §

1821(d)(12)(A)(ii).

6
change the rights of the parties, or make those who are parties in

one suit parties in another”) (emphasis added) (internal citations

and quotations omitted). However, on November 10, 2003,

plaintiffs’ class counsel filed an amended consolidated complaint

listing GNBT as a defendant. Thus, pursuant to 16 U.S.C. §

1821(d)(2), the FDIC succeeded to all “rights, titles, powers, and

privileges of [GNBT,] the insured depository institution,” and we

grant the FDIC’s motion to be substituted for GNBT as the true

party in interest.

24

II. 

JURISDICTION

We must consider at the outset Appellants’ argument that

the District Court lacked subject matter jurisdiction over the

original Kessler action, and that as a result we must vacate the

settlement and direct remand to the Pennsylvania state court. 

As the District Court recognized, there was no diversity in

the original Kessler action and no federal question was pled on

the face of the complaint. It is well settled that “[o]nly statecourt actions that originally could have been filed in federal

court may be removed to federal court by the defendant.” 

Caterpillar Inc. v. Williams, 482 U.S. 386, 392 (1987). Under

the well-pleaded complaint rule, there can be no removal on the

basis of a federal question unless the federal law under which the

claim arises is a direct and essential element of the plaintiff’s

case. See Franchise Tax Bd. of Cal. v. Constr. Laborers

Vacation Trust for S. Cal., 463 U.S. 1, 10-12 (1983); Louisville

& Nashville R.R. Co. v. Mottley, 211 U.S. 149 (1908). 

However, the complete preemption doctrine is an “independent

corollary” to the well-pleaded complaint rule. Caterpillar Inc.,

482 U.S. at 393. In Caterpillar, the Supreme Court stated: 

On occasion, the Court has concluded that the preemptive force of a statute is so extraordinary that it

converts an ordinary state common-law complaint into

one stating a federal claim for purposes of the wellpleaded complaint rule. . . . Once an area of state law
 The Kessler complaint charged, in essence:

7

Count I - Breach of Contract: the fraudulent origination fees

resulted in a contractual breach of the loan agreement

Count II - Breach of Contract: the fraudulent fees for title services

resulted in a contractual breach of the loan agreements

Count III - Contract Void: that the “subterfuge was to circumvent

the Pennsylvania Secondary Mortgage Loan Act (and other

analogous state laws),” making the agreements void against public

policy. Plaintiffs do not allege a violation of the Pennsylvania

Secondary Mortgage Loan Act itself 

Count IV - Conversion- that the payment of the above mentioned

fees “deprived Plaintiffs and the Class of a right in property”

resulting in a common law conversion claim

Count V - Unjust Enrichment - that RFC, the purchaser of the

25

has been completely pre-empted, any claim purportedly

based on that pre-empted state law is considered, from

its inception, a federal claim, and therefore arises under

federal law.

Id. (internal quotations and citations omitted); see also In re U.S.

Healthcare, Inc., 193 F.3d 151, 161 (3d Cir. 1999); Schmeling v.

NORDAM, 97 F.3d 1336, 1342 (10th Cir. 1996) (stating that

complete preemption is “not as a crude measure of the breadth of

the preemption (in the ordinary sense) of a state law by a federal

law, but rather as a description of the specific situation in which

a federal law not only preempts a state law to some degree but

also substitutes a federal cause of action for the state cause of

action, thereby manifesting Congress’s intent to permit

removal”).

RFC removed the Kessler action on the ground that

plaintiffs’ charges of “blatantly fraudulent” origination and title

services fees, are completely preempted by §§ 85 and 86 of the 7
loans, was unjustly enriched by knowingly accepting and retaining

the monetary benefits of the unlawful conduct

Count VI - Money Had and Received - that the fraudulent conduct

prohibited RFC in equity and good conscience from keeping these

ill-gotten gains of the loans

Count VII - Fraud - that the scheme to extract unlawful settlement

fees was predicated on false representations upon which the

plaintiffs and class members presumptively relied

Count VIII - Pennsylvania’s Unfair Trade Practices and Consumer

Protection Law - that the conduct violated state consumer

protection statute

Count IX - Conspiracy - the conduct constituted a common law

conspiracy.

App. at 622-33.

 Section 85 provides: 8

Rate of interest on loans, discounts and purchase 

Any association may take, receive, reserve, and

charge on any loan or discount made, or upon any notes,

bills of exchange, or other evidences of debt, interest at the

rate allowed by the laws of the State, Territory, or District

where the bank is located, or at a rate of 1 per centum in

excess of the discount rate on ninety-day commercial paper

in effect at the Federal reserve bank in the Federal reserve

district where the bank is located, whichever may be the

greater, and no more, except that where by the laws of any

State a different rate is limited for banks organized under

state laws, the rate so limited shall be allowed for

associations organized or existing in any such State under

26

NBA and by § 521 of the DIDA.

 In Beneficial Nat’l Bank v. Anderson, 539 U.S. 1 (2003),

the Supreme Court definitively held that §§ 85 and 86 of the 8 9
this chapter. When no rate is fixed by the laws of the State,

or Territory, or District, the bank may take, receive, reserve,

or charge a rate not exceeding 7 per centum, or 1 per

centum in excess of the discount rate on ninety-day

commercial paper in effect at the Federal reserve bank in

the Federal reserve district where the bank is located,

whichever may be the greater, and such interest may be

taken in advance, reckoning the days for which the note,

bill, or other evidence of debt has to run. The maximum

amount of interest or discount to be charged at a branch of

an association located outside of the States of the United

States and the District of Columbia shall be at the rate

allowed by the laws of the country, territory, dependency,

province, dominion, insular possession, or other political

subdivision where the branch is located. And the purchase,

discount, or sale of a bona fide bill of exchange, payable at

another place than the place of such purchase, discount, or

sale, at not more than the current rate of exchange for sight

drafts in addition to the interest, shall not be considered as

taking or receiving a greater rate of interest.

12 U.S.C. § 85.

 Section 86 provides: 9

Usurious interest; penalty for taking; limitations

The taking, receiving, reserving, or charging a rate of

interest greater than is allowed by section 85 of this title,

when knowingly done, shall be deemed a forfeiture of the

entire interest which the note, bill, or other evidence of debt

carries with it, or which has been agreed to be paid thereon.

In the case the greater rate of interest has been paid, the

person by whom it has been paid, or his legal

representatives, may recover back, in an action in the nature

of action of debt, twice the amount of the interest thus paid

from the association taking or receiving the same: Provided,

That such action is commenced within two years from the

time the usurious transaction occurred.

27
12 U.S.C. § 86.

 Section 521 provides: 10

(a) Interest rates

In order to prevent discrimination against State-chartered

insured depository institutions, including insured savings

banks, . . . with respect to interests rates, . . . such State

bank[s] . . . may, notwithstanding any State constitution or

statute which is hereby preempted for the purposes of this

section, take, receive, reserve, and charge on any loan or

discount made, or upon any note, bill of exchange, or other

evidence of debt, interest at a rate of not more than 1 per

centum in excess of the discount rate on ninety-day

commercial paper in effect at the Federal Reserve bank in

the Federal Reserve district where such State bank . . . is

located or at the rate allowed by the laws of the State,

territory, or district where the bank is located whichever

may be greater.

12 U.S.C. § 1831d(a) (emphasis added). 

28

NBA completely preempt state law usury claims against national

banks. The Court stated: 

Because §§ 85 and 86 provide the exclusive cause of action for

[usury] . . . claims, there is, in short, no such thing as a statelaw claim of usury against a national bank. Even though the

complaint makes no mention of federal law, it unquestionably

and unambiguously claims that petitioners violate usury laws. 

This cause of action against national banks only arises under

federal law and could, therefore, be removed under § 1441. 

539 U.S. at 11. In other words, a claim of usury against a

national bank such as GNBT purporting to be grounded in state

law is in reality a federal claim. 

Likewise, § 521 of DIDA completely preempts any state 10

law attempting to limit the amount of interest and fees a

federally insured-state chartered bank can charge. See
29

Greenwood Trust Co. v. Mass., 971 F.2d 818, 826-28 (1st Cir.

1992). Not only does § 521 contains an express preemption

clause, “notwithstanding any State constitution or statute which

is hereby preempted for the purposes of this section,” 12 U.S.C.

§ 1831d(a), but the statute also incorporates verbatim the

language of § 85 of the NBA. When Congress borrows

language from one statute and incorporates it into a second

statute, the language of the two acts ordinarily should be

interpreted the same way. See Morales v. Trans World Airlines,

Inc., 504 U.S. 374, 383-84 (1992); Ingersoll-Rand Co. v.

McClendon, 498 U.S. 133, 144-45 (1990); Oscar Mayer & Co.

v. Evans, 441 U.S. 750, 756 (1979).

In light of this precedent, we must examine the Kessler

complaint to determine if it alleged state law claims of unlawful

interest by a nationally or state chartered bank. We can set aside

the issue raised by the District Court during the October 31,

2003 conference call (whether the fraudulent origination and

title service fees alleged by plaintiffs constitute “interest” under

the NBA or the DIDA) and focus instead on two more

substantial, and ultimately determinative, issues. First, the

Kessler complaint asserted no claims against a national or state

chartered federally insured bank. Rather, only RFC (and not

CBNV or GNBT) was named as a defendant in the original

action. See, e.g., Colorado ex rel. Salzar v. Ace Cash Express,

Inc., 188 F. Supp. 2d 1282, 1285 (D. Colo. 2002) (“The

Complaint strictly is about a non-bank’s violation of state law. It

alleges no claims against a national bank under the NBA.”). 

Second, the complaint asserted no usury claims against any party

under Pennsylvania state law. 

Sections 85 and 86 of the NBA and Section 521 of the

DIDA apply only to national and state chartered banks, not to

non-bank purchasers of second mortgage loans such as RFC. 

See, e.g., Weiner v. Bank of King of Prussia, 358 F. Supp. 684,

687 (E. D. Pa. 1973) (stating that NBA “regulates national banks

and only national banks, which can be identified by the word

‘national’ in their name”). Several courts have explored the

issue of removal in cases involving complaints very similar to

that found in the present case and found removal improper.
30

In Flowers v. EZPawn Oklahoma, Inc., 307 F. Supp. 2d

1191 (N.D. Okla. 2004), plaintiffs brought Oklahoma state-law

claims of usury and fraud against two defendants, alleging that

those defendants had “[entered] into a ‘sham’ relationship with

County Bank of Rehoboth Beach, Delaware . . . for the purpose

of claiming federal preemption and evading state usury, fraud

and consumer protection laws.” Id. at 1196. County Bank itself

was not named as a defendant in the state court action. The

district court denied removal, stating that “[n]o claims have been

brought against County Bank in this lawsuit. The state action

claims are asserted against EZPawn and EZCorp, neither of

which is a state-chartered, federally insured (or national) bank.” 

Id. at 1204. 

Likewise, in Colorado v. Ace Cash Express, Inc., 188 F.

Supp. 2d 1282 (D. Colo. 2002), plaintiffs asserted state law

claims against a non-bank check cashing business, which offered

ancillary loans made by a national bank. The national bank was

not named as a defendant in the complaint. The district court

denied defendants’ attempt at removal, stating that “in this case

Defendant and the national bank are separate entities and their

relationship does not give rise to complete preemption under the

NBA. . . . The Complaint strictly is about a non-bank’s

violations of state law. It alleges no claims against a national

bank under the NBA.” Id. at 1285.

The facts in the Kessler action are distinguishable from

Krispin v. May Dep’t Stores Co., 218 F.3d 919 (8th Cir. 2000),

where the holders of a department store’s credit cards brought a

class action alleging violation of Missouri state usury laws. 

Although there were no claims against a national or statechartered bank, the loans were issued by a national bank, which

was a wholly owned subsidiary of the department store.

Therefore, the Eighth Circuit held that removal was proper,

noting that although the credit agreement existed between

customers and the department store, it was the national bank that

“process[ed] and servic[ed] customer accounts, and set[] terms

[such] as interest and late fees.” Id. at 924. 

Krispin is inapplicable to Kessler where, despite the
31

provision in the loan agreement that loans were made through a

national or state-chartered bank (CBNV or GNBT), the loans

were, in fact, made and serviced by Shumway, a non-depository

institution. These loans were then bought by RFC (the named

defendant), also a non-bank, in the secondary market. Because

RFC, CBNV, and GNBT are entirely separate entities, plaintiffs’

state law claims against RFC could not be preempted by the

NBA or by the DIDA. 

Moreover, the original Kessler complaint failed to plead

any state law usury claims, alleging only a series of other state

law claims that are not preempted by the NBA, DIDA, or any

other federal law. See Appendix of Exhibits, Ex. 1 at 33

(Kessler complaint) (“The claim that Plaintiff and the Class are

asserting in this Count [Count III] is predicated upon state

common law and this claim is expressly not seeking to assert a

private right of action under the Pennsylvania Secondary

Mortgage Loan Act or any other statutory law.”). It follows that

removal was improper.

This does not end our inquiry. The Supreme Court has

held that

where after removal a case is tried on the merits without

objection and the federal court enters judgment, the issue in

subsequent proceedings on appeal is not whether the case was

properly removed, but whether the federal district court would

have had original jurisdiction of the case had it been filed in

that court.

Grubbs v. Gen. Elec. Credit Corp., 405 U.S. 699, 702 (1972);

see also Knop v. McMahan, 872 F.2d 1132, 1138 (3d Cir. 1989). 

The same result may obtain where a case has been

improperly removed but the original complaint is subsequently

amended to state a well-pleaded federal question. See Pegram v.

Herdrich, 530 U.S. 211, 215 n.2 (2000) (stating that plaintiff’s

amended complaint “alleged ERISA violations, over which the

federal courts have jurisdiction, and we therefore have

jurisdiction regardless of the correctness of the removal”);
 We recognize that the rule employed in Pegram and the 11

other above cited cases is only analogous to our present issue.

Indeed, in each of the cited cases, the parties were adverse, and

plaintiffs, at some point, actively challenged removal. As reasoned

by Judge Posner in Bernstein:

If [Bernstein] was convinced that the original action

was not removable[,] he could have stuck by his

guns and we would have vindicated his position on

appeal. But once he decided to take advantage of his

involuntary presence in federal court to add a federal

claim to his complaint[,] he was bound to remain

there. Otherwise[,] he would be in a position where

if he won his case on the merits in federal court[,] he

could claim to have raised the federal question in his

amended complaint voluntarily, and if he lost he

could claim to have raised it involuntarily and to be

entitled to start over in state court. 

738 F.2d at 185. Arguably, there is tension between the rule of

Grubbs and Pegram, and the general doctrine of Newman-Green,

Inc. v. Alfonzo-Larrain, 490 U.S. 826 (1989), and Grupo Dataflux

v. Atlas Global Group, 541 U.S. 567 (2004), that “the jurisdiction

of the Court depends upon the state of things at the time of the

action brought,” id. at 570. We believe that Grubbs and Pegram

are controlling here.

32

Cotton v. Mass. Mut. Life Ins. Co., 402 F.3d 1267, 1280 (11th

Cir. 2005) (same); Barbara v. N.Y. Stock Exch., Inc., 99 F.3d

49, 56 (2d Cir. 1996) (“[I]f a district court erroneously exercises

removal jurisdiction . . ., and the plaintiff voluntarily amends the

complaint to allege federal claims, we will not remand for want

of jurisdiction.”); Kidd v. Southwest Airlines, Co., 891 F.2d 540,

547 (5th Cir. 1990) (same); Bernstein v. Lind-Waldock & Co.,

738 F.2d 179, 185 (7th Cir. 1984) (holding that although

plaintiff’s original complaint was not removable, his decision to

“throw in the towel” and amend his complaint to state “an

unmistakable federal cause of action” conferred original

jurisdiction on the federal court”).11
 We note that the mere act of consolidating the five related 12

cases (Davis, Sabo, Ulrich, Mathis, and Picard) into the Kessler

action on July 17, 2003, could not, by itself, cure the original

jurisdictional defect in Kessler. As stated by the Supreme Court,

“consolidation is permitted as a matter of convenience and

economy in administration, but does not merge the suits into a

single cause, or change the rights of the parties, or make those who

are parties in one suit parties in another.” Johnson v. Manhattan

Ry. Co., 289 U.S. 479, 496-97 (1933) (interpreting the predecessor

rule to Rule 42(a); see also Newfound Management Corp. v.

Lewis, 131 F.3d 108, 116 (3d Cir. 1997) (stating that “Johnson

remains the ‘authoritative’ statement on the law of consolidation”).

Thus, we held in Cella v. Togum Constructeur Ensemleier En

Industrie Alimentaire, 173 F.3d 909, 912 (3d Cir. 1999), that

“while a consolidation order may result in a single unit of

litigation, such an order does not create a single case for

jurisdiction purposes.” See also Bradgate Assoc., Inc. v. Fellows,

Read & Assoc., Inc., 999 F.2d 745, 750 (3d Cir. 1993). In other

words, each consolidated case must support an independent basis

for subject matter jurisdiction.

33

The amended complaint submitted by the settling parties

on November 10, 2004, not only added CBNV and GNBT as

defendants, but also explicitly asserted federal claims,

specifically, violations of RESPA at Counts I and II, and RICO

at Count III. We are persuaded that under the Supreme Court’s

holdings in Grubbs and Pegram, the District Court properly

acquired subject matter jurisdiction by virtue of the amended

complaint.12

II. 

ANALYSIS

Appellants challenge nearly every aspect of the

proceedings in the District Court. We examine each challenge in

turn.

A. 

Class Certification
34

An appellate court reviews the initial certification of the

class and the decision whether to approve the proposed

settlement for abuse of discretion. In re Prudential Ins. Co. of

Am. Sales Practices Litig., 148 F.3d 283, 299 (3d Cir. 1998); In

re Gen. Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab.

Litig., 55 F.3d 768, 782 (3d Cir. 1995) (“G.M. Trucks”); Girsh

v. Jepson, 521 F.2d 153, 156 (3d Cir. 1975).

We must decide whether a district court’s failure to

follow the procedures required before approving a settlementonly class action was an abuse of discretion.

As we stated above, on July 17, 2003, the District Court,

acting on the settling parties’ motion, consolidated five separate

class actions into the Kessler action, conditionally certified the

class for “settlement purposes” only, and preliminarily approved

the settling parties’ proposed settlement. JA at 132. The Order

explicitly left the issue of whether “the Class meets the

requirements for final certification under Fed. R. Civ. P. 23(a),

(b)(3), (c)(2) and the United States Constitution” until the final

fairness hearing. JA at 133. 

The settlement class action device offers defendants the

opportunity to engage in settlement negotiations without

conceding any of the arguments they may have against class

certification. See G.M. Trucks, 55 F.3d at 786. Often, as in this

case, the parties never intend to litigate the claims; rather, from

the time the plaintiffs file the complaint, the goal on both sides is

to reach a nationwide settlement. See, e.g., Amchem Prods. Inc.

v. Windsor, 521 U.S. 591, 601-02 (1997) (discussing case where

complaint, answer, proposed settlement agreement, and joint

motion for conditional certification of settlement class were all

filed on same day). “By specifying certification for settlement

purposes only . . . the court preserves the defendant’s ability to

contest certification should the settlement fall apart.” G.M.

Trucks, 55 F.3d at 786. 

As stated in Amchem, “all Federal Circuits recognize the

utility of Rule 23(b)(3) settlement classes” as a means to

facilitate the settlement of complex nationwide class actions. 
35

521 U.S. at 618 (stating also that “[a]mong current applications

of Rule 23(b)(3), the ‘settlement only’ class has become a stock

device”). However, drawing, inter alia, on Judge Becker’s

comprehensive opinions in G.M. Trucks and Georgine v.

Amchem Prods., Inc., 83 F.3d 610 (3d Cir. 1996), the Supreme

Court noted the special problems encountered with settlement

classes. See Amchem, 521 U.S. at 621-23; see also,

G.M.Trucks, 55 F.3d at 795 (stating that “collusion, inadequate

prosecution, and attorney inexperience are the paramount

concerns in precertification settlements”). Nonetheless, the

Amchem Court held that certification of classes for settlement

purposes only was consistent with Fed. R. Civ. P. 23, provided

that the district court engages in a Rule 23(a) and (b) inquiry:

Confronted with a request for settlement-only class

certification, a district court need not inquire

whether the case, if tried, would present intractable

management problems, see Fed. Rule Civ. Proc.

23(b)(3)(D), for the -- proposal is that there be no

trial. But other specifications of the Rule those

designed to protect absentees by blocking

unwarranted or overbroad class definitions --

demand undiluted, even heightened, attention in

the settlement context. Such attention is of vital

importance, for a court asked to certify a

settlement class will lack the opportunity, present

when a case is litigated, to adjust the class,

informed by the proceedings as they unfold.

521 U.S. at 620. 

The Court made clear that the ultimate inquiry into the

fairness of the settlement under Fed. R. Civ. P. 23(e) does not

relieve the court of its responsibility to evaluate Rule 23(a) and

(b) considerations. “Federal courts . . . lack authority to

substitute for Rule 23's certification criteria a standard never

adopted--that if a settlement is ‘fair,’ then certification is

proper.” 521 U.S. at 622. Indeed,

[t]he safeguards provided by the Rule 23(a)
36

and (b) class-qualifying criteria, we emphasize, are

not impractical impediments -- checks shorn of

utility -- in the settlement-class context. First, the

standards set for the protection of absent class

members serve to inhibit appraisals of the

chancellor’s foot kind -- class certifications

dependent upon the court’s gestalt judgment or

overarching impression of the settlement’s

fairness.

Second, if a fairness inquiry under Rule

23(e) controlled certification, eclipsing Rule 23(a)

and (b), and permitting class designation despite

the impossibility of litigation, both class counsel

and court would be disarmed. Class counsel

confined to settlement negotiations could not use

the threat of litigation to press for a better offer. . .

.

Id. at 621. Thus, regardless of whether a district court certifies a

class for trial or for settlement, it must first find that the class

satisfies all the requirements of Rule 23. Id.; G.M. Trucks, 55

F.3d at 799-800 (“In sum, ‘a class is a class is a class,’ and a

settlement class, if it is to qualify under Rule 23, must meet all of

its requirements.”). 

In making this analysis, the district court may take the

terms of the proposed settlement into consideration. The central

inquiry, however, is the adequacy of representation. In re

Prudential, 148 F.3d at 308. Thus, “[s]ubdivisions (a) and (b)

[of Rule 23] focus court attention on whether a proposed class

has sufficient unity so that absent members can fairly be bound

by decisions of class representatives. That dominant concern

persists when settlement, rather than trial, is proposed.” 

Amchem, 521 U.S. at 621.

1. Certification Process Followed by the District Court

Our review of the record makes plain that the District

Court did not engage in the Rule 23(a) and (b) inquiry required

by Amchem. The July 17, 2003 Order, which conditionally
37

certified the class for settlement purposes, explicitly left the Rule

23 analysis for the November 14, 2003 fairness hearing. Review

of the transcript of the fairness hearing reveals no instance where

the District Court discussed the issue of certification. Finally,

the District Court’s December 4, 2003 Final Order Approving

Class Action Settlement states only that “[t]he Class this court

preliminarily certified is finally certified for settlement purposes

under Fed. R. Civ. P. 23(a), (b)(3), and (c)(2) because the court

finds that the Class fully satisfies all the applicable requirements

of Fed. R. Civ. P. 23 and due process.” JA 159. The Court’s

ipse dixit statement was not accompanied by any discernable

analysis.

Appellees direct us to the Proposed Findings of Fact and

Conclusions of Law submitted by the settling parties, which do

provide a detailed Rule 23 analysis. Although the District Court

did not sign them, it adopted them wholesale by way of a

footnote in its December 4, 2003 Memorandum accompanying

the Final Order approving settlement. In this footnote, the Court

stated that 

Subsequent to the hearing, class counsel submitted proposed

findings of fact and conclusions [of law]. . . . Upon

independent review of the record in this case, the court finds

that the proposed findings and conclusions are fully supported

by the record adopted by the court and incorporated into this

memorandum by reference as if fully set forth. 

JA at 176.

We are bound by the Supreme Court’s decision in

Anderson v. Bessemer City, 470 U.S. 564, 572 (1985), holding

that a district court’s verbatim adoption of a party’s proposed

findings of fact and conclusions of law, although highly

disapproved of, is not per se grounds for reversal. LansfordCoaldale Joint Water Auth. v. Tonolli Corp., 4 F.3d 1209, 1215-

16 (3d Cir. 1993). However, there must be evidence in the

record demonstrating that the district court exercised

“independent judgment” in adopting a party’s proposed findings. 

Bright v. Westmoreland County, 380 F.3d 729, 731-32 (3d Cir.
38

2004); see also Pa. Envtl. Def. Found. v. Canon-McMillan Sch.

Dist., 152 F.3d 228, 233 (3d Cir. 1998) (“The central issue is

whether the district court has made an independent judgment.”).

In the present case, the only evidence we find in the

record that the District Court exercised independent judgment is

the fact that it said it did. JA at 176 (“Upon independent review

of the record in this case. . . .”). Indeed, when questioned at oral

argument, Appellees were unable to point to any additional

record evidence to support a finding of independent judgment. 

By contrast, there is substantial basis in the record to

question whether “independent judgment” was exercised. As

detailed above, see JA at 1973-74, during a closed door session

held before the November 14, 2003 fairness hearing, the District

Court asked the settling parties to submit the proposed findings

of fact and conclusions of law, which it “would adopt basically.”

Cf. Anderson, 470 U.S. at 572-73 (holding that district court’s

findings should receive no less deferential review when district

court announced its decision to parties first and then asked

prevailing party to prepare findings of fact, many of which it

ultimately adopted verbatim). At the actual fairness hearing,

class certification itself was never discussed.

We also note that nearly every order issued by the District

Court in this case was a verbatim copy of a proposed order

offered by the settling parties. See, e.g., July 17, 2003 Order

conditionally certifying class for settlement purposes; October

14, 2003 Order invalidating class opt-outs and restricting

communications between Appellants and class; November 10,

2003 Order quashing Appellants request for discovery;

December 4, 2003 Proposed Findings of Fact and Conclusions

of Law. We are therefore concerned that the District Court may

have abdicated its role as a neutral and independent adjudicator

or, at the very least, sacrificed independent judgment for

administrative efficiency. 

We are confident that the district judge sincerely

concluded that he had exercised the required “independent

judgment.” Statements of subjective conclusions, however, are
 Judge Aldisert notes that we find instruction in the words 13

of Justice Felix Frankfurter: “[F]ragile as reason is and limited as

law is as the expression of the institutionalized medium of reason,

that’s all we have standing between us and the tyranny of mere will

and the cruelty of unbridled, undisciplined feeling.” Remarks on

his retirement after 23 years on the Supreme Court, as quoted in

Time Magazine, Sept. 7, 1962 at 15. 

39

insufficient when adopting verbatim suggested findings of fact

and conclusions of law to meet the strict requirements of Rule

23. What is required at a minimum is a statement of reasons,

expressed in objective form, how the court exercised

independent judgment in evaluating the submissions of counsel.

In the context of meeting the requirements of Rule 23 (a)

and (b), we are not satisfied that the bare statement that the

“proposed findings and conclusions are fully supported in the

record” meets the minimum standard of accepting verbatim

adoption as contemplated in the teachings of Anderson, 470 U.S.

at 572. We believe that a court must set forth persuasive reasons,

stated with objectivity, why the submissions of counsel totally

reflect the independent judgment of the court. The act of

accepting as its own these critical suggestions is an important

judicial conclusion whose acceptability is merited only to the

extent that sound reason stated publicly supports the

acceptance.

13

Because we are not convinced that the District Court

exercised “independent judgment” in adopting the proposed

findings of the settling parties, we conclude that the settlementonly class was never properly certified in accordance with

Amchem. “[W]ithout certification there is no class action, and

in a settlement entered without class certification the judgment

will not have res judicata effect on the claims of absent class

members.” G.M. Trucks, 55 F.3d at 800 (internal citation,

quotations, and alterations omitted). We will therefore vacate

the settlement Order and remand to the District Court. 

2. The Appropriateness of Class Certification
 Rule 23(b)(1) authorizes certification in cases where 14

separate actions by or against individual class members would risk

establishing “incompatible standards of conduct for the party

opposing the class,” Rule 23(b)(1)(A), or would “as a practical

matter be dispositive of the interest” of nonparty class members “or

substantially impair or impede their ability to protect their

interests.” Rule 23(b)(1)(B). Rule 23(b)(2) authorizes class actions

seeking declaratory or injunctive relief, and is used, for example,

in civil rights cases alleging class-based discrimination.

 Rule 23(b)(3) provides: 15

(b) An action may be maintained as a class action if the

prerequisites of subdivision (a) are satisfied, and in

addition:

 . . .

(3) the court finds that the questions of law or fact

common to the members of the class predominate over

any questions affecting only individual members, and that

a class action is superior to other available methods for

the fair and efficient adjudication of the controversy. The

40

Our conclusion that the settlement class was not properly

certified does not mean that the class could not be certified on

remand. Because we believe certification may indeed be

appropriate, we examine some of the relevant factors to be

considered on remand.

We have stated that “Rule 23 is designed to assure that

courts will identify the common interests of class members and

evaluate the named plaintiffs’ and counsel’s ability to fairly and

adequately protect class interests.” G.M. Trucks, 55 F.3d at 799. 

To be certified, a class must satisfy the four requirements of

Rule 23(a): (1) numerosity; (2) commonality; (3) typicality; and

(4) adequacy of representation. Fed. R. Civ. P. 23(a). If the

Rule 23(a) requirements are met, the court must then find that

the class fits within one of the three categories of class actions

set forth in Fed. R. Civ. P. 23(b). In the present case, the 14

parties chose to pursue a class action under Rule 23(b)(3), the

customary vehicle for damage actions. Thus, the District Court 15
matters pertinent to the findings include: (A) the interest

of members of the class in individually controlling the

prosecution or defense of separate actions; (B) the extent

and nature of any litigation concerning the controversy

already commenced by or against members of the class;

(C) the desirability or undesirability of concentrating the

litigation of the claims in the particular forum; [and] (D)

the difficulties likely to be encountered in the

management of a class action. 

 Rule 23(e) provides: 16

The court must approve any settlement, voluntary dismissal,

or compromise of the claims, issues, or defenses of a

certified class . . . [and] must direct notice in a reasonable

manner to all class members who would be bound by a

proposed settlement, voluntary dismissal, or compromise.

Fed. R. Civ. P. 23(e)(1)(A), (B).

41

must determine that common questions of law or fact

predominate and that the class action mechanism is the superior

method for adjudicating the case. “The requirements of

subsections (a) and (b) are designed to insure that a proposed

class has ‘sufficient unity so that absent class members can fairly

be bound by decisions of class representatives.’” In re

Prudential, 148 F.3d at 309 (quoting Amchem, 521 U.S. at 621);

see also Hassine v. Jeffes, 846 F.2d 169, 176 n.4 (3d Cir. 1988)

(“‘[C]ommonality, like ‘numerosity’ evaluates the sufficiency of

the class itself, and ‘typicality’ like ‘adequacy of representation’

evaluates the sufficiency of the named plaintiff. . . .”) (citation

omitted). A court must determine class certification

independently from its Rule 23(e) inquiry into the fairness of the

proposed settlement. Amchem, 521 U.S. at 621. 16

i. The Rule 23(a) Criteria

There is no dispute that the conditionally certified class

meets the numerosity and commonality prongs of Rule 23(a). 

See generally In re Prudential, 148 F.3d at 309. The class

consists of approximately 44,000 members and “the named
42

plaintiffs share at least one question of fact or law with the

grievances of the prospective class.” Baby Neal by Kanter v.

Casey, 43 F.3d 48, 56 (3d Cir. 1994). 

We likewise find that the requirements of typicality are

met. “The concepts of commonality and typicality are broadly

defined and tend to merge.” Baby Neal, 43 F.3d at 56. Both

concepts seek to ensure that the interests of the absentees will be

adequately represented by the named plaintiffs. Gen. Tel. Co. of

the S.W. v. Falcon, 457 U.S. 147, 157 n.13 (1982). However,

“neither of these requirements mandates that all putative class

members share identical claims.” Baby Neal, 43 F.3d at 56; see

also Hassine, 846 F.2d at 176-77; Weiss v. York Hosp., 745 F.2d

786, 809 (3d Cir. 1984). “[C]ases challenging the same

unlawful conduct which affects both the named plaintiffs and the

putative class usually satisfy the typicality requirement

irrespective of the varying fact patterns underlying the individual

claims.” Baby Neal, 43 F.3d at 58. 

The mere fact that some members of the class may have

additional state or federal law claims, not asserted by the named

plaintiffs, does not preclude a finding of typicality. Because the

claims of all class members here depend upon the existence of

the Shumway scheme, “their interests are sufficiently aligned

[such] that the class representatives can be expected to

adequately pursue the interests of the absentee class members.” 

In re Prudential, 148 F.3d at 312 (citing Amchem, 521 U.S. at

621); see also Baby Neal, 43 F.3d at 58 (“Where an action

challenges a policy or practice, the named plaintiffs suffering

one specific injury from the practice can represent a class

suffering other injuries, so long as all the injuries are shown to

result from the practice.”). 

Having determined that the numerosity, typically, and

commonality prongs are met, we turn to the issue of the

adequacy of class representation. See generally Amchem, 521

U.S. at 625. This requirement encompasses two distinct

inquiries designed to protect the interests of absentee class

members: “it considers whether the named plaintiffs’ interests

are sufficiently aligned with the absentees’, and it tests the
Appellants also allege that members of the class have 17

claims under various state law consumer protection statutes. For

purposes of our Rule 23(a) analysis, it is not necessary to delve into

the viability of such claims. 

15 U.S.C. § 1606(c) provides a safe harbor for APR 18

overstatements of .125%.

Consumers also have the unqualified right to rescind a 19

credit transaction (in which a security interest is retained in their

principal dwelling) within three business days following the

consummation of the transaction or the delivery of the information

about the right to rescind and rescission forms required by TILA

43

qualifications of the counsel to represent the class.” G. M.

Trucks, 55 F.3d at 800. 

In considering the first inquiry, we must examine

Appellants’ allegations that many members of the class,

including some named plaintiffs, have colorable claims under,

inter alia, TILA and HOEPA that were not asserted by class 17

counsel either in the complaint or during negotiations of

settlement.

TILA is a federal consumer protection statute, intended to

promote the informed use of credit by requiring certain uniform

disclosures from creditors. The statute is implemented by

Regulation Z, 12 C.F.R. §§ 226.1 et seq., which was

promulgated by the Board of Governors of the Federal Reserve

System under the mandate of 15 U.S.C. § 1607. Among other

things, creditors who make loans secured by a borrower’s

principal dwelling are required to provide all borrowers with

“material disclosures,” including “the annual percentage rate, the

finance charge, the amount financed, the total payments, [and]

the payment schedule.” 12 C.F.R. § 226.23. If “material

disclosures” are not provided or inaccurately provided, the 18

creditor is strictly liable and a borrower has the right to rescind

the loan up to “3 years after consummation, upon transfer of all

of the consumer’s interest in the property, [or] upon sale of the

property, whichever occurs first.” Id. In addition to the right 19
together with a statement containing the material disclosures

required by TILA, whichever is later.

The TILA provision governing actual damages reads, in 20

part:

Except as otherwise provided in this section, any

creditor who fails to comply with any requirement

imposed under this part . . . with respect to any

person is liable to such person in an amount equal to

. . . 

(1) any actual damage sustained by such person as a

result of the failure; . . . . 

15 U.S.C. § 1640(a)(1). Several courts have held that detrimental

reliance is an element of establishing actual damages under TILA.

See, e.g., Turner v. Beneficial Corp., 242 F.3d 1023, 1028 (11th

Cir. 2001) (en banc); Perrone v. Gen. Motors Acceptance Corp.,

232 F.3d 433, 436-40 (5th Cir. 2000). We have not had the

opportunity to examine this issue.

 TILA also provides for attorney’s fees and costs. 15 21

U.S.C. § 1640(a)(3).

Specifically, HOEPA protections apply if a loan meets 22

one of two high-cost loan triggers: (1) the annual percentage rate

(“APR”) exceeds by eight percent the yield on Treasury securities

of comparable maturity for first-lien loans, or above ten percent for

subordinate-lien loans; or (2) the total of all the loan’s points and

44

of rescission, an aggrieved borrower may, within one year of the

date of the violation, seek “actual damage[s] sustained . . . as a

result of the failure,” and statutory damages, which cannot 20

exceed $500,000 or one percent of the creditor’s net worth

(whichever is less) in the case of a class action. 15 U.S.C. §§

1640(a)(1), (2)(B).21

HOEPA, enacted as an amendment to TILA, creates a

special class of regulated loans that are made at higher interest

rates or with excessive costs and fees. These loans are not only 22
fees exceed eight percent of the loan total or $400 (adjusted for

inflation), whichever is greater. 15 U.S.C. §§ 1602(aa)(1), (3); 12

C.F.R. §§ 226.32(a)(1)(i), (ii). 

45

subject to the restriction on terms commonly used by predatory

lenders to manipulate the cost of the loans, but are also subject to

special disclosure requirements. See 15 U.S.C. § 1639. Within

three business days prior to the consummation of a loan, a

creditor is required to disclose to the borrower, inter alia, the

APR of the loan and the amount of regular monthly payments. 

15 U.S.C. §§ 1639 (a)(2), (b)(1). Failure to materially comply

with such requirements entitles a borrower to “an amount equal

to the sum of all finance charges and fees paid by the consumer.

. . .” Id. at § 1640(a)(4). Voluntary assignees of a credit

obligation are liable for TILA or HOEPA violations by the

original creditor where the violation is apparent on the face of

the disclosure statement. Id. at § 1641(a). 

An affirmative action under HOEPA must be brought

within one year of the violation, id. at § 1640(e), and an action

for rescission must be brought within three years, 12 C.F.R. §

226.23. However, these provisions are subject to equitable

tolling. See Ramadan v. Chase Manhattan Corp., 156 F.3d 499,

504 (3d Cir. 1998); cf. Mullinax v. Radian Guar. Inc., 199 F.

Supp. 2d 311, 328 (M.D.N.C. 2002). No statute of limitations

applies to a borrower asserting a violation of TILA or HOEPA

as a defense (by recoupment or set-off) in a foreclosure action. 

Id. at § 1640(e). 

Appellants contend that many class members have

colorable HOEPA and TILA claims because defendants

materially understated the APR in many of the class members’

TILA disclosures. More particularly, the Appellants note that

the calculation of APR must incorporate “finance charges,” as

defined in Regulation Z, 12 C.F.R. § 226.4. Although title fees

are ordinarily excluded from the definition of “finance charges,”

12 C.F.R. § 226.4(c)(7), and therefore not incorporated into the

APR, Appellants contend that the title fees in the present case

are bogus because they were directly passed to the Shumway
46

Organization. They contend that failure to incorporate these title

fees into the APR calculation resulted in materially understated

APR disclosures. Appellants thus urge that defendants’ potential

TILA and HOEPA liability averages $20,108.76 per borrower

for the nationwide class, an amount far greater than the $250 to

$925 that each class member would receive pursuant to the

settlement. 

Although class counsel do not challenge the substance of

Appellants’ above arguments, they do assert that the decision not

to pursue TILA and HOEPA claims was reasonable because (1)

most members of the putative class had executed HOEPA

disclosure forms; (2) many class members’ claims have lapsed

due to HOEPA’s one-year statute of limitations on affirmative

claims; (3) TILA or HOEPA claims could not be certified as a

class action because prosecution would involve substantial 

individual inquiries; and (4) establishing actual damages would

be difficult because several courts have held that detrimental

reliance is an element in a TILA claim for actual damages. 

The District Court, on analysis, may find that these ex

post rationales are not compelling. First, the TILA provisions

make plain that regardless of whether a signed HOEPA

acknowledgment is provided, strict liability is imposed on

lenders and on their assignees if the APR of a loan is materially

misstated in the TILA disclosure forms. 15 U.S.C. §§

1639(a)(2)(A), 1641(d). Second, although it may be true that the

one-year statute of limitations on affirmative TILA and HOEPA

claims has lapsed for an appreciable number of class members,

the relevant statutory period for claims of rescission is three

years, and no limitations period applies for defensive claims for

recoupment or setoff in a foreclosure action. Moreover,

Appellees themselves submit that approximately 14,000

members of the class have loans that have closed “within one

year of the date of filing of the relevant complaint,” see JA 1984.

Thus, it appears that one-third of the class may have affirmative

TILA and HOEPA claims that are not time barred.

Third, class counsel provide no persuasive support for the

proposition that TILA and HOEPA claims cannot be asserted as
47

part of a class action, or at the very least incorporated into the

negotiations of a settlement. Indeed, 15 U.S.C. § 1640(a)(2)(B)

explicitly contemplates the possibility of a class action suit. Id. 

Although the calculation of individual damages is necessarily an

individual inquiry, the courts have consistently held that the

necessity of this inquiry does not preclude class action treatment

where class issues predominate. See, e.g., In re Visa Check /

MasterMoney Antitrust Litig., 280 F.3d 124, 139 (2d Cir. 2001)

(“Common issues may predominate when liability can be

determined on a class-wide basis, even when there are some

individualized damage issues.”); Bertulli v. Indep. Ass’n of

Cont’l Pilots, 242 F.3d 290, 298 (5th Cir. 2001) (affirming

district court’s determination that common issues predominated

because “[a]lthough calculating damages will require some

individualized determinations, it appears that virtually every

issue prior to damages is a common issue”). This is especially

true where “the fact of injury and damage break down in what

may be characterized as virtually a mechanical task, capable of

mathematical or formula calculation. . . .” Windham v. Am.

Brands, Inc., 565 F.2d 59, 68 (4th Cir. 1977) (en banc) (internal

citations and quotations omitted). Whether an individual

borrower has a viable TILA or HOEPA claim may be

determinable by conducting simple arithmetic computations on

certain figures obtained from the face of each loan’s TILA

Disclosure Statement. 

Finally, class counsel’s argument that assessing actual

damages would be difficult in the class action context, because

several courts have held that detrimental reliance is an element

of establishing such damages under TILA, see, e.g., Turner v.

Beneficial Corp., 242 F.3d 1023, 1028 (11th Cir. 2001) (en

banc); Perrone v. Gen. Motors Acceptance Corp., 232 F.3d 433,

436-40 (5th Cir. 2000), is not persuasive. As stated above, it is

undisputed that TILA subjects creditors to strict liability for

claims of rescission. See, e.g., Schnall v. Amboy Nat’l Bank,

279 F.3d 205, 217 (3d Cir. 2002) (“This Court has squarely held

that reliance is not an element of a cause of action [for reasons]

under TILA.”); In re Porter, 961 F.2d 1066, 1078 (3d Cir. 1992)

(“TILA achieves its remedial goals by a system of strict liability

. . . .”). 
 The average age of the named parties’ loans at the time 23

the relevant complaint was filed was forty-nine and one-half

months. JA at 497.

48

Even if this court were to adopt the holdings of Turner

and Perrone in actual damages cases (an issue we need not

decide here), it does not necessarily follow that this “highly

individualized inquiry . . . likely would have precluded . . . class

certification” under Rule 23(b)(3). Appellees’ Br. at 31-32. The

existence of an individual inquiry does not preclude class action

treatment where all class members face the necessity of proving

the same fraudulent scheme. See, e.g., Amchem, 521 U.S. at

625 (stating that even though mass accident cases are likely to

present significant individual questions of liability and damages,

such cases “may, depending upon the circumstances, satisfy the

predominance requirement”). In re Sch. Asbestos Litig., 789

F.2d 996, 1010 (3d Cir. 1986). This is even more true in a

settlement-only class action, where the court certifying the class

need not examine issues of manageability. Amchem , 520 U.S.

at 620.

All of the above, of course, are issues to be considered by

the District Court in its independent analysis. Because we do not

have before us its analysis of the viability of the TILA and

HOEPA claims, we will not pretermit its decision. We merely

conclude that Appellants’ arguments merit more attention than

they were given by the District Court as reflected in the record.

If the Court determines that the TILA and HOEPA claims

are viable, there may be serious questions whether the named

plaintiffs’ interests are sufficiently aligned with those of absent

class members as required by Rule 23(a). The age of the named

plaintiffs’ loans when the relevant complaints were filed ranged

from twenty-eight months (in the case of Mathis) to fifty-six

months (in the case of Davis). JA at 497. Because the one-year 23

statutory period for filing an affirmative TILA or HOEPA claim

has lapsed for all named plaintiffs, the named plaintiffs appear to

have no incentive to maximize such claims for the approximately

14,000 class members who may still retain this valuable cause of
Class members who have loans less than one-year old are 24

given a higher settlement amount.

49

action. Furthermore, we also note that of the named plaintiffs,

only Mathis’ loan was made within the three-year period for

TILA rescission claims. Our concern that the value of potential

TILA and HOEPA rescission claims is not adequately

represented by the named plaintiffs is heightened by the fact that

the settlement only differentiates between class members who

have loans that are less than one-year old and class members

who have loans that are older than one year. See generally 24

G.M. Trucks, 55 F.3d at 801 (providing that intra-class conflict

can sometimes be discerned from “the very terms of the

settlement”). 

Although we recognize that “adequate representation of a

particular claim is determined by the alignment of interests of

class members, not proof of vigorous pursuit of the claim,” WalMart Stores, Inc. v. Visa U.S.A. Inc., 396 F.3d 96, 113 (2d Cir.

2005), we are not convinced based on the present record that the

named plaintiffs adequately represent the interests of the entire

class. At the very least, consideration should have been given to

the feasibility of dividing the class into sub-classes so that a

court examining the proposed settlement could have judged the

fairness of the settlement as it applied to similarly situated class

members. See G.M. Trucks, 55 F.3d at 801.

Our concern with class counsel’s representation extends

to their negotiation of the settlement. “Courts examining

settlement classes have emphasized the special need to assure

that class counsel: (1) possessed adequate experience; (2)

vigorously prosecuted the action; and (3) acted at arm’s length

from the defendant.” G.M. Trucks, 55 F.3d at 801. We find no

reason to doubt that class counsel are sufficiently experienced to

represent the class, but we are stymied in analyzing the second

and third prongs of the criteria. In G.M. Trucks, we stated that

these “points require attention in view of the lack of significant

discovery and the extremely expedited settlement of

questionable value accompanied by an enormous legal fee.” Id. 
50

Class counsel admitted during oral argument that no

formal discovery was conducted whatsoever—either in Kessler

or in any of the five consolidated actions. While Appellees

submit that formal discovery was not necessary because of the

sufficiency of “informal discovery obtained by Class Counsel

from witnesses and former employees,” Appellees’ Br. at 27,

“we are loathe to place . . . dispositive weight on the parties’

self-serving remarks.” G.M. Trucks, 55 F.3d at 804. Without

adequate exploration of the absent class members’ potential

claims, it is questionable whether class counsel could have

negotiated in their best interests. 

There is also some question whether the absent class

members’ interests were sufficiently pursued by class counsel. 

We have already noted that class counsel never asserted

colorable TILA and HOEPA claims. However, those claims

were part of the settlement release. Failure to pursue such

claims may suggest that class counsel subrogated their duty to

the class in favor of the enormous class-action fee offered by

defendants.

Finally, we cannot avoid consideration of the issue of

potential collusion. This court, as well as others, have

commented extensively on the collusive dangers inherent in a

settlement-only class action. See, e.g., G.M. Trucks, 594 F.2d at

1124; John C. Coffee, Jr., Class Wars: The Dilemma of the Mass

Tort Class Action, 95 Colum. L. Rev. 1343, 1370-73 (1995);

Samuel Issacharoff, Governance and Legitimacy in the Law of

Class Action, 1999 Sup. Ct. Rev. 337, 388 (1999). The United

States Court of Appeals for the Seventh Circuit has noted the

possibility that 

the settlement agreement is the product of a “reverse auction,”

the practice whereby the defendant in a series of class actions

picks the most ineffectual class lawyers to negotiate a

settlement within the hope that the district court will approve a

weak settlement that will preclude other claims against the

defendant. 

Reynolds v. Beneficial Nat’l Bank, 288 F.3d 277, 282-83 (7th
 We recognize that Evans v. Jeff D., 475 U.S. 717, 734-38 25

(1986), overruled Prandini’s strict rule prohibiting simultaneous

negotiations, but as stated in G.M. Trucks, “many of the concerns

that motivated the Prandini rule remain, and we see no reason why

Jeff D. or its underlying policy of avoiding rules that impede

settlement preclude us from considering the timing of fee

negotiations as a factor in our review of the adequacy of the class’s

representation.” 55 F.3d at 804. 

51

Cir. 2002); see also Blyden v. Mancusi, 186 F.3d 252, 270 n.9

(2d Cir. 1999). Yet another court of appeals has noted that in a

settlement-only action, class counsel “might urge a class

settlement at a low figure or on a less-than-optimal basis in

exchange for red-carpet treatment on fees.” Weinberger v. Great

N. Nekoosa Corp., 925 F.2d 518, 524 (1st Cir. 1991); see also

Mars Steel Corp. v. Con’l Ill. Nat’l Bank and Trust Co., 834

F.2d 677, 680-81 (7th Cir. 1987). 

As we recognized in Prandini v. Nat’l Tea Co., 557 F.2d

1015, 1021 (3d Cir. 1977), there exists a special danger of

collusiveness when the attorney fees, ostensibly stemming from

a separate agreement, were negotiated simultaneously with the

settlement. See also G.M. Trucks, 55 F.3d at 803; Court

Awarded Attorney Fees, Report of the Third Circuit Task Force,

108 F.R.D. 238, 266 (1985). Aside from class counsels’ own

assertions that fees were discussed after negotiations of the

settlement had concluded, JA at 1383 (Declaration of Carlson),

no other record evidence supports such an assertion. 

Furthermore, “even if counsel did not discuss fees until after

they reached a settlement agreement, [such a fact] would not

allay our concern since the Task Force recommended that fee

negotiations be postponed until the settlement was judicially

approved, not merely until the date the parties allege to have

reached an agreement.” G.M. Trucks, 55 F.3d 804. 

25

We emphasize, as we stated above, that we do not

preclude the possibility that the adequacy of class representation

can be established on a more developed record. The District

Court is instructed to examine carefully this matter on remand. 
52

ii. The Rule 23(b)(3) Criteria

To meet the requirements of Fed. R. Civ. P. 23(b)(3), the

District Court must find that “questions of law or fact common

to the members of the class predominate over any questions

affecting only individual members, and that a class action is

superior to other available methods for the fair and efficient

adjudication of the controversy.” The predominance inquiry

tests whether the proposed class is sufficiently cohesive to

warrant adjudication by representation. Amchem, 521 U.S. at

623-24. A proper predominance inquiry “trains on the legal or

factual questions that qualify each member’s case as a genuine

controversy, questions that preexist any settlement.” 521 U.S. at

623. In this vein, a predominance analysis “is similar to the

requirement of Rule 23(a)(3) that claims or defenses of the

named representatives must be ‘typical of the claims of defenses

of the class.’” Id. at 623 n.18 (quoting Diamond v. Charles, 476

U.S. 54, 76-77 (1986) (O’Connor, J., concurring in part and

concurring in judgment)). Just as the record below supports a

finding of typicality, it also supports a finding of predominance. 

All plaintiffs’ claims arise from the same alleged fraudulent

scheme. The presence of potential state law or federal claims

that were not asserted by the named plaintiffs does not defeat a

finding of predominance. See In re Sch. Asbestos Litig., 789

F.2d 996, 1010 (3d Cir. 1986) (affirming class certification

based on credible “showing, which apparently satisfied the

district court, that class certification [did] not present insuperable

obstacles” relating to variances in state law). 

The superiority requirement asks a district court “to

balance, in terms of fairness and efficiency, the merits of a class

action against those of ‘alternative available methods’ of

adjudication.” Georgine v. Amchem Prods., Inc., 83 F.3d 610,

632 (3d Cir. 1996), aff’d, 521 U.S. 591 (1997). Fed. R. Civ. P.

23(b)(3) instructs that the matters pertinent to this inquiry

include: 

(A) the interest of members of the class in individually

controlling the prosecution or defense of separate actions; (B)

the extent and nature of any litigation concerning the

controversy already commenced by or against members of the
53

class; (C) the desirability or undesirability of concentrating the

litigation of the claims in the particular forum; [and] (D) the

difficulties likely to be encountered in the management of a

class action.

Id. We find no reason, and Appellants fail to offer any, why a

Rule 23(b)(3) class action is not the superior means to adjudicate

this matter. 

The record before us reflects a small number of individual

suits against defendants arising from the Shumway scheme,

indicating a lack of interest in individual prosecution. In re

Prudential, 148 F.3d at 316. The presence of certain class

members with significant individual HOEPA claims may

counsel against a finding of superiority, but these individuals can

opt-out and pursue their claims individually. In re Warfarin

Sodium Antitrust Litig., 391 F.3d 516, 534 (3d Cir. 2004). If a

substantial number of such individuals remain in the class, the

use of subclasses may be appropriate. See generally In re

Prudential, 148 F.3d at 316 n.58. Finally, the fact that certain

class members may have separate claims resulting in

manageability problems does not change the result. “Confronted

with a request for settlement-only class certification, a district

court need not inquire whether the case, if tried, would present

intractable management problems . . . for the proposal is that

there be no trial.” Amchem, 521 U.S. at 620 (internal citations

and quotations omitted). 

iii. Summary of Rule 23 Analysis

We therefore conclude preliminarily based on the record

before us that all of the requirements of Fed. R. Civ. P. 23(a) can

be met with the exception of the adequacy of representation,

which requires additional analysis. On remand, the District

Court should pay particular attention to the prevalence of

colorable TILA, HOEPA, and other claims that the individual

class members may have which were not asserted by class

counsel in the consolidated complaint (or presumably in

settlement negotiations). Finally, if the District Court were to

find that class certification is appropriate, the Court should

determine whether subclasses are necessary or appropriate based
54

on the above findings.

B. The District Court’s Orders Invalidating Opt-Outs

Appellants challenge the District Court’s October 14,

2003 Order invalidating all solicitated opt-out requests, directing

the Settlement Administrator to mail curative notices to

members of the class who opted-out, and barring Appellant law

firms from communicating with members of the class unless

they first submitted their proposed communications to the Court

for approval. We review this Order for an abuse of discretion.

Gulf Oil Co. v. Bernard, 452 U.S. 89, 100 (1981).

Because the advantage of class action litigation comes at

the cost of binding absent class members through the res judicata

effect of litigation over which they lack control, the district

courts must closely monitor the notice process and take steps to

safeguard class members from “unauthorized [and] misleading

communications from the parties or their counsel.” Erhardt v.

Prudential Group, Inc., 629 F.2d 843, 846 (2d Cir. 1980). 

District courts have “both the duty and the broad authority to

exercise control over a class action and to enter appropriate

orders governing the conduct of counsel and parties.” Gulf Oil,

452 U.S. at 100. Rule 23(d) provides: “In the conduct of actions

to which this rule applied, the court may make appropriate

orders: . . . (3) imposing conditions on the representative parties

or on intervenors . . . [and] (5) dealing with similar procedural

matters.” Fed. R. Civ. P. 23(d). 

However, a remedy should be restricted to the minimum

necessary to correct the effects of improper conduct under Rule

23. Coles v. Marsh, 560 F.2d 186, 189 (3d Cir. 1977). The

Supreme Court made clear in Gulf Oil that:

[A]n order limiting communications between parties and

potential class members should be based on a clear

record and specific findings that reflect a weighing of

the need for a limitation and the potential interference

with the rights of the parties . . . . Only such a

determination can ensure that the court is furthering,

rather than hindering, the policies embodied in the
55

Federal Rules of Civil Procedure, especially Rule 23 . . .

. In addition, such a weighing -- identifying the

potential abuses being addressed -- should result in a

carefully drawn order that limits speech as little as

possible, consistent with the rights of the parties under

the circumstances.

452 U.S. at 101-102; see also Coles, 560 F.2d at 189 (“[T]o the

extent that the district court is empowered . . . to restrict certain

communications in order to prevent frustration of the policies of

Rule 23, it may not exercise the power without a specific record

showing by the moving party of the particular abuses by which it

is threatened. Moreover, the district court must find that the

showing provides a satisfactory basis for relief and that the relief

sought would be consistent with the policies of Rule 23 giving

explicit consideration to the narrowest possible relief which

would protect the respective parties.”).

The district court in Georgine v. Amchem Prods., Inc.,

160 F.R.D. 478 (E.D. Pa. 1995), faced a factual situation similar

to the one that faces us. Several law firms sent misleading

solicitations to members of the potential settlement class, urging

them to opt-out or to object to the fairness of a proposed

settlement. By the opt-out date, approximately 201,654

exclusion requests were filed. After extensive factual findings,

the court determined that the solicitations by outside counsel

contained misstatements, “likely confused and misled class

members, caused a high number of opt-outs, and therefore, had

an adverse effect on the administration of justice.” 160 F.R.D. at

498. The court’s fashioned remedy was to invalidate all opt-out

requests, provide curative notice to those who had opted-out, and

establish a second opt-out period. Id. at 502. It reasoned that

such action was justified under both the court’s authority to

govern class action proceedings under Fed. R. Civ. P. 23(d) and

the requirement that it ensure that all class members receive the

“best notice practicable” under Fed. R. Civ. P. 23(c). 

Similar action has been taken by other courts. See In re

Fed. Skywalk Cases, 97 F.R.D. 370, 374 (W.D. Mo. 1983);

Impervious Paint Indus., Inc. v. Ashland Oil, 508 F. Supp. 720,
 While it may be true that outside counsel play an 26

important role in helping absent class members evaluate the

decision of whether to opt-out of the settlement class, see, e.g., 

David F. Herr, Manual for Complex Litigation § 21.311 (4th ed.)

(providing in standard notice form that class members could either

retain their own lawyers or contact class counsel for advice); Fed.

R. Civ. P. 23(c)(2)(B) (stating that “[f]or any class certified under

Rule 23(b)(3), the court must direct to class member the best notice

practicable under the circumstances, including . . . notice . . . that

a class member may enter an appearance through counsel if the

member so desires”), it would be disingenuous to suggest that

outside counsel act solely from a desire to serve class members’

interests. Simply put, those law firms have a pecuniary interest in

soliciting opt-outs or objectors; the greater number of opt-outs or

objectors, the less likely the proposed settlement will survive, and

the more likely that the law firms will have the opportunity to bring

56

722 (D. Ky. 1981); see also David F. Herr, Manual for Complex

Litigation § 21.33 (4th ed.) (“Objectors to a class settlement or

their attorneys may not communicate misleading or inaccurate

statements to class members about the terms of a settlement to

induce them to file objections or to opt out. If improper

communications occur, curative action might be necessary, such

as extending deadlines for opting out . . . or voiding improperly

solicited opt outs and providing a new opportunity to opt out.”). 

The District Court in this case had similar authority over

the class action settlement process. Misleading communications

by soliciting counsel have a detrimental effect on the class notice

procedure and, therefore, on the fair administration of justice. 

See generally Greenfield v. Villager Indus., Inc., 483 F.2d 824,

831-32 (3d Cir. 1973) (stating that class action procedure “which

has a formidable, if not irretrievable, effect on substantive rights,

can comport with constitutional standards of due process only if

. . . the ‘best notice practicable under the circumstances

including individual notice. . . ’” is given); Impervious Paint

Ind., 508 F. Supp. at 723 (“It is essential that the class members’

decision to participate or to withdraw be made on the basis of

independent analysis of [their] own self-interest.”).26
their own suits in search of lucrative attorney fees. 

Appellees filed their joint motion with the District Court 27

on October 6, 2003. The Court granted the joint motion on October

14, 2003 (the day following the Columbus Day holiday).

 Because of the broad scope of the Order, some of the 28

Appellant law firms were precluded from communicating with

clients who had retained them before the first opt-out period and

57

However, the District Court never specified which

portions of the solicitation letters were objectionable. Gulf Oil,

452 U.S. at 102. It conducted no evidentiary hearing, set no

briefing schedule, and gave Appellants no practicable

opportunity to be heard. The October 14, 2003 Order provided 27

only that: “[f]or good cause, the Court invalidates and declares

void all solicited opt-outs by class members from Georgia,

Missouri, Illinois, Maryland, Florida and Alabama.” JA at 143. 

The District Court did not state what such “good cause” was. 

As noted earlier, the District Court simply used verbatim

the proposed Order provided by the settling parties. This ran

afoul of the Gulf Oil holding requiring specification and

articulated weighing of the relevant factors to ensure that the

chosen remedy be restricted to the minimum necessary to correct

the alleged misconduct. Because the District Court did not

follow the requirements of Gulf Oil, we cannot sustain the

portions of the October 14, 2003 Order invalidating the opt-outs

or the October 17, 2003 Order declining to revisit the earlier

Order. On remand, the District Court should reexamine the

solicitation letters, specify the misleading statements (if any)

makes specific findings of fact with respect thereto and, after

hearing from both class counsel and Appellants’ counsel, fashion

a new notice to the class members whose opt-outs were

cancelled, explaining the situation and giving them a new

opportunity to opt-out.

Furthermore, it is imperative that we comment on the

broad and sweeping nature of the District Court’s ban on

communications from Appellants’ counsel. As noted in Gulf 28
whom they represented in pending litigation. Also pertinent is the

fact that Legg submitted a proposed communication to the District

Court on October 16, 2003. The Court, apparently grouping it

together with the other Appellant law firms’ motions to reconsider,

denied it without discussion or reference in its October 17, 2003

Order. 

 Rule 23(c)(2)(B) states that: 29

For any class certified under Rule 23(b)(3), the court must

direct to class members the best notice practicable under the

circumstances. . . . The notice must concisely and clearly

state in plain, easily understood language . . . that a class

member may enter an appearance through counsel if the

member so desires [and] . . . that the court will exclude from

the class any member who requests exclusion, stating when

and how members may elect to be excluded.

58

Oil, such restrictions involve “serious restraints on expression”

and therefore, “at [a] minimum, counsels caution on the part of a

district court in drafting such an order, and attention to whether

the restraint is justified by a likelihood of serious abuses.” 452

U.S. at 104. Even in Georgine, where the district court made

detailed findings of misleading statements and particularly

disruptive behavior by outside counsel, the court’s imposed

remedy was merely the invalidation of the first set of opt-outs,

the establishment of a second opt-out period, and the mailing of

a curative notice. No communication restrictions were imposed,

and the court expressly rejected defendants’ request for an order

requiring future communications between outside counsel and

class members to include a statement disclosing the lawyers’

financial interest in convincing the class members to opt-out. 

160 F.R.D. at 517. Notwithstanding our comment in note 26,

supra, that the pecuniary interests of outside counsel warrant

special review of their communications to members of the class,

we do not suggest that a prior restraint on communications is at

all proper. Indeed, the “best notice” provision in Rule

23(c)(2)(B) affords class members the right to contact their 29

own attorneys to determine whether joining a proposed class-
59

wide settlement is in their best interests. Cf. Phillips Petroleum

Co. v. Shutts, 472 U.S. 797, 811 (1985).

Further, the District Court’s October 17, 2003 Order

which denied the Appellant law firms’ motion to reconsider the

October 14, 2003 Order stated: 

The letters mailed by each of the firms named in the October

14, 2003 Order of Court to plaintiff class members in this case

were direct solicitations for prospective clients whom they

knew to be represented by another lawyer. If there is not a rule

of professional conduct that prohibits such activity in the

jurisdictions where these lawyers practice, there should be. See

generally Georgine v. Amchem Products, 160 F.R.D. 478 [,

495 n.26] (E.D. Pa. 1995). . . .

JA at 145.

The district court in Georgine suggested, without holding,

that outside counsel who had communicated with class members

who were not their clients “may have violated their ethical duty

to refrain from communicating about the substance of the

settlement with class members represented by another lawyer.” 

160 F.R.D. at 495 n.26. However, courts have recognized that

class counsel do not possess a traditional attorney-client

relationship with absent class members. See Cobell v. Norton,

212 F.R.D. 14, 17 (D. D.C. 2002); cf. Greenfield, 483 F.2d at

832 (providing that class counsel has “fiduciary” relationship

with absent class members); In re Shell Oil Refinery, 152 F.R.D.

526, 528 (E.D. La. 1989) (stating that “constructive” attorneyclient relationship exists once opt-out period has closed). As

stated in In re McKesson HBOC, Inc. Sec. Litig., 126 F. Supp.

2d 1239 (N.D. Cal. 2000), 

While lead counsel owes a generalized duty to unnamed class

members, the existence of such a fiduciary duty does not create

an inviolate attorney-client relationship with each and every

member of the putative class. Taken to an extreme, lead

plaintiff’s logic suggests that putative class members are

forever walled off from any effort at solicitation, a proposition
To be sure, there is a distinction between the unilateral 30

action of a class member who seeks the advice of outside counsel,

often his or her prior counsel, and the unsolicited communications

from outside counsel designed to disrupt a proposed settlement. 

However, the Supreme Court, as well as this court, has commented

on the importance of ensuring that class members make an

informed decision whether to remain in a prospective class. See

generally Am. Pipe & Constr. Co. v. Utah, 414 U.S. 538, 549

(1974); In re Cendant Corp. Litig., 264 F.3d 201, 252 (3d Cir.

2001).

We also emphasize that we do not condone misleading

solicitation letters. We are not free to bar wholesale solicitation

letters in light of the Supreme Court’s decisions. See Fla. Bar v.

Went For It, Inc., 515 U.S. 618 (1995); Bates v. State Bar of Ariz.,

433 U.S. 350 (1977). However, if the District Court finds that all

or some of the letters sent in this case were materially misleading,

60

that seems unsupportable.

 

Id. at 1245; see also Morisky v. Pub. Serv. Elec. & Gas Co. 191

F.R.D. 419, 424 (D. N.J. 2000) (providing that class counsel

could not assert attorney-client privilege over questionnaires

completed by putative class members); 5 Alba Conte & Herbert

B. Newberg, Newberg on Class Actions § 15:16 (4th ed. 2002)

(stating that once opt-out period ends “[t]he attorneys for the

class have assumed fiduciary obligations or constructive

attorney-client status with respect to the class”).

We have already noted that Fed. R. Civ. P. 23(c)(2)(B)

explicitly provides “that a class member may enter an

appearance through counsel if the member so desires.” Indeed,

the original notice to the class informed class members that they

could “discuss [the proposed settlement] with your own attorney

or appear through your own attorney.” JA at 360 (emphasis

omitted). To accept the District Court’s determination that a

communication between outside counsel and an absent class

member would be a violation of an attorney’s ethical duty would

essentially eviscerate this right.30
it is free to so hold and, among other things, censure those

responsible.

61

C. The Motions to Intervene

Appellants contend that the District Court erred by

denying their motions to intervene as matter of right under Fed.

R. Civ. Pr. 24(a)(2) or, in the alternative, permissibly under Fed.

R. Civ. P. 24(b)(2). 2 Herbert B. Newberg, Newberg on Class

Actions § 11:56 (2d ed. 1985).

It is axiomatic that to intervene as a matter right under

Rule 24(a)(2) the prospective intervenor must establish that: “(1)

the application for intervention is timely; (2) the applicant has a

sufficient interest in the litigation; (3) the interest may be

affected or impaired, as a practical matter by the disposition of

the action; and (4) the interest is not adequately represented by

an existing party in the litigation.” Harris v. Pernsley, 820 F.2d

592, 596 (3d Cir. 1987). In the class action context, the second

and third prongs of the Rule 24(a)(2) inquiry are satisfied by the

very nature of Rule 23 representative litigation. Therefore, when

absent class members seek intervention as a matter of right, the

gravamen of a court’s analysis must be on the timeliness of the

motion to intervene and on the adequacy of representation. 

Timeliness of an intervention request “is determined by

the totality of the circumstances.” United States v. Alcan

Aluminum, Inc., 25 F.3d 1174, 1181 (3d Cir. 1994). Among the

factors to be considered are: (1) the stage of the proceeding; (2)

the prejudice that delay may cause the parties; and (3) the reason

for the delay. Mountain Top Condo. Ass’n v. Dave Stabbert

Master Builder, Inc., 72 F.3d 361, 369 (3d Cir. 1995). In the

present case, members of the nationwide class first learned of the

proposed settlement in early August 2003 when they received

the Notice of Class Action Settlement. Although silent on the

issue of intervention, the Notice provided that all opt-out

elections must be received by October 1, 2003. The time frame

in which a class member may file a motion to intervene

challenging the adequacy of class representation must be at least

as long as the time in which s/he may opt-out of the class. We
62

recognized in McKowan Lowe & Co. v. Jasmine, Ltd., 295 F.3d

380 (3d Cir. 2002), that:

Not until the existence and limits of the class have

been established and notice of membership has

been sent does a class member have any duty to

take note of the suit or to exercise any

responsibility with respect to it in order to profit

from the eventual outcome of the case.

295 F. 3d at 384 (internal citation and quotations omitted); cf.

Graham C. Lilly, Modeling Class Actions: The Representative

Suit as an Analytic Tool, 81 Neb. L. Rev. 1008, 1035 (2003). 

We therefore conclude that because Appellants’ motion to

intervene filed on October 1, 2003 was within the opt-out period,

it was presumptively timely. Although the District Court

concluded that granting the motion to intervene would “likely

delay the proceeding to the prejudice of the Class,” JA at 146,

this conclusion was unaccompanied by any reasoning or

discussion. The motion to intervene was filed six weeks before

the date scheduled for the fairness hearing and the District Court

did not explain why permitting intervention at that juncture of

the proceedings would have resulted in prejudice. 

In Virginia v. Westinghouse Elec. Corp., 542 F.2d 214

(4th Cir. 1976), the court stated that, “[w]hen the party seeking

intervention has the same ultimate objective as a party to the

suit, a presumption arises that its interests are adequately

represented . . . .” 542 F.2d at 216. To overcome the

presumption of adequate representation, the proposed intervenor

must ordinarily demonstrate adversity of interest, collusion, or

nonfeasance on the part of a party to the suit. See, e.g., Int’l

Tank Terminals, Ltd. v. M/V Acadia Forest, 579 F.2d 964, 967

(5th Cir. 1978). 

Unlike the situation of an ordinary class action where the

district court, as part of the class certification procedure, will

have undertaken an independent inquiry into the adequacy of the

named parties’ and class counsel’s representation, Fed. R. Civ.

P. 23(a)(4); Amchem, 521 U.S. at 626, in a settlement-only class
In light of our above decision to remand on the question 31

of intervention as a matter of right, we need not discuss the

alternative argument regarding permissive intervention.

63

action the district court will often merely “conditionally” certify

the class. Thus, when Appellants here filed their first motion to

intervene on October 1, 2003, the District Court was faced with

the issue of class counsel’s adequacy of representation and

possible collusion as matters of first impression. The October

21, 2003 Order denying intervention merely stated without any

accompanying reasoning that “the proposed

intervenors/objectors have not presented any evidence to support

their contention that the Settlement at issue is collusive or that

Class Counsel are inadequate . . . .” JA at 146. We are certainly

not in a position to characterize the settlement as collusive, but

for the reasons set forth above, the circumstances of the present

case require closer scrutiny by the District Court than it appears

to have given. Class counsel failed to assert, inter alia, what

appear to be facially viable TILA and HOEPA claims, conducted

no formal discovery, and negotiated an extremely generous fee. 

On remand the District Court should consider, based on a full

record, whether Appellants have met their burden of showing

collusion warranting granting of Appellants’ motion to

intervene.31

To be clear, we are in no way suggesting that absent class

members who merely express dissatisfaction with specific

aspects of the proposed settlement or that attorneys (who, after

finding one or more class members as clients, and wish to share

in the forthcoming fee), have the right to intervene. The goals of

Rule 23 would be seriously hampered if that were permitted. 

See Am. Pipe and Constr. Co. v. Utah, 414 U.S. 538, 551 (1974)

(stating that filing of individual motions to join or to intervene

was “precisely the multiplicity of activity which Rule 23 was

designed to avoid”); In re Prudential, 148 F.3d at 313. 

D. Appellants’ Request for Discovery

Appellant Walters challenges the District Court’s
64

November 10, 2003 Order limiting discovery as an abuse of

discretion. Specifically, this Order provided that “the Missouri

and Illinois Objectors, their attorneys, and any person acting on

their behalf may not issue any further discovery requests or

subpoenas” without prior approval of the Court; that Appellants

may not present testimony of any witness at the final fairness

hearing without prior approval of the Court; and that all prior

subpoenas purporting to require a witness or party to attend and

testify at the final fairness hearing were void. JA at 151.

We consider Walters’ challenge in light of our precedent

that holds objectors are “entitled to an opportunity to develop a

record in support of [their] contentions by means of cross

examination and argument to the court.” Greenfield v. Villager

Indus., Inc., 483 F.2d 824, 833 (3d Cir. 1973); see also Grimes v.

Vitalink Communications Corp., 17 F.3d 1553, 1558 (3d Cir.

1994) (“[T]he objecting class members must be given an

opportunity to address the court as to the reasons the proposed

settlement is unfair or inadequate.”); Fed. R. Civ. P. 23(c)(2)(B)

(“[A] class member may enter an appearance through counsel if

the member so desires.”). In Girsh v. Jepson, 521 F.2d 153 (3d

Cir. 1975), we reversed the district court’s final approval of a

class action settlement and remanded for clarification of the

record, noting, inter alia, that the “objector . . . was not afforded

an adequate opportunity to test by discovery the strengths and

weaknesses of the proposed settlement.” Id. at 157. Although

we found that the objector was “entitled to at least a reasonable

opportunity to discovery” against the plaintiffs and defendants,

that finding was predicated on the total inadequacy of the record

upon which the settlement was approved and the “totality of the

circumstances surrounding the settlement hearing” in which the

objector was denied meaningful participation. Id. We therefore

conclude that Girsh cannot stand for the proposition that, as a

general matter, objectors have an absolute right to discovery. 

See, e.g., In re Lorazepam & Clorazepate Antitrust Litig., 205

F.R.D. 24 (D. D.C. 2001).

On the other hand, we recognized that discovery may be

appropriate if lead counsel has not conducted adequate discovery

or if the discovery conducted by lead counsel is not made
65

available to objectors. See Girsh, 521 F.2d at 157; see also In re

Prudential, 148 F.3d at 325 (holding that district court acted

within its discretion by limiting discovery requests of objectors

because objectors had ample opportunity to avail themselves of

substantial discovery provided to lead counsel but failed to do

so). 

The District Court has discretion to “employ the

procedures that it perceives will best permit it to evaluate the

fairness of the settlement.” In re Prudential Ins. Co. of Am. Sales

Practices Litig., 962 F.Supp. 450, 563 (D. N.J. 1997), aff’d, 148

F.3d 283 (3d Cir. 1998); 2 Herbert B. Newberg, Newberg on

Class Actions § 11:56 (2d ed. 1985) (“The criteria relevant to the

court’s decision of whether or not to permit discovery are the

nature and amount of previous discovery, reasonable basis for

the evidentiary requests, and number and interests of

objectors.”).

In the present case, it is undisputed that no formal

discovery was undertaken by class counsel. However, Appellant

Walters has litigated, albeit unsuccessfully, two suits involving

the same fraudulent scheme in the state courts of Missouri. See

supra at Part I.D. It is likely that Walters has developed

sufficient facts regarding this matter and its prospective

settlement value such that it would be able to present a cogent

and supportable objection at the fairness hearing. See Bell Atl.

Corp. v. Bolger, 2 F.3d 1304, 1314-15 (3d Cir. 1993). 

Walters asserts that the District Court hampered its

attempts at seeking discovery related to a settlement in a related

case, Dundon v. FirstPlus Bank, No. 01-408-GPM (S.D. Ill.),

which would have demonstrated that the settlement in the

present case was inadequate. The settling parties contend that

although the Dundon suit was brought by two of the attorneys

who represent plaintiffs in the present case, the case is irrelevant

to the fairness of the present settlement because it involved

different parties, claims, and a different procedural posture. 

We are inclined to agree with the settling parties that the

District Court’s Order limiting discovery was not an abuse of
 Appellant Walters has filed a motion to supplement the 32

record, pursuant to Rule 10(e) of the Federal Rules of Appellate

Procedure, to include pleadings, legal memoranda, and testimony

from Dundon, and other proceedings wholly separate from the

present litigation. We will deny this motion. 

This court has made clear that the “[t]he only proper

function of a court of appeals is to review the decision below on

the basis of the record that was before the district court.” Fasset v.

Delta Kappa Epsilon, 807 F.2d 1150, 1165 (3d Cir. 1986); see also

Sewak v. Immigration & Naturalization Serv., 900 F.2d 667, 673

(3d Cir.1990) (“As an appellate court we do not take testimony,

hear evidence or determine disputed facts in the first instance.

Instead, we rely upon a record developed in those fora that do take

evidence and find facts.”). Although we have acknowledged that

in exceptional cases, the court may have inherent power to allow

a party to supplement the record on appeal, see In re Capital

Cities/ABC Inc.’s Application for Access to Sealed Transcripts,

913 F.2d 89, 97 (3d Cir. 1990) (listing number of factors court

should consider: “(1) whether the proffered addition would

establish beyond any doubt the proper resolution of the pending

issue; (2) whether remanding the case to the district court for

consideration of the additional material would be contrary to the

interests of justice and the efficient use of judicial resources; and

(3) whether the appeal arose in the context of a habeas corpus

action”), such circumstances are absent from the present case. 

66

discretion, but we are unable to conclusively so hold. The record

before us contains no details of the Dundon matter, aside from

the parties’ unsupported assertions. 

32

Finally, we note that the District Court’s November 10,

2003 Order was issued only four days prior to the fairness

hearing. The Order, albeit purporting to permit discovery

requests, in all practical respects barred discovery altogether

because those requests were to have been submitted first to the

Court for approval. On remand, the District Court is instructed

to develop fully the record and reevaluate whether an order

limiting discovery is appropriate in light of its duty to “employ
 The relevant complaint is Davis for the CBNV borrowers 33

and Ulrich for the GNBT borrowers.

 The “qualifying states” are: Colorado, Idaho, Illinois, 34

Indiana, Iowa, Kansas, Maine, Maryland, Missouri, New Jersey,

North Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina,

Tennessee, Utah, Washington, Wisconsin, and Wyoming. Virginia

is a “qualifying state” with respect to GNBT borrowers.

67

the procedures that it perceives will best permit it to evaluate the

fairness of the settlement.” In re Prudential, 962 F. Supp. at 563.

E. The Fairness of the Settlement

We restate for purposes of this section the terms of the

settlement, approved by the District Court in its December 4,

2003 Final Order Approving the Class Action Settlement. Under

the settlement, the defendants are to pay up to $33 million to the

44,535 member class, with awards to the class members ranging

from $250.00 to $925.00, contingent on when the loan closed,

and the borrower’s state of residence when the loan closed. The

first factor reflects the RESPA one-year statute of limitations;

class members who closed their loans within one year of the

earliest-filed relevant complaint are entitled to higher payments 33

than class members whose loans closed before that date. The

second factor provides higher payments to class members who

reside in one of twenty-one “qualifying states,” where class

counsel determined that class members theoretically could have

pursued state-law claims against defendants. The settlement 34

also would award approximately $ 8.1 million in fees to class

counsel, with defendants bearing the costs of settlement

administration. JA 322, 321. 

In exchange, participating class members were to release 

any and all claims against defendants which were, or could have

been, asserted in the litigation. These include potential TILA,

HOEPA, and various state law claims that were never pled in

any of the six original complaints or in the consolidated

complaint. 
 To support this contention, Appellant Nix has filed a 35

motion to supplement the record on appeal with two exhibits

consisting of a spreadsheet and graph depicting all Georgia loans

originated and recorded monthly by CBNV and GNBT during the

period from September 1, 1997 to July 31, 2004. For the reasons

given in note 30, supra, we will deny this motion.

68

Appellants urge us to find that the District Court abused

its discretion when it approved the settlement as fair, reasonable,

and adequate. See Girsh v. Jepson, 521 F.2d 153, 157 (3d Cir.

35

1975). Given our disposition of the various issues explored

above, we find it unnecessary and imprudent to address

definitively the substantive nature of the settlement. 

In Part III.A, we determined that the District Court failed

to certify properly the settlement-only class, as required by

Amchem, and we noted that the current record is inadequate to

support the District Court’s finding as to the adequacy of class

counsel’s representation of all members of the class. We remand

so that the District Court can make adequate findings under Rule

23(a) and (b)(3), supplementing the record if necessary. 

We further determined in Part III.B that the District

Court’s Order (which invalidated the first set of opt-outs,

directed curative notices, and restricted Appellant law firms’

communications with absent class members) ran afoul of the

Supreme Court’s holding in Gulf Oil. As a result, we directed

the District Court on remand to make specific factual findings

justifying the need for remedial action, which may include

invalidation of the first set of opt-outs. If a remedy is deemed

necessary, the District Court must carefully tailor the remedy to

Appellants’ specific misconduct. Significantly, the 435 class

members who will be given the opportunity to reinstate their

initial opt-out decisions comprise nearly 1% of the total class—a

figure nearly double the .5% trigger that would allow defendants

to rescind the settlement offer. Thus, a significant possibility

exists, on remand, that if class members choose to re-opt-out in

the same numbers, defendants may terminate the settlement offer

or materially alter its terms. 
 See, e.g., July 17, 2003 Order conditionally certifying the 36

class for settlement purposes; October 14, 2003 Order invalidating

class opt-outs and restricting communications between Appellant’s

and the class; November 10, 2003 Order quashing Appellant’s

request for discovery; December 4, 2003 Proposed Findings of Fact

and Conclusions of Law. 

69

We do feel obliged, however, to comment on the 

procedural posture surrounding the settlement proceedings. In

class actions, particularly settlement-only suits, the district court

has a duty “to protect the members of a class . . . from lawyers

for the class who may, in derogation of their professional and

fiduciary obligations, place their pecuniary self-interest ahead of

that of the class.” Reynolds v. Beneficial Nat’l Bank, 288 F.3d

277, 279 (7th Cir. 2002). We have gone so far as to deem the

district judge a “fiduciary” of the class. In re Cendant Corp.

Litig., 264 F.3d 201, 231 (3d Cir. 2001); see also Culver v. City

of Milwaukee, 277 F.3d 908, 915 (7th Cir. 2002); G.M. Trucks,

55 F.3d at 806 (providing that district courts have “heightened

duty to scrutinize [a] pre-certification settlement”); Grant v.

Bethlehem Steel Corp., 823 F.2d 20, 22 (2d Cir. 1987). We have

declined to explore whether the settlement is substantively fair

(for the reasons enunciated above), leaving that to the District

Court in the first instance, but there is little in the record to give

us confidence that the District Court exercised its fiduciary duty

to assure that the settlement process was procedurally fair.

We find very little, if any, evidence in the record that the

District Court gave the settlement and its unique characteristics

the careful and comprehensive scrutiny required under the

circumstances. First, virtually every order issued by the District

Court was a verbatim or near verbatim copy of a proposed order

offered by the settling parties. Particularly troubling are the 36

circumstances surrounding the District Court’s verbatim

adoption of the settling parties’ proposed Findings of Fact and

Conclusions of Law into the December 4, 2003 Final Order

Approving the Class Action Settlement. The District Court

entrusted class counsel to prepare these findings in an ex parte
70

closed door session held before the settlement hearing, when

counsel for Appellants were not present. The colloquy between

class counsel and the Court, block quoted in Part I, not only

reflects the District Court’s failure to inquire into any

substantive aspect of the settlement, but also suggests that the

fairness hearing was a mere formality. It suggests that the

District Court had pre-determined its approval of the settlement

before hearing the arguments of any of the five objectors.

Further, we find that the District Court’s own

Memorandum accompanying the December 4, 2003 Order

(among the few documents drafted by the Court itself), reflects

poorly on the Court’s familiarity with the facts and substantive

nature of the case before it. The first two sentences of the

Memorandum state that: “This is a complex commercial fraud

case. Plaintiffs, on behalf of themselves and all others similarly

situated, allege in their consolidated amended complaint that

defendants . . . acted in violation of . . . [HOEPA, RESPA, and

RICO] . . . , as well as related state laws.” JA at 174. Not only is

this consumer fraud case (not a commercial case), but more

importantly, the gravamen of the Appellants’ objections to the

fairness of the settlement, and an undisputed fact reflected in the

Consolidated Amended Complaint, see App at 637-711, is that

class counsel did not assert or seek remuneration for potentially

valuable HOEPA and TILA claims. This is the lynchpin of

Appellants’ arguments that class counsel was not adequately

representing the interests of absent class members. With this

misunderstanding of the case before it, it is difficult to ascertain

how the Court was able to fulfill its duty to scrutinize rigorously

the fairness of the settlement. See G.M. Trucks, 55 F.3d at 805

(“We affirm the need for courts to be even more scrupulous than

usual in approving settlements where no class has yet been

formally certified.”). 

F. The Petition for Mandamus

On May 10, 2005 Appellants filed a motion, pursuant to

28 U.S.C. § 2106, for reassignment to a different district court

judge, any matters remanded to the district court as part of the

relief awarded in the present appeal. Due to the nature of the

motion, it has been docketed and will be construed as a petition
71

for mandamus.

28 U.S.C. § 455 provides that:

(a) Any justice, judge, or magistrate of the United States

shall disqualify himself in any proceeding in which his

impartiality might reasonably be questioned.

(b) [The judge] shall also disqualify himself in the

following circumstances:

(1) Where he has a personal bias or prejudice

concerning a party, or personal knowledge of disputed

evidentiary facts concerning the proceedings. . . .

Id. 

Beliefs or opinions which merit recusal generally must

stem from an extrajudicial source. Liteky v. United States, 510

U.S. 540, 554 (1994). Because the focus is on the source of the

judge’s views and actions, “judicial rulings alone almost never

constitute a valid basis for bias or partiality motion.” Id. at 555

(citing United States v. Grinnell Corp., 384 U.S. 563, 583

(1966)). Similarly, “judicial remarks during the course of a trial

that are critical or disapproving of, or even hostile to, counsel,

the parties, or their cases, ordinarily do not support a bias or

partiality challenge.” Id.

Section 455(a) mandates an objective rather than a

subjective inquiry. See United States v. Bertoli, 40 F.3d 1384,

1412 (3d Cir. 1994) (“‘The judge does not have to be

subjectively biased or prejudiced, so long as he appears to be

so.’”) (quoting Liteky, 510 U.S. at 553 n.2); Alexander v.

Primerica Holdings, Inc., 10 F.3d 155, 162 (3d Cir. 1993)

(“‘[T]he public's confidence in the judiciary, which may be

irreparably harmed if a case is allowed to proceed before a judge

who appears to be tainted’, requires that ‘justice must satisfy the

appearance of justice.’”) (quoting In re Sch. Asbestos Litig., 977

F.2d 764, 776 (3d Cir. 1992)). Therefore, “if a ‘reasonable man,

were he to know all the circumstances, would harbor doubts

about the judge’s impartiality’ under the applicable standard,

then the judge must recuse.” United States v. Antar, 53 F.3d 568,
We note as well that the District Court was besieged by 37

opposing groups of lawyers who flooded it with numerous motions,

arguments, and counter-arguments, which undoubtedly made it

difficult for the Court to engage in the reflection needed to exercise

its fiduciary duty to assure that the settlement process was

procedurally fair. We have seen with dismay that some, if not

many, of the attorneys on both sides of what has become the class

action industry have, “in derogation of their professional and

fiduciary obligations, placed their pecuniary self-interest ahead of

that of the class.” Reynolds, 288 F.3d at 279. We believe it is the

responsibility of counsel, consistent with their obligations to their

clients, to assist the district courts in their difficult tasks of

managing often unwielding class actions by eliminating

unnecessary motions, exercising restraint in filing objections, and

treating opposing counsel with the civility that should characterize

attorney relations.

72

574 (3d Cir. 1995) (quoting In re Larson, 43 F.3d 410, 415 (8th

Cir. 1994)).

Appellants make no allegation that the District Court

derived its alleged bias from an extrajudicial source; rather all

incidents cited in Appellants’ motion refer to rulings or

statements made by the District Court during the course of the

proceedings. We find that, notwithstanding our ruling that the

District Court abused its discretion in various aspects of its

management of this class action, Appellants have not

demonstrated that the Court exercised “such a high degree of

favoritism or antagonism as to make fair judgment impossible.”

Liteky, 510 U.S. at 555. We will therefore deny Appellants’

petition for a writ of mandamus.37

IV. 

CONCLUSION

For the reasons set forth above, we will remand the case

to the District Court for further proceedings consistent with this

opinion.

___________________________
73