1995 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

4-17-1995

In Re: General Motors Corp.

Precedential or Non-Precedential:

Docket 94-1064

Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_1995

This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova

University School of Law Digital Repository. It has been accepted for inclusion in 1995 Decisions by an authorized administrator of Villanova

University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.

Recommended Citation

"In Re: General Motors Corp." (1995). 1995 Decisions. Paper 98.

http://digitalcommons.law.villanova.edu/thirdcircuit_1995/98

UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT 

_______________________ 

Nos. 94-1064, 94-1194, 94-1195 

94-1198, 94-1202, 94-1203, 94-1207 

94-1208 and 94-1219 

___________ 

IN RE: GENERAL MOTORS CORPORATION 

PICK-UP TRUCK FUEL TANK PRODUCTS 

LIABILITY LITIGATION 

Jack French, Robert M. West, Charles E. Merritt,

Gary Blades, Dawn and Tracey Best, Gary and 

Jackie Barnes, Betty Marteny, John and Mary

Southands, Edmund Berning, Dale W. Plummer, 

Edmund and Anneta Casey, John and Connie Yonki,

Carl and Kathryn Corona, Dallas and Patricia

Nelson, Mynard and Mildred Duncan, Kirby L.

Stegman, DeWayne Anderson, Morris and Barbara Betzold,

Appellants in No. 94-1064

Rudolph Jenkins, William D. Cunningham,

Mather Johnson, Forrest Charles Ginn,

Buren William Jones and Martin D. Parkman,

Appellants in No. 94-1194

(Civ. No. 92-cv-06450) 

_______________________________ 

Parish of Jefferson, 

Appellant in No. 94-1195 

 The State of New York

 Appellant in No. 94-1198

Elton Wilson, individually, and

Frank I. Owen, individually and on

behalf of the residents of the

State of Alabama

Appellants in No. 94-1202
 City of New York

 Appellant in No. 94-1203

 Betty Youngs, Barbara Phillips,

 Margaret Engel, Larry Swope,

 Robbin Maxwell and Center for

 Auto Safety

 Appellants in No. 94-1207

 Betty Youngs, Barbara Phillips,

 Margaret Engel, Larry Swope,

 Robbin Maxwell and Center for

 Auto Safety

 Appellants in No. 94-1208

 Commonwealth of Pennsylvania,

 Department of Transportation

 Appellant in No. 94-1219

 (Civ. No. MDL-961) 

 _________________________________________ 

On Appeal From the United States District Court 

For the Eastern District of Pennsylvania 

___________________________________ 

Argued: August 11, 1994 

Before: BECKER, ALITO, and GIBSON,*

Circuit Judges. 

(Filed April 17, 1995) 

 JAMES A. SCHINK, ESQUIRE (ARGUED) 

 J. ANDREW LANAGAN, ESQUIRE 

 ROBERT B. ELLIS, ESQUIRE 

 Kirkland & Ellis 

 200 East Randolph Drive 

 Chicago, Illinois 60601 

 GEORGE J. LAVIN, JR., ESQUIRE 

 FRANCIS P. BURNS, III, ESQUIRE 

 

*. Honorable John R. Gibson, United States Circuit Judge for the 

Eighth Circuit, sitting by designation. 
 Lavin, Coleman, Finarelli & Gray 

 12th Floor Penn Mutual Tower 

 510 Walnut Street 

 Philadelphia, PA 19106 

 LEE A. SCHUTZMAN, ESQUIRE 

 E.D.WARD C. WOLFE 

 General Motors Corporation 

 New Center One Building 

 3031 West Grand Blvd. 

 P.O. Box 33122 

 Detroit, Michigan 48232 

 Attorneys for General Motors

 Corporation, Appellee

 ANDREW M. HUTTON, ESQUIRE 

 DEREK S. CASEY, ESQUIRE 

 PAUL Benton WEEKS, III, ESQUIRE 

 Michaud, Hutton, Fisher & Anderson 

 8100 East 22nd Street North 

 Building 1200 

 Wichita, Kansas 67226-2312 

 Attorneys for Jack French, Robert M. 

 West, Charles E. Merritt, Gary Blades,

 Dawn Best, Tracey Best, Gary Barnes,

 Jackie Barnes, Betty Marteny, John

 Southards, Mary Southards, Edmund

 Berning, Dale W. Plummer, Edmund Casey,

 Anneta Casey, John Yonki, Connie Yonki,

 Carl Corona, Kathryn Corona, Dallas 

 Nelson, Patricia Nelson, Mynard Duncan,

 Mildred Duncan, Kirby L. Stegman,

 Dewayne Anderson, Morris Betzold,

 Barbara Betzold, Dennis Acuma,

 Appellants

 DIANE M. NAST, ESQUIRE (ARGUED) 

 WILLIAM E. HOESE, ESQUIRE 

 Kohn, Swift & Graf, P.C. 

 1101 Market Street, Suite 2400 

 Philadelphia, PA 19107-2927 

 ELIZABETH J. CABRASER, ESQUIRE (ARGUED) 

 MICHAEL F. RAM, ESQUIRE 

 Lieff, Cabraser & Heimann 

 275 Battery Street, 30th Floor 

 San Francisco, CA 94111-3339 
 Attorneys for Dennis Acuma,

 John E. Martin,

 Plaintiff Class/Appellees

 JOHN W. BARRETT, ESQUIRE 

 Barrett Law Offices 

 404 Court Square North 

 P.O. Box 631 

 Lexington, MS 39095 

 Attorney for John Mayhall, Brendan

 Hayes, Jimmy Benson, Jimmy Haddock,

 Dennis Nabors, Marcia Baldwin,

 Appellees

 WILLIAM S. LERACH, ESQUIRE 

 Milberg, Weiss, Bershad, Hynes 

 & Lerach 

 600 West Broadway 

 Suite 1800 

 San Diego, CA 92101 

 Attorneys for William A. Lewis,

 David Grubbs, Raymond Carver,

 Johnny S. Martinez, Robert A. Flowers,

 Stone Ridge Agri, Inc., James McKinnish,

 Douglas A. Livingston,

 Appellees

 RICHARD S. SCHIFFRIN, ESQUIRE 

 Schiffrin & Craig 

 Three Bala Plaza East 

 Suite 500 

 Bala Cynwyd, PA 19004 

 Attorneys for Johnny S. Martinez,

 Joseph St. Clair,

 Appellees

 PATRICIA J. CLANCY, ESQUIRE 

 Senior Deputy County Counsel 

 County of Santa Barbara 

 105 East Anapamu Street, Suite 201 

 Santa Barbara, CA 93101 
 Attorney for City of Los Angeles,

 Alameda City, Santa Barbara City,

 Utah City, Washington, City,

 Amicus-Appellee

 

 JAMES E. BUTLER, JR., ESQUIRE (ARGUED) 

 ROBERT D. CHEELEY, ESQUIRE 

 PETER J. DAUGHTERY 

 Butler, Wooten, Overby & Cheeley 

 1500 2nd Avenue 

 Columbus, GA 31902 

 Attorneys for Rudolph Jenkins,

 William D. Cunningham, Mather Johnson,

 Forrest Charles Ginn, Buren William 

 Jones, Martin D. Parkman, 

 HANS J. LILJEBERG, ESQUIRE 

 Jefferson Parish Attorney's Office 

 New Courthouse Building 

 Suite 527 

 Gretna, LA 70053 

 JERON J. LaFARGUE, ESQUIRE 

 Jefferson Parish Attorney's Office 

 1221 Elmwood Park Blvd. 

 Room 701 

 Harahan, LA 70123 

 Attorneys for Parish of Jefferson,

 Appellant

 G. OLIVER KOPPELL, ESQUIRE 

 Attorney General of the State 

 of New York 

 PETER H. SCHIFF, ESQUIRE 

 Deputy Solicitor General 

 NANCY A. SPIEGEL, ESQUIRE 

 Assistant Attorney General 

 ANDREA OSER, ESQUIRE 

 Assistant Attorney General 

 New York State Department of Law 

 The Capitol 

 Albany, NY 12224 
 Attorney for State of New York,

 Appellant

 MICHAEL J. EVANS, ESQUIRE 

 STEVEN D. KING, ESQUIRE 

 Longshore, Evans & Longshore 

 2001 Park Place 

 650 Park Place Tower 

 Birmingham, AL 35203 

 Attorneys for Elton Wilson, 

 individually, Frank I. Owen,

 individually and on behalf of the

 residents of the State of Alabama,

 Appellants

 JOHN HOGROGIAN, ESQUIRE 

 New York City Law Department 

 100 Church Street 

 New York, NY 10007 

 Attorney for City of New York,

 Appellant

 BRIAN S. WOLFMAN, ESQUIRE (ARGUED) 

 DAVID C. VLADECK, ESQUIRE 

 Public Citizen Litigation Group 

 2000 P Street, N.W., Suite 700 

 Washington, DC 20036 

 C. RAY GOLD, ESQUIRE 

 Center for Auto Safety 

 2001 S Street, NW 

 Washington, DC 20009 

 Attorneys for Betty Youngs, Barbara 

 Phillips, Margaret Engel, Larry Swope,

 Robbin Maxwell, Center for Auto Safety,

 Appellants

 STEPHEN F.J. MARTIN, ESQUIRE (ARGUED) 

 Assistant Counsel In-Charge 

 STEVEN I. ROTH, ESQUIRE 

 Assistant Counsel 

 ROBERT J. SHEA, ESQUIRE 

 Assistant Chief Counsel 
 JOHN L. HEATON, ESQUIRE 

 Chief Counsel 

 Office of Chief Counsel 

 Department of Transportation 

 521 Transportation & Safety Bldg. 

 Harrisburg, PA 17120 

 Attorneys for Commonwealth of 

 Pennsylvania, Appellant

 TABLE OF CONTENTS

I. FACTS, PROCEDURAL HISTORY, AND STANDARD OF REVIEW .................. 15 

 A. General Background.............................. 15 

 B. The Settlement Agreement........................ 18 

 C. Approval of the Settlement and Fees............. 20 

 D. The NHTSA Investigation......................... 23 

 E. Standard of Review.............................. 24 

II. ANATOMY OF THE CLASS CLAIMS ................................... 25 

III. RULE 23 - RELEVANT FUNDAMENTAL PRINCIPLES ...................... 27 

IV. SETTLEMENT CLASSES .......................................... 33 

 A. Nature of the Device............................ 33 

 B. Perceived Problems of Settlement Classes........ 35 

 C. Arguments Favoring Settlement Classes........... 44 

 D. Are Settlement Classes Cognizable Under 

Rule 23?....................................... 50 

 E. Are the Rule 23(a) and (b) Findings 

Required for Settlement Classes? Does 

Finding the Settlement to Be Fair and 

Reasonable Serve as a Surrogate for the 

Findings?...................................... 55 

 F. Can There be a Valid Settlement Class 

That Would Not Serve as a Valid 

Litigation Class?.............................. 64 

V. IS THE SETTLEMENT CLASS PROPER HERE? ............................ 69 

 A. Were There Adequate Findings Under Rule 

23(a)?......................................... 69 

 B. Could the Class Requisites Have Been Met 

On The Current Record?......................... 70 

 1. Numerosity, Commonality, and 

Typicality........................... 70 

 2. Adequacy of Representation................. 71 
 a. The Situation of the Fleet 

Owners........................ 71 

 b. Did Counsel Adequately 

Represent the 

 Interests of the Entire Class? 73 

VI. Is the Settlement Fair, Reasonable, and Adequate?........ 82 

 A. Adequacy of Settlement - General 

Principles..................................... 87 

 1. Valuation of the Settlement - 

Introduction......................... 88 

 a. Plaintiffs' Witness Dr. 

Itmar Simonsen................ 89 

 b. Inability of Class Members 

to Use Certificates........... 91 

 c. Value of the Transfer 

Option........................ 94 

 d. GM's Implicit Valuation of 

the Claim..................... 96 

 2. Valuing This Settlement Relative to 

The Relief Requested................. 98 

 a. The Retrofit Issue............... 99 

 b. Availability of Other 

Remedies......................100 

 B. Complexity of the Suit..........................102 

 C. Reaction of the Class...........................103 

 D. Stage of Proceedings............................106 

 E. Risks of Establishing Liability.................109 

 F. Risks of Establishing Damages...................113 

 G. Risks of Maintaining Class Status................116 

 H. Ability to Withstand Greater Judgment...........120 

 I. Summary.........................................120 

VII. APPROVAL OF THE ATTORNEYS' FEE AWARD...........................122 

VIII. OTHER ISSUES; CONCLUSION ...................................131 
 _____________________________ 

 OPINION OF THE COURT 

 _____________________________ 

BECKER, Circuit Judge. 

 This is an appeal from an order of the District Court 

for the Eastern District of Pennsylvania approving the settlement 

of a large class action following its certification of a socalled settlement class. Numerous objectors challenge the 

fairness and reasonableness of the settlement. The objectors 

also challenge: (1) the district court's failure to certify the 

class formally; (2) its denial of discovery concerning the 

settlement negotiations; (3) the adequacy of the notice as it 

pertained to the fee request; and (4) its approval of the 

attorneys' fee agreement between the defendants and the attorneys 

for the class, which the class notice did not fully disclose, 

thereby (allegedly) depriving the class of the practical 

opportunity to object to the proposed fee award at the fairness 

hearing. 

 The class members are purchasers, over a 15 year 

period, of mid- and full-sized General Motors pick-up trucks with 

model C, K, R, or V chassis, which, it was subsequently 

determined, may have had a design defect in their location of the 

fuel tank. Objectors claim that the side-saddle tanks rendered 

the trucks especially vulnerable to fuel fires in side 

collisions. Many of the class members are individual owners 
(i.e., own a single truck), while others are "fleet owners," who 

own a number of trucks. Many of the fleet owners are 

governmental agencies. As will become apparent, the negotiated 

settlement treats fleet owners quite differently from individual 

owners, a fact with serious implications for the fairness of the 

settlement and the adequacy of representation of the class. 

 While all the issues we have mentioned are significant 

(except for the discovery issue), the threshold and most 

important issue concerns the propriety and prerequisites of 

settlement classes. The settlement class device is not mentioned 

in the class action rule, Federal Rule of Civil Procedure 23.1 

 

1. Rule 23 provides, in pertinent part: 

 (a) Prerequisites to a Class Action. One or more members of 

a class may sue or be sued as representative parties on behalf of 

all only if (1) the class is so numerous that joinder of all 

members is impracticable, (2) there are questions of law or fact 

common to the class, (3) the claims or defenses of the 

representative parties are typical of the claims or defenses of 

the class, and (4) the representative parties will fairly and 

adequately protect the interests of the class. 

 (b) Class Actions Maintainable. An action may be maintained 

as a class action if the prerequisites of subdivision (a) are 

satisfied, and in addition: 

 (1) the prosecution of separate actions by or against 

individual members of the class would create a risk of 

 (A) inconsistent or varying adjudications with 

respect to individual members of the class which would establish 

incompatible standards of conduct for the party opposing the 

class, or 

 (B) adjudications with respect to individual members 

of the class which would as a practical matter be dispositive of 

the interests of the other members not parties to the 

adjudications or substantially impair or impede their ability to 

protect their interests; or 

 (2) the party opposing the class has acted or refused 

to act on grounds generally applicable to the class, thereby 
Rather it is a judicially crafted procedure. Usually, the 

request for a settlement class is presented to the court by both 

plaintiff(s) and defendant(s); having provisionally settled the 

case before seeking certification, the parties move for 

simultaneous class certification and settlement approval. Because 

this process is removed from the normal, adversarial, litigation 

mode, the class is certified for settlement purposes only, not 

for litigation. Sometimes, as here, the parties reach a 

settlement while the case is in litigation posture, only then 

moving the court, with the defendants' stipulation as to the 

(..continued) 

making appropriate final injunctive relief or corresponding 

declaratory relief with respect to the class as a whole; or 

 (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 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; (D) the 

difficulties likely to be encountered in the management of a 

class action. 

 (c) Determination by Order Whether Class Action to be 

Maintained; Notice; Judgment; Actions Conducted Partially as 

Class Actions.

 (1) As soon as practicable after the commencement of an 

action brought as a class action, the court shall determine by 

order whether it is to be so maintained. An order under this 

subdivision may be conditional, and may be altered or amended 

before the decision on the merits. . . . 

 (e) Dismissal or Compromise. A class action shall not be 

dismissed or compromised without the approval of the court, and 

notice of the proposed dismissal or compromise shall be given to 

all members of the class in such manner as the court directs. 
class's compliance with the Rule 23 requisites, for class 

certification and settlement approval. In any event, the court 

disseminates notice of the proposed settlement and fairness 

hearing at the same time it notifies class members of the 

pendency of class action determination. Only when the settlement 

is about to be finally approved does the court formally certify 

the class, thus binding the interests of its members by the 

settlement. 

 The first Manual for Complex Litigation [hereinafter 

MCL] strongly disapproved of settlement classes. Nevertheless, 

courts have increasingly used the device in recent years, and 

subsequent manuals (MCL 2d and MCL 3d (in draft)) have relented, 

endorsing settlement classes under carefully controlled 

circumstances, but continuing to warn of the potential for abuse. 

This increased use of settlement classes has proven extremely 

valuable for disposing of major and complex national and 

international class actions in a variety of substantive areas 

ranging from toxic torts (Agent Orange) and medical devices 

(Dalkon Shield, breast implant), to antitrust cases (the beef or 

cardboard container industries). But their use has not been 

problem free, provoking a barrage of criticism that the device is 

a vehicle for collusive settlements that primarily serve the 

interests of defendants -- by granting expansive protection from 

law suits -- and of plaintiffs' counsel -- by generating large 
fees gladly paid by defendants as a quid pro quo for finally 

disposing of many troublesome claims. 

 After reflection upon these concerns, we conclude that 

Rule 23 permits courts to achieve the significant benefits 

created by settlement classes so long as these courts abide by 

all of the fundaments of the Rule. Settlement classes must 

satisfy the Rule 23(a) requirements of numerosity, commonality, 

typicality, and adequacy of representation, as well as the 

relevant 23(b) requirements, usually (as in this case) the (b)(3) 

superiority and predominance standards. We also hold that 

settlement class status (on which settlement approval depends) 

should not be sustained unless the record establishes, by 

findings of the district judge, that the same requisites of the 

Rule are satisfied. Additionally, we hold that a finding that 

the settlement was fair and reasonable does not serve as a 

surrogate for the class findings, and also that there is no lower 

standard for the certification of settlement classes than there 

is for litigation classes. But so long as the four requirements 

of 23(a) and the appropriate requirement(s) of 23(b) are met, a 

court may legitimately certify the class under the Rule. 

 In this case the district judge made no Rule 23 

findings, and significant questions remain as to whether the 

class could have met the requisites of the rule had the district 

court applied them. Principally at issue is adequacy of 

representation. In particular, the objectors contend that there 
is a conflict between the positions of individual owners on the 

one hand and fleet owners on the other hand. The disparity in 

settlement benefits enjoyed by these different groups, objectors 

argue, creates an intra-class conflict that precludes the finding 

of adequacy of representation required by the rule. Moreover, 

they submit, the large number of different defenses available 

under the laws of the several states involved also creates a 

potentially serious commonality and typicality problem. 

 We conclude that the objectors' adequacy of 

representation claim probably has merit. At all events, the 

district court did not properly evaluate the differential impact 

of the settlement on individual fleet owners, and should 

determine on remand whether the conflicts among class members are 

so great as to preclude certification (or at least sufficient to 

require the creation of subclasses). The district court should 

also focus on the commonality and typicality problems, to 

determine whether the national scope of the class litigation and 

the plethora of defenses available in different jurisdictions 

prevent these requirements from being met. 

 For the reasons that follow at some length, we conclude 

that, although settlement classes are valid generally, this 

settlement class was not properly certified. We also conclude 

that the settlement is not fair and adequate; more precisely, we 

hold that the district court abused its discretion in determining 

that it was, primarily because the district court erred in 
accepting plaintiffs' unreasonably high estimate of the 

settlement's worth, in over-estimating the risk of maintaining 

class status and of establishing liability and damages, and in 

misinterpreting the reaction of the class. Finally, although our 

disposition of the foregoing issues makes it unnecessary for us 

to pass on the approval of the attorneys fees, we clarify the 

governing standards for these fee awards to guide the district 

court on remand. We therefore reverse the challenged order of 

the district court and remand for further proceedings. 

I. FACTS, PROCEDURAL HISTORY, AND STANDARD OF REVIEW

 A. General Background

 Between 1973 and 1987, General Motors sold over 6.3 

million C/K pickup trucks with side-mounted fuel tanks.2 In late 

October 1992, after the public announcement of previously 

undisclosed information regarding the safety of the fuel tank 

placement in GM pickups, consumer class action lawsuits were 

filed in several jurisdictions. The National Highway Traffic 

Safety Administration ("NHTSA") commenced an investigation of the 

alleged defects relating to side-impact fires on these trucks, 

and consumer advocacy groups sought a recall.3 

 On November 5, 1992, plaintiffs in one action sought to 

enjoin allegedly misleading communications to putative class 

 

2. The class includes both mid-and full-size trucks with 

chassis model types C, K, R, or V. 

3. See note 5 infra. 
members and filed an application for expedited discovery. On 

November 8 and 9, 1992, GM filed notices of removal of this and 

other state court actions, and a motion with the Judicial Panel 

on Multidistrict Litigation ("MDL Panel") to transfer and 

consolidate all actions for pretrial purposes under 28 U.S.C. 

§ 1407. The MDL Panel transferred all related actions to the 

District Court for the Eastern District of Pennsylvania on 

February 26, 1993. Ultimately, dozens of actions were filed in 

various courts throughout the United States on behalf of consumer 

classes; the federal cases were dismissed, remanded to state 

court, or transferred to the Eastern District of Pennsylvania. 

 On March 5, 1993, pursuant to an order of the 

(transferee) District Court, plaintiffs filed a Consolidated 

Amended Class Action Complaint seeking equitable relief and 

damages that consolidated all of the actions under the MDL 

caption and listed nearly 300 representative plaintiffs, 

including both individual and fleet owners. The Complaint 

alleged violations of two federal statutes; the Magnuson-Moss Act 

and the Lanham Trademark Act; a variety of common law and 

statutory claims, including negligence, fraud, breach of written 

and implied warranty; and violations of various state consumer 

statutes. The complaint sought, inter alia, an order remedying 

the alleged abnormally high incidence of fuel-fed fires following 

side-impact collisions by requiring GM to recall the trucks or 

pay for their repair. (JA 37, 93.) GM answered this complaint, 
denying all substantive allegations and raising numerous 

affirmative defenses. 

 Also on March 5, 1993, plaintiffs filed a consolidated 

motion for nationwide class certification. The court set July 

19, 1993, the hearing date on this motion. On March 30, 1993, GM 

moved to stay this litigation pending the outcome of the NHTSA 

investigation, initiated in December 1992. This motion was 

denied on June 4, 1993. Pursuant to a scheduling order issued by 

the court, discovery during the spring of 1993 focused on class 

certification issues. (JA1824-27.) During this discovery, GM 

produced more than 100,000 pages of documents from prior C/K 

pickup product liability lawsuits and GM's responses to NHTSA 

information requests. Plaintiffs also had access to the 

depositions and trial testimony in other cases involving the fuel 

tank design of C/K pickups, including the jury trial in Moseley 

v. GM, No. 90-V-6276 (Fulton County, Ga.). Plaintiffs consulted 

with their own experts to evaluate this information. In 

addition, depositions were taken of some GM personnel and certain 

named plaintiffs. Discovery on the merits of the case had been 

postponed until autumn 1993. Nothing in the record indicates 

that, as of the spring of 1993, counsel had identified expert 

witnesses for trial or deposed GM's engineering experts. 

 In the midst of these proceedings, the parties began 

exploring a possible settlement of the litigation. These 

discussions intensified in June 1993, at which time face-to-face 
and telephonic meetings, both between the parties and among 

plaintiffs' counsel, took place on virtually a daily basis. On 

July 19, 1993, the parties reached a settlement in principle, 

reduced the terms to writing, and informed the district court.4 

For purposes of settlement only and without prejudice to GM's 

substantial opposition to class certification, the named parties 

agreed to the certification of a settlement class of C/K pickup 

owners, described below. 

 B. The Settlement Agreement

 In general terms, the settlement agreement provides for 

members of the settlement class to receive $1,000 coupons 

redeemable toward the purchase of any new GMC Truck or Chevrolet 

light duty truck. Settlement certificates are transferable with 

the vehicle. They are redeemable by the then current owner of 

the 1973-86 C/K and 1987-91 R/V light duty pickup trucks or 

chassis cabs at any authorized Chevrolet or GMC Truck dealer for 

a fifteen month period. Settlement class members do not have to 

trade in their current vehicle to use the certificate, and the 

 

4. GM reached a substantially identical agreement with counsel 

representing a class of C/K pickup truck purchasers who are Texas 

residents in Dollar v. General Motors, No. 92-1089 (71st Judicial 

District, Marshall, Tex.)(JA1708, 1746). That settlement was 

approved in November 1993, but was overturned on appeal on June 

22, 1994. See Bloyed v. General Motors Corporation, Dollar et 

al., 881 S.W. 422 (6th App. Dist., Tex. June 22, 1994), discussed 

infra at VI(I). The Texas Supreme Court granted GM's Application 

for Writ of Error on February 16, 1995 and set the case for oral 

argument on March 21, 1995. 
certificates can be used in conjunction with GM and GMAC 

incentive programs. 

 The class members can freely transfer the certificate 

to an immediate family member who resides with the class member. 

Class members can also transfer the $1000 certificate to a family 

member who does not reside with the class member by designating 

the transferee family member within sixty days, running from the 

date that GM mailed notice of the proposed settlement. 

Additionally, the $1000 certificate can be transferred with the 

title to the settlement class vehicle, that is, to a third party 

who purchases the class member's vehicle. 

 In lieu of a $1,000 certificate, and without 

transferring title to the settlement class vehicle, a class 

member may instead request that a nontransferable $500 

certificate (counterintuitively known as the "transfer 

certificate") be issued to any third party except a GMC dealer or 

its affiliates. This $500 certificate is redeemable with the 

purchase of a new C or K series GMC or Chevrolet full-size pickup 

truck or its replacement model. The $500 certificate cannot be 

used in conjunction with any GMC or GMAC marketing incentive, 

must be used on the more expensive full size models, and is 

subject to the same fifteen-month redemption period as the $1,000 

certificates. The class member must make a notarized request to 

GM, and GM will mail the $500 certificate to the transferee 

within 14 days of its receipt of the request for transfer. 
 Under the terms of the agreement, the approval of the 

settlement and corresponding entry of final judgment would have 

no effect upon any accrued or future claims for personal injury 

or death, nor would it affect the rights of settlement class 

members to participate in any future remedial action that might 

be required under the National Traffic and Motor Safety Act of 

1966, 15 U.S.C. §§ 1381 et seq. (1995).5 (JA 1750, 1763-64.) 

 The settlement agreement before us also provides that 

plaintiffs' counsel would apply to the district court for an 

award of reasonable attorneys' fees and reimbursement of 

expenses, both to be paid by GM. GM reserved the right to object 

to any fees or expenses it deemed to be excessive and to appeal 

any amount awarded by the court over its objection. (JA 1750, 

1755-56.) Plaintiffs' counsel filed their fee applications on or 

about September 15, 1993; the fee applications remained in the 

files of the clerk of the district court where class members 

could theoretically review them, but no information about 

attorneys' fees other than the fact that a fee application would 

be made was included in the class notice. GM did not file any 

formal objections to the fee applications. 

 

5. After oral argument in this case, United States 

Transportation Secretary Federico Pena announced that NHTSA had 

settled the proceeding involving the C/K trucks at issue here 

without ordering a recall, finding an acceptable retrofit, or 

giving any compensation to the truck owners. The settlement 

provided that GM would contribute $51 million to general safety 

programs unrelated to the trucks' alleged problems. See

Statement by Secretary Federico Pena on Dec. 2, 1994, Settlement 

Regarding DOT Investigation of General Motors C/K Pickup Trucks. 
 C. Approval of the Settlement and Fees

 The district court reviewed the substantive terms of 

the settlement on July 12, 1993 and made the preliminary 

determination, in Pretrial Order No. 7, entered July 20, 1993, 

that the proposed settlement appeared reasonable. (JA 1828-33.) 

Also in pretrial order no. 7, the court "provisionally" certified 

the class of GM truck owners as a settlement class (i.e., for 

settlement purposes only) pursuant to Rule 23(b)(3); however, the 

court did not make findings that the requisites of Rule 23(a) or 

23(b) were satisfied. (JA 1828-33.) The court approved the form 

of and dissemination to putative class members of the combined 

notice of the pendency of the action and the proposed settlement 

pursuant to Rules 23(c)(2) and 23(e). The class definition 

included all persons and entities who purchased in the United 

States (except for residents of the State of Texas) and were 

owners as of July 19, 1993 of (1) a 1973-1986 model year General 

Motors full-size pickup truck or chassis cab of the "C" or "K" 

series; or (2) a 1987-1991 model year General Motors full-size 

pickup truck or chassis cab of the "R" or "V" series. (JA 1828.) 

On August 20 and 21, 1993, GM mailed the notice to all registered 

owners of class vehicles (including nearly 5.7 million vehicles), 

and it published the full text of the notice in USA Today and The 

Philadelphia Inquirer on August 27, 1993. 

 In response to the notice, over 5,200 truck owners 

elected to opt out of the class, and approximately 6,500 truck 
owners (a number which includes fleet owners who own as many as 

1,000 vehicles each) objected to the settlement. The objectors' 

filings contained many overlapping claims. The recurring 

contentions were that: (1) the settlement does nothing to fix 

the trucks (JA 1854,55,57); (2) even with the $1,000 coupon, many 

owners would be unable to purchase a new truck given their high 

cost (with list prices from $11,000 to $33,000); (3) state and 

local government fleet owners would not be able to redeem all of 

their certificates (by buying new vehicles) within the short 

redemption period (fifteen months), and they might be further 

restricted from using the coupons by competitive bidding 

procurement rules; and (4) GM and class counsel colluded in a 

manner that compromised the interests of the class and that would 

preclude a finding of adequate representation. GM rejoined with 

voluminous material emphasizing the substantial risks plaintiffs 

faced not only in maintaining class treatment but also in 

establishing liability and damages. 

 A settlement fairness hearing was held on October 26, 

1993 during which the objectors who submitted written briefs were 

permitted to speak. The district court approved the settlement 

in a Memorandum and Order dated December 16, 1993. In that 

order, the court confirmed its Pretrial Order No. 7, which had 

provisionally certified the settlement class. Although the court 

still made no findings that the requisites of Rules 23(a) and (b) 

were met, it did set forth findings of fact and conclusions of 
law to justify its approval of the settlement as fair, reasonable 

and adequate based on the nine-factor test established in Girsh 

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

 The court found that the total economic value of the 

settlement was "between $1.98 billion and $2.18 billion." (App. 

1727) Against the prospect of settlement, the court weighed each 

of the nine Girsh factors. It concluded that "the complexity, 

expense and likely duration of the litigation would be mammoth." 

(op. 6)(JA 1708, 1713) Although the settlement was reached at an 

early stage of the litigation, just four months after the 

consolidated complaint was filed, the court found that this did 

not weigh against the settlement because the court believed that 

the parties had access to "extensive discovery on the same issues 

of product defect that was previously conducted in the various 

personal injury actions that have been litigated throughout the 

country." (op. 8-9)(JA1715-16) The district court also found 

that the reaction of class members to the proposed settlement 

supported approval citing "the infinitesimal number of truck 

owners who have either objected to or sought exclusion from the 

settlement." (JA1715.) 

 Noting the divided results of the personal-injury jury 

trials and the numerous defenses GM could raise, the court found 

that "a substantial risk in establishing liability" weighed in 

favor of approval. Similarly, the court found that "[p]erhaps 

the greatest weakness in the plaintiffs' case is the lack of 
proof of economic damages." (JA1721.) The court also addressed 

the objection that the settlement did not provide for a recall or 

a "fix," explaining that "no objector that complains that the 

settlement fails to retrofit the alleged defect has been able to 

come forth with a practical and safe modification for the trucks 

that has been designed, evaluated and tested." (JA1736.) 

 On December 20, 1993, four days after approving the 

settlement, the district court also approved the class counsel's 

request for attorneys' fees in the amount of $9.5 million. 

Although the court did not believe at that time that it needed to 

review that fee award, to which GM had agreed, it subsequently, 

on February 2, 1994, issued an "amplified order" evaluating the 

award in greater detail. The court determined that the fee 

request was reasonable under both a lodestar analysis and the 

percentage-of-recovery method (see Part VII infra). (JA 1775.) 

 D. The NHTSA Investigation

 While this case was under submission to this court, the 

NHTSA investigation continued. Over the objections of some of 

NHTSA's engineers who had determined that the trucks complied 

with relevant safety standards, on October 17, 1994, Secretary of 

Transportation Federico Pena announced the agency's finding that 

the trucks contained a safety defect creating an increased and 

unreasonable risk of side-impact fires. The determination was 

based on the allegedly enhanced risk of side-impact fires 

relative to Ford pickups that resulted from GM's placement of the 
fuel tanks outside the frame rails. GM challenged the propriety 

of the public meeting NHTSA planned to hold and NHTSA's authority 

to order a recall of vehicles that met all relevant safety 

standards. On December 2, 1994, Secretary Pena announced the 

settlement of the C/K pickup investigation wherein GM contributed 

over $51 million for a variety of safety programs unrelated to 

the pickups, and admitted no liability.6

 E. Standard of Review

 Each of the issues presented here is reviewable for 

abuse of discretion. See Bryan v. Pittsburgh Plate Glass Co., 

494 F.2d 799 (3d Cir.), cert. denied, 419 U.S. 900 (1974) 

(approval of proposed class action settlement); In re School 

Asbestos Litig., 921 F.2d 1338, 1341 (3d Cir. 1990), cert. 

denied, 499 U.S. 976 (1991) (class certification); Lindy Bros. 

Builders, Inc. v. American Radiator & Standard Sanitary Corp., 

540 F.2d 102, 115 (3d Cir. 1976) (award of reasonable attorney's 

fees); Marrogquin-Manriquez v. INS, 699 F.2d 129, 134 (3d Cir. 

1983), cert. denied, 467 U.S. 1259 (1984) (scope of discovery). 

An appellate court may find an abuse of discretion where the 

"district court's decision rests upon a clearly erroneous finding 

of fact, an errant conclusion of law or an improper application 

of law to fact." International Union, UAW v. Mack Trucks, Inc., 

820 F.2d 91, 95 (3d Cir. 1987), cert. denied, 499 U.S. 921 

(1991). A finding of fact is clearly erroneous when, although 

 

6. See note 5 supra. 
there is evidence to support it, the reviewing court, based on 

the entire evidence, concludes with firm conviction that a 

mistake has been made. Oberti v. Board. of Ed. of Borough of 

Clementon Sch. Dist., 995 F.2d 1204, 1220 (3d Cir. 1993). 

II. ANATOMY OF THE CLASS CLAIMS

 The consolidated class complaint filed on behalf of the 

nationwide class of GM truck owners (except those from Texas) 

alleged violations of the Magnuson-Moss Warranty Act, 15 U.S.C.A. 

§ 2310(d)(1) (1995); and the Lanham Act, 15 U.S.C.A. § 1125(a) 

(1995); and a variety of state common law and statutory claims, 

including strict liability in tort for selling a dangerously 

defective product; negligent design; negligent misrepresentation; 

fraud (based on defendants' alleged course of conduct in the 

advertising, promotion, and sale of the GM pickups intentionally 

concealing material facts about a dangerous latent defect); 

breach of warranty, including written (from vehicle warranties), 

express (from public representations by GM), implied (warranties 

of merchantability) and statutory warranties; and finally 

violations of various state consumer protection statutes. (JA37). 

The case did not involve any pickup trucks that had actually 

experienced fuel tank fires caused by side-impact collisions. 

Moreover, personal injury or death claims were expressly omitted 

from the complaint as well as from the settlement -- class 

members remain free to pursue such claims if any should accrue. 
 The aggregated treatment of these claims was 

potentially complicated by the differences in underlying facts. 

The trucks at issue had nineteen different fuel tank systems; 

proof might thus be required for each design on relevant issues. 

Furthermore, unlike the federal securities laws where there is a 

presumption of reliance on a material misrepresentation, see

Basic v. Levinson, 108 S. Ct. 978 (1988), plaintiffs would likely 

have had to prove individual reliance on the allegedly misleading 

materials under the various state laws applicable to most of 

these claims. More fundamentally, the complaint itself invoked 

state laws that implicated different legal standards on, for 

example, the warranty claims (the laws contain various privity 

requirements or the need for an allegedly defective product to 

fail in service before a warranty claim can be sustained), 

negligent misrepresentation, negligence, and strict products 

liability. The state laws implicated by the filing of the 

nationwide class action also differed on such issues as statutes 

of limitations, whether pickup trucks are "consumer products;" 

the application of durational limits on implied warranties; the 

requirement of reliance to recover for fraud, misrepresentation, 

and warranty claims; whether intent is a required element of 

negligent misrepresentation claims; whether comparative fault is 

a defense; and the relevant test for plaintiffs' design defect 

claims. 

III. RULE 23 - RELEVANT FUNDAMENTAL PRINCIPLES
 Before turning to the precise questions at issue on 

this appeal, it is important that we consider the several basic 

purposes served by class actions in our contemporary, complex 

litigation-laden legal system. One of the paramount values in 

this system is efficiency. Class certification enables courts to 

treat common claims together, obviating the need for repeated 

adjudications of the same issues. See Vol. 1 HERBERT NEWBERG & ALBA 

CONTE, NEWBERG ON CLASS ACTIONS § 1.06 (Third Ed. 1992); General Tel. 

Co. v. Falcon, 457 U.S. 147, 149 (1982). 

 The Supreme Court has articulated other important 

objectives served by class actions. Class actions achieve "the 

protection of the defendant from inconsistent obligations, the 

protection of the interests of absentees, the provision of a 

convenient and economical means for disposing of similar 

lawsuits, and the facilitation of the spreading of litigation 

costs among numerous litigants with similar claims." United 

States Parole Comm'n v. Geraghty, 445 U.S. 388 pinpoint (1980). 

The Court has explained the significance of the last goal as 

 an evolutionary response to the existence of injuries 

unremedied by the regulatory action of government. 

Where it is not economically feasible to obtain relief 

within the traditional framework of a multiplicity of 

small individual suits for damages, aggrieved persons 

may be without any effective redress unless they may 

employ the class-action device. 

Deposit Guaranty National Bank v. Roper, 445 U.S. 326, 339 

(1980); see also Vol 1 NEWBERG & CONTE § 1.06 at 1-19. Cost 

spreading can also enhance the means for private attorney general 
enforcement and the resulting deterrence of wrongdoing. Id. § 

1.06 at 1-18 to 1-20. 

 The law favors settlement, particularly in class 

actions and other complex cases where substantial judicial 

resources can be conserved by avoiding formal litigation. See

NEWBERG & CONTE § 11.41 at 11-85 (citing cases); Cotton v. Hinton, 

559 F.2d 1326, 1331 (5th Cir. 1977); Van Brankhorst v. Safeco 

Corp., 529 F.2d 943, 950 (9th Cir. 1976). The parties may also 

gain significantly from avoiding the costs and risks of a lengthy 

and complex trial. See First Com. Corp. of Boston Customer Accts 

Litig., 119 F.R.D. 301, 306-07 (D. Mass. 1987). These economic 

gains multiply when settlement also avoids the costs of 

litigating class status -- often a complex litigation within 

itself. Furthermore, a settlement may represent the best method 

of distributing damage awards to injured plaintiffs, especially 

where litigation would delay and consume the available resources 

and where piecemeal settlement could result, in the Rule 

23(b)(1)(B) limited fund context, in a sub-optimal distribution 

of the damage awards. See, e.g., In re Dennis Greenman 

Securities Litig., 829 F.2d 1539, 1542 (11th Cir. 1987). 

 Thus, courts should favor the use of devices that tend 

to foster negotiated solutions to these actions. Prima facie, 

this would include settlement classes. True, it was once thought 

that mass tort actions were ordinarily not appropriate for class 

treatment, see Fed. R. Civ. P. 23 Advisory Committee's note, 
subdivision (b)(3), 39 F.R.D. 69, 103 (1966). It has also been 

argued that mass tort cases strain the boundaries of Rule 23. 

See Bruce H. Nielson, Was the 1966 Advisory Committee Right?: 

Suggested Revisions of Rule 23 to Allow More Frequent Use of 

Class Actions in Mass Tort Litigation, 25 HARV. J. LEGIS. 461 

(1988) (suggesting necessity of rule revisions to accommodate 

class action treatment of mass torts). However, the 

applicability of Rule 23 to mass tort cases has become 

commonplace, and the use of the class action device, specifically 

the (b)(3) class, has created some of the largest and most 

innovative settlements in these contexts. Prominent examples 

include the recent $4.2 billion settlement of the breast implant 

litigation. See In re Silicone Gel Breast Implant Prods. 

Liability Litig., 1994 WL 578353 (N.D. Ala. 1994). 

 Despite the potential benefits of class actions, there 

remains an overarching concern -- that absentees' interests are 

being resolved and quite possibly bound by the operation of res 

judicata even though most of the plaintiffs are not the real 

parties to the suit. The protection of the absentees' due 

process rights depends in part on the extent the named plaintiffs 

are adequately interested to monitor the attorneys (who are, of 

course, presumed motivated to achieve maximum results by the 

prospect of substantial fees), and also on the extent that the 

class representatives have interests that are sufficiently 

aligned with the absentees to assure that the monitoring serves 
the interests of the class as a whole. In addition, the court 

plays the important role of protector of the absentees' 

interests, in a sort of fiduciary capacity, by approving 

appropriate representative plaintiffs and class counsel. 

 Another problem is that class actions create the 

opportunity for a kind of legalized blackmail: a greedy and 

unscrupulous plaintiff might use the threat of a large class 

action, which can be costly to the defendant, to extract a 

settlement far in excess of the individual claims' actual worth. 

Because absentees are not parties to the action in any real 

sense, and probably would not have brought their claims 

individually, see Mars Steel v. Continental Illinois National 

Bank & Trust, 834 F.2d 677, 678 (7th Cir. 1987), attorneys or 

plaintiffs can abuse the suit nominally brought in the absentees' 

names. As one court has noted, "[t]his fundamental departure 

from the traditional pattern in Anglo-American litigation 

generates a host of problems . . . ." Id.

 The drafters designed the procedural requirements of 

Rule 23, especially the requisites of subsection (a), so that the 

court can assure, to the greatest extent possible, that the 

actions are prosecuted on behalf of the actual class members in a 

way that makes it fair to bind their interests. The rule thus 

represents a measured response to the issues of how the due 

process rights of absentee interests can be protected and how 

absentees' represented status can be reconciled with a litigation 
system premised on traditional bipolar litigation. Moreover, the 

requirement in Rule 23(c) that the court decide certification 

motions "as soon as practicable," see note 1 supra, aims to 

reduce even further the possibility that a party could use the 

ill-founded threat of a class action to control negotiations or 

the possibility that absentees' interests could be unfairly 

bound. Hence, the procedural formalities of certification are 

important even if the case appears to be headed for settlement 

rather than litigation. 

 This expanded role of the court in class actions 

(relative to conventional bipolar litigation) continues even 

after certification. While the parties in a normal suit do not 

ordinarily require a judge's approval to settle the action, class 

action parties do. Rule 23(e) provides: "A class action shall 

not be dismissed or compromised without the approval of the 

court, and notice of the proposed dismissal or compromise shall 

be given to all members of the class in such manner as the court 

directs." FED. R. CIV. P. 23(E). Courts and commentators have 

interpreted this rule to require courts to "independently and 

objectively analyze the evidence and circumstances before it in 

order to determine whether the settlement is in the best interest 

of those whose claims will be extinguished." 2 NEWBERG & CONTE § 

11.41 at 11-88 to 11-89. "Under Rule 23(e) the district court 

acts as a fiduciary who must serve as a guardian of the rights of 

absent class members. . . . [T]he court cannot accept a 
settlement that the proponents have not shown to be fair, 

reasonable and adequate." Grunin v. International House of 

Pancakes, 513 F.2d 114, 123 (8th Cir.) cert. denied, 423 U.S. 864 

(1975); Malchman v. Davis, 706 F.2d 426, 433 (2d Cir. 1983); Sala 

v. National RR Passenger Corp., 721 F. Supp. 80 (E.D. Pa. 1989); 

see also Piambino v. Bailey, 610 F.2d 1306 (5th Cir.), cert 

denied, 449 U.S. 1011 (1980). 

 Before sending notice of the settlement to the class, 

the court will usually approve the settlement preliminarily. 

This preliminary determination establishes an initial presumption 

of fairness when the court finds that: (1) the negotiations 

occurred at arm's length; (2) there was sufficient discovery; (3) 

the proponents of the settlement are experienced in similar 

litigation; and (4) only a small fraction of the class objected. 

See 2 NEWBERG & CONTE § 11.41 at 11-91. 

 As noted above, this court has adopted a nine-factor 

test to help district courts structure their final decisions to 

approve settlements as fair, reasonable, and adequate as required 

by Rule 23(e). See Girsh v. Jepson, 521 F.2d 153, 157 (3d Cir. 

1975). Those factors are: (1) the complexity and duration of 

the litigation; (2) the reaction of the class to the settlement; 

(3) the stage of the proceedings; (4) the risks of establishing 

liability; (5) the risks of establishing damages; (6) the risks 

of maintaining a class action; (7) the ability of the defendants 

to withstand a greater judgment; (8) the range of reasonableness 
of the settlement in light of the best recovery; and (9) the 

range of reasonableness of the settlement in light of all the 

attendant risks of litigation. Id. The proponents of the 

settlement bear the burden of proving that these factors weigh in 

favor of approval. See GM Interchange, 594 F.2d 1106, 1126 n.30 

7th Cir. 1979); Holden v. Burlington Northern, Inc., 665 F. Supp. 

1398, 1407 (D. Minn. 1987); MCL 2d §30.44. The findings required 

by the Girsh test are factual, see Malchman v. Davis, 706 F.2d at 

434; Plummer v. Chemical Bank, 668 F.2d 564, 659 (2d Cir. 1982), 

which will be upheld unless they are clearly erroneous, 

Weinberger v. Kendrick, 698 F.2d 61, 73 (2d Cir. 1982), cert. 

denied, 464 U.S. 818 (1983); In re Corrugated Container Antitrust 

Litig., 643 F.2d 195, 207 (5th Cir. 1981). 

IV. SETTLEMENT CLASSES

 This appeal challenges (among other things) the 

district court's class certification order. Before we may 

address the propriety of the court's order we must first decide 

whether it is ever proper to certify a class for settlement 

purposes only. We therefore begin our analysis with a closer 

look at how settlement classes operate. 

 A. Nature of the Device

 As we have explained above, a settlement class is a 

device whereby the court postpones the formal certification 

procedure until the parties have successfully negotiated a 

settlement, thus allowing a defendant to explore settlement 
without conceding any of its arguments against certification. 

Despite the directive of Rule 23(c) that courts certify actions 

as soon as practicable, when a class action has been filed before 

the settlement has been arrived at courts will often delay the 

certification determination during the pendency of settlement 

discussions. If the settlement negotiations succeed, courts will 

certify the class for settlement purposes only and send a 

combined notice of class pendency and settlements to the class 

members. Thus, by the time the court considers certification, 

the defendant has essentially stipulated to the existence of the 

class requirements since it now has an interest in binding an 

entire class with its proffered settlement. 

 By specifying certification for settlement purposes 

only, however, the court preserves the defendant's ability to 

contest certification should the settlement fall apart. Because 

the court indulges the assumption of the class's existence only 

until a settlement is reached or the parties abandon the 

negotiations, settlement classes are also sometimes referred to 

as temporary or provisional classes. Sometimes the specification 

may also be seen as assuming that the class may only meet the 

requirements of Rule 23 if the action is settled, and that 

certification may in fact be inappropriate if the action will 

actually be litigated. In any event, notwithstanding that there 

is an absence of clear textual authorization for settlement 

classes, many courts have indulged the stipulations of parties by 
establishing temporary classes for settlement purposes only. 

See, e.g., Mars Steel v. Continental Illinois Nat'l Bk. & Trust, 

834 F.2d 677 (7th Cir. 1987); Weinberger v. Kendrick, 698 F.2d 61 

(2d Cir. 1982), cert. denied, 464 U.S. 818 (1983); In re A.H. 

Robins Co., 880 F.2d 709, 738-39 (4th Cir. 1989); In re Dennis 

Greeman Sec. Litig., 829 F.2d 1539, 1543 (11th Cir. 1978); 

Plummer v. Chemical Bank, 668 F.2d 564 (2d Cir. 1982); In re Beef 

Industry Antitrust Litig., 607 F.2d 167, 173 (5th Cir. 1979); 

Malchman v. Davis, 706 F.2d 427, 433-34 (2d Cir. 1983); In re 

Taxable Mun. Bond Sec. Litig., 1994 WL 643142 (E.D. La. Nov. 15, 

1994); In re Silicone Gel Breast Implant Prod. Liab. Litig., 1994 

WL 578353 (N.D. Ala. Sept. 1, 1994); In re First Commodity Corp. 

of Boston, 119 F.R.D. 301, 306-08 (D. Mass. 1987); In re 

Bendectin, 102 F.R.D. 239, 240 (S.D. Oh. 1984), rev'd on other 

grounds, 749 F.2d 300 (6th Cir. 1984); In re Mid-Atlantic Toyota 

Anti-trust Litig., 564 F.Supp. 1379, 1388-90 (D. Md. 1983); In re 

Chicken Antitrust Litig., 560 F.Supp. 957, 960 (N.D. Ga. 1980). 

 There has been a great deal of commentary, both 

critical7 and laudatory,8 of the use of these "settlement 

classes." And some courts have criticized these accommodations 

 

7. See, e.g., John C. Coffee, Jr., The Corruption of the Class 

Action, WALL ST. J. Sept. 7, 1994, at A15. 

8. 2 Newberg & Conte § 11.27 (First) § 1.46; Roger H. Transgrud, 

Joinder Alternatives in Mass Tort Litigation, 70 CORNELL L. REV. 

779 (1985); Bruce H. Nielson, Was the 1966 Advisory Committee 

Right?: Suggested Revisions of Rule 23 to Allow More Frequent 

Use of Class Actions in Mass Tort Litigation, 25 HARV. J. LEGIS. 

461, 480 
of the negotiating parties and expressed their ambivalence while 

continuing nonetheless to use them. See, e.g., Mars Steel, 834 

F.2d 677 (7th Cir. 1987) (describing considerable dangers of 

settlement classes but ultimately upholding the settlement). 

Before we interpret the dictates of Rule 23 with respect to 

settlement classes, it will be useful to survey both the 

criticism and the praise. 

 B. Perceived Problems of Settlement Classes

 A number of commentators, particularly the authors of 

the first edition of the Manual for Complex Litigation, have 

voiced serious concerns about settlement classes. These 

criticisms have focused on the fact that Rule 23, a carefully 

constructed scheme intended to protect the rights of absentees 

that necessarily relies on active judicial participation to 

protect those interests, does not authorize a separate category 

of class certification that would permit a dilution of or 

dispense with the subsection (a) criteria. § 1.46; see also Mars 

Steel v. Continental Ill. Nat'l Bank & Trust, 834 F.2d 677, 680 

(7th Cir. 1987); In re Baldwin United, 105 F.R.D. 475 (S.D.N.Y. 

1984). Other criticisms focus on the potential prejudice to the 

parties and the institutional threat posed to the court. See, 

e.g., Coffee, supra note 10. 

 Rule 23 does not in terms authorize the deferral of 

class certification pending settlement discussions. Indeed, 

Rule 23(c) provides: "As soon as practicable after the 
commencement of an action brought as a class action, the court 

shall determine by order whether it is to be so maintained." 

Fed. R. Civ. P. 23(a) (emphasis supplied). Deliberately delaying 

a class certification determination so that settlement 

discussions can proceed clearly does not represent an effort to 

resolve the issue "as soon as practicable." As Judge Posner has 

noted, "[i]t is hard to see why the propriety of maintaining the 

suit as a class action could not 'practicably' have been 

determined much earlier. And, common though the practice of 

deferring class certification while settlement negotiations are 

going on is, it not only jostles uneasily with the language of 

Rule 23(c)(1) but also creates practical problems." Mars Steel, 

834 F.2d at 680. 

 The danger here is that the court cannot properly 

discharge its duty to protect the interests of the absentees 

during the disposition of the action. Because the class has not 

yet been defined, the court lacks the information necessary to 

determine the identity of the absentees and the likely extent of 

liability, damages, and expenses of preparing for trial. See MCL 

2d § 30.45 at 243 ("No one may know how many members are in the 

class, how large their potential claims are, what the strengths 

and weaknesses of the parties' positions are, or how much the 

class will benefit under the settlement."); In re Baldwin United, 

105 F.R.D. 475, 481 (S.D.N.Y. 1984). Moreover, the court 

performs its role as supervisor/protector without the benefit of 
a full adversarial briefing on the certification issues. With 

less information about the class, the judge cannot as effectively 

monitor for collusion, individual settlements, buy-offs (where 

some individuals use the class action device to benefit 

themselves at the expense of absentees), and other abuses. See

In re Beef Indus. Antitrust Litig., 607 F.2d at 174. For 

example, if the court fails to define the class before settlement 

negotiations commence, then during the settlement approval phase 

the judge will have greater difficulty detecting if the parties 

improperly manipulated the scope of the class in order to buy the 

defendant's acquiescence. 

 Settlement classes also make it more difficult for a 

court to evaluate the settlement by depriving the judge of the 

customary structural devices of Rule 23 and the presumptions of 

propriety that they generate. Ordinarily, a court relies on 

class status, particularly the adequacy of representation 

required to maintain it, to infer that the settlement was the 

product of arm's length negotiations. Cf. Weinberger v. 

Kendrick, 698 F.2d 61, 74 (2d Cir. 1983) (noting protracted 

nature of negotiations in approving settlement); City of Detroit 

v. Grinnell, 495 F.2d 448, 463 (2d Cir. 1974) (same); In re 

Baldwin-United, 105 F.R.D. 475, 482 (S.D.N.Y. 1984) (same). 

Where the court has not yet certified a class or named its 

representative or counsel, this assumption is questionable. 
 In effect, settlement classes can, depending how they 

are used, evade the processes intended to protect the rights of 

absentees. Indeed, the draft of the MCL (Third), although 

considerably more receptive to settlement classes than the 

earlier editions of the Manual, explains that "[t]he problem 

presented by these requests is not the lack of sufficient 

information and scrutiny, but rather the possibility that 

fiduciary responsibilities of class counsel or class 

representatives may have been compromised." MCL (Third) (draft) 

at 193. Even some courts successfully using these devices to 

achieve settlements apparently recognize these dangers since they 

certify these actions more cautiously than ordinary classes. 

See, e.g., Ace Heating & Plumbing Co. v. Crane Co., 453 F.2d 30, 

33 (3d Cir. 1971) (court must be doubly careful where negotiation 

occurs before certification and designation of a class counsel); 

In re Beef Antitrust Litig., 607 F.2d 167, 176-77 (5th Cir. 1979) 

(examining though ultimately rejecting the charge that collusion 

precluded the certification of the settlement class); Simer v. 

Rios, 661 F.2d 655, 664-66 (7th Cir. 1981) (requiring a higher 

showing of fairness where settlement negotiated prior to 

certification); Weinberger v. Kendrick, 698 F.2d 61, 69 (2d Cir. 

1982) (judge made findings about discovery and counsel). 

 In particular, settlement classes create especially 

lucrative opportunities for putative class attorneys to generate 

fees for themselves without any effective monitoring by class 
members who have not yet been apprised of the pendency of the 

action. Moreover, because the court does not appoint a class 

counsel until the case is certified, attorneys jockeying for 

position might attempt to cut a deal with the defendants by 

underselling the plaintiffs' claims relative to other attorneys.9 

Unauthorized settlement negotiations occurring before the 

certification determination thus "create the possibility of 

negotiation from a position of weakness by the attorney who 

purports to represent the class." GM Interchange Litigation, 594 

F.2d 1106, 1125 (7th Cir. 1979). Pre-certification negotiations 

also hamper a court's ability to review the true value of the 

settlement or the legal services after the fact. See supra at 

36. In addition, unauthorized negotiations also result in denying 

other plaintiffs' counsel information that is necessary for them 

to make an effective evaluation of the fairness of any settlement 

that results. See GM Interchange, 594 F.2d at 1125. 

 Framed as an issue of Rule 23(a) requisites, these 

considerations implicate adequacy of representation concerns: 

"[a]rguments in opposition to settlement classes have merit when 

they are addressed to the problem of inadequate representation or 

possible collusion among the named plaintiffs and some or all 

defendants." In re Baldwin-United Corp., 105 F.R.D. 475, 480 

 

9. These sorts of dynamics have led some critics to accuse class 

action attorneys of ethical violations. While we emphasize that 

counsel here committed no such violations, we do not preclude the 

possibility that these violations could occur. 
(S.D.N.Y. 1984). Another court has warned that the "danger of a 

premature, even a collusive, settlement [is] increased when as in 

this case the status of the action as a class action is not 

determined until a settlement has been negotiated, with all the 

momentum that a settlement agreement generates . . . ."; Mars 

Steel, 834 F.2d at 680; see also Malchman, 706 F.2d at 433 

(recognizing special potential for collusion or undue pressure by 

defendants in settlement negotiations); Weinberger, 698 F.2d at 

73 (requiring a higher showing of fairness to accommodate greater 

potential for improper settlement). Settlement classes, which 

constitute ad hoc adjustments to the carefully designed class 

action framework constructed by Rule 23, lack the regulatory 

mechanisms that ordinarily check this improper behavior: "There 

is in fact little or no individual client consultation and no 

judicial oversight of a hidden process of wheeling and dealing to 

maximize overall recovery and fees for hundreds and thousands of 

massed cases." In re Joint Eastern & Southern District Asbestos 

Litigation, 129 B.R. 710, 802 (E & S.D.N.Y. 1991) (discussing the 

ramifications of class treatment of mass torts). 

 In addition to these procedural problems (and the 

problems created for a judge trying to evaluate both class status 

and the adequacy of a class settlement simultaneously) the 

earlier achievement of settlement through the use of a settlement 

class also can lead to a settlement that may provide inadequate 

consideration in exchange for the release of the class's claims. 
With early settlement, both parties have less information on the 

merits. That is, they have less information on the membership of 

the class, on the size of potential claims, on whether the 

settlement purports to resolve class or individual claims, on the 

strengths and weaknesses of the case, and on how class members 

will benefit from the settlement. See MCL 2d § 30.45 at 243-44; 2 

NEWBERG & CONTE § 11.09 at 11-13. Without the benefit of more 

extensive discovery, both sides may underestimate the strength of 

the plaintiffs' claims. 

 Turning to the question of due process rights, we note 

that class members may, as a result of these information 

deficiencies, not be in a fair position at this early stage to 

evaluate whether or not the settlement represents a superior 

alternative to litigating. Perhaps more troubling in light of 

the reality that absentees tend to lack a real understanding of 

the actions supposedly pursued in their names is that, "where 

notice of the class action is . . . sent simultaneously with the 

notice of the settlement itself, [the settlement class paradigm], 

the class members are presented with what looks like a fait 

accompli." Mars Steel, 834 F.2d at 680-81. Thus, even if they 

have enough information to conclude the settlement is 

insufficient and unsatisfactory, see In re Beef Antitrust Litig., 

607 F.2d 167, 173 n.4 (5th Cir. 1979), cert. denied, 452 U.S. 905 

(1981), the mere presentation of the settlement notice with the 

class notice may pressure even skeptical class members to accept 
the settlement out of the belief that, unless they are willing to 

litigate their claims individually -- often economically 

infeasible -- they really have no choice. 

 In a different vein, a number of cases have also 

criticized settlement classes on the grounds that they create an 

opportunity for "one-way intervention," allowing putative class 

members to wait to see whether they think the settlement is 

favorable before deciding whether they want to be bound by it. 

See McDonald v. Chicago Milwaukee Corp., 565 F.2d 416, 420 (7th 

Cir. 1977); Watkins v. Blinzinger, 789 F.2d 474, 475 n.3 (7th 

Cir. 1986) ("A deferred ruling [on certification] converts the 

class action to an opportunity for one-way intervention, which 

Rule 23 is designed to avoid. . . ."); Premier Electrical Constr. 

Co. v. National Electrical Contractors Ass'n, Inc., 814 F.2d 358, 

363 (7th Cir. 1987) (criticizing delay of certification). 

Because class members have the opportunity to wait until the 

outcome is known (i.e., the settlement's terms are determined) to 

decide whether they want to be bound by the result, courts and 

defendants are exposed to the same potential for multiple 

lawsuits that class actions are designed to avoid, and the 

supposed advantages of settlement classes are largely eroded. 

 Perhaps more troubling, the possibility of precertification negotiation and settlement may facilitate the 

filing of strike suits. Since settlement classes can involve a 

settlement achieved either before or after the filing of class 
claims, recognition of the settlement class device allows 

plaintiffs to file as class actions cases that counsel never 

intended to have certified, but instead only to settle the claims 

individually. Mars Steel, 834 F.2d 677, 681 (7th Cir. 1984) 

("[Plaintiffs will be tempted to add class claims in order to 

intimidate the defendant, then delete them by way of 

compromise."). Knowing that they would not face judicial 

scrutiny if they settle before certification, plaintiffs' lawyers 

face no deterrent from attempting to extract larger settlements 

by threatening class litigation than they could with the cases 

filed individually. 

 In many respects then, the failings of settlement 

classes are a function of the dearth of information available to 

judges attempting to scrutinize the settlements in accordance 

with their Rule 23(e) duties. Because the issue of certification 

is never actively contested, the judge never receives the benefit 

of the adversarial process that provides the information needed 

to review propriety of the class and the adequacy of settlement. 

This problem is exacerbated where the parties agree on a 

settlement of the case before the class action is filed, since a 

motion for certification and settlement are presented 

simultaneously. 

 Last, but by no means least, the use of settlement 

classes also risks transforming the courts into mediation forums. 

See Coffee, supra note 9 at A15. Cases could be filed without 
any expectation or intention of litigation, with the 

foreknowledge that the natural hydraulic pressure for settlement 

may in fact lead to a class settlement, especially given the 

incentive a defendant has to bind as many potential claimants as 

possible with an approved class settlement. Courts may approve 

these class settlements even if the case is highly inappropriate 

for class treatment, since judges confronting the reality of 

already over-taxed judicial resources, see Proposed Long Range 

Plan for the Federal Courts (March 1995) at 9-12, may feel 

constrained to dispose of such onerous litigation through the 

settlement class device. The losers in this type of scenario are 

not only inadequately represented class members but also the 

federal courts as an institution, because their resources are 

further sapped by entertaining cases that arguably do not belong 

there.10 This increased burden will be especially problematic if 

the standards for certification are relaxed for settlement 

classes; as this appeal demonstrates, proceedings attendant to 

settlement class certification can consume considerable federal 

judicial time. 

 C. Arguments Favoring Settlement Classes

 Although settlement classes are vulnerable to potent 

criticisms, some important dynamics militate in favor of a 

 

10. Because the parties do not come before the court until the 

action has settled, some courts have even expressed concern that 

such cases do not present a case or controversy for Article III 

purposes. Cf. Carlough v. Amchem Products, Inc., 834 F. Supp. 

1437, 1462-67 (E.D. Pa. 1993). 
judge's delaying or even substantially avoiding class 

certification determinations. Because certification so 

dramatically increases the potential value of the suit to the 

plaintiffs and their attorneys as well as the potential liability 

of the defendant, the parties will frequently contest 

certification vigorously. As a result, a defendant considering a 

settlement may resist agreeing to class certification because, if 

the settlement negotiations should fail, it would be left exposed 

to major litigation. See In re Beef Indus. Antitrust Litig., 607 

F.2d 167, 177-78 (5th Cir. 1979) ("[A blanket rule against 

settlement classes] may render it virtually impossible for the 

parties to compromise class issues and reach a proposed class 

settlement before a class certification . . . ."); In re Baldwin 

United, 105 F.R.D. 475 (S.D.N.Y. 1984). 

 In mass tort cases, in particular, use of a settlement 

class can help overcome certain elements of these actions that 

otherwise can considerably complicate efforts to settle. These 

hurdles include "the large number of individual plaintiffs and 

lawyers; . . . the existence of unfiled claims by putative 

plaintiffs; and . . . the inability of any single plaintiff to 

offer the settling defendant reliable indemnity protection 

. . . ." Transgrud, 70 CORNELL L. REV. at 835. By using the courts 

to overcome some of the collective action problems particularly 

acute in mass tort cases, the settlement class device can make 

settlement feasible. The use of settlement classes can thus 
enable both parties to realize substantial savings in litigation 

expenses by compromising the action before formal certification. 

See 2 NEWBERG & CONTE § 11.09 at 11-13. Through settlement class 

certification, courts have fostered settlement of some very 

large, complex cases that might otherwise never have yielded 

deserving plaintiffs any substantial renumeration. 

 Settlement classes also increase the number of actions 

that are amenable to settlement by increasing the rewards of a 

negotiated solution, in at least four ways. First, the prospect 

of class certification increases a defendant's incentive to 

settle because the settlement would then bind the class members 

and prevent further suits against the defendant. Second, 

settlement classes may reduce litigation costs by allowing 

defendants to stipulate to class certification without forfeiting 

any of their legal arguments against certification should the 

negotiations fail. Third, because the payment of settlement 

proceeds, even relatively small amounts, may palliate class 

members, settlement can reduce differences among class members, 

and thus make class certification more likely, increasing the 

value of settlement to the defendant, since a larger number of 

potential claims can thus be resolved. Fourth, the use of 

settlement classes reduces the probability of a successful 

subsequent challenge to the class-wide settlement. By treating 

the class as valid pending settlement, a temporary class 

facilitates notice to those persons whom the court might consider 
part of the class. The expanded notice afforded by access to the 

customary class action notification process protects both the 

absentees and the defendants by eliminating negotiations between 

the defendants and the named plaintiffs with respect to the class 

definition that could leave the defendant vulnerable to 

additional suits by absentees whose interests, a court later 

determines, were not adequately served or protected. 2 NEWBERG &

CONTE § 11.27 at 11-40 (citing Midland Mut. Life Ins. Co. v. 

Sellers, 101 B.R. 921 (Bankr. S.D. Ohio 1989)). Increasing the 

certainty that the settlement will be upheld augments the value 

of settling to the defendant and consequently the amount 

defendants will be willing to pay. Thus, delaying certification, 

in contravention of a strict reading of Rule 23, encourages 

settlement, an important judicial policy, by increasing the 

prospective gains to the defendant (and thus potentially to the 

plaintiffs as well) from exploring a negotiated solution. 

 Moreover, critics of settlement classes may 

underestimate the safeguards that still inhere. Although courts 

are often certifying settlement classes with sub-optimal amounts 

of information, and without the full benefit of the processes 

meant to protect the absentees' interests, the provisional 

certification of a settlement class does not finally determine 

the absentees' rights. When the simultaneous notice of the class 

and the settlement is distributed to the proposed class, 

objecting class members can still challenge the class on 
commonality, typicality, adequacy of representation, superiority, 

and predominance grounds -- they are not limited to objections 

based strictly on the settlement's terms. 2 NEWBERG & CONTE §11.27 

at 11-40 (citing Midland Mut. Life Ins. Co. v. Sellers, 101 B.R. 

at 921). 

 Furthermore, the view that, in settlement class cases, 

the court lacks the information necessary to fufill its role as 

protector of the absentees, may reflect an assumption that the 

court's approval always comes early in the case. See 2 NEWBERG &

CONTE § 11.27 at 11-43 to 11-44. While it often does, the 

certification decision is sometimes made later in the case, when 

the parties have presumably developed the merits more fully (in 

discovery or in the course of wrangling over the settlement 

terms) and when prior governmental procedures or investigations 

might have also yielded helpful information. Id. Whatever the 

timing of the certification ruling, the judge has the duty of 

passing on the fairness and adequacy of the settlement under Rule 

23(e) and also of determining whether the class meets the Rule's 

requisites under 23(a).11 Whether or not the court certifies the 

class before settlement discussions, these duties are the same. 

2 NEWBERG & CONTE § 11.27, at 11-46. 

 Although a judge cannot presume that the putative class 

counsel actively represented the absentees' interests, the court 

 

11. We are somewhat dubious of the court's ability to discharge 

its duties completely under these circumstances. See Part IVE 

infra. 
can still monitor the negotiation process itself to assure that 

both counsel and the settlement adequately vindicate the 

absentees' interests. Thus, there is no reason to inflexibly 

limit the use of settlement classes to any specified categories 

of cases (for example, those cases with few objectors, those 

which do not involve partial settlements,12 or those which do not 

involve an expanded class). Even apparently troublesome 

litigation activity, such as expanding the class just before 

settlement approval at the defendant's request, is no more free 

from judicial scrutiny in a settlement class context than it 

would be otherwise. The court still must give notice to the nowexpanded class and satisfy itself that the requisites of class 

certification are met. Id. at 11-49. Since the party advocating 

certification bears the burden of proving appropriateness of 

class treatment, David v. Romney, 490 F.2d 1360 (3d Cir. 1974), 

where the procedural posture is such that the court lacks 

adequate information to make those determinations, it can and 

should withhold the relevant approvals. 2 NEWBERG & CONTE § 11.27 

at 11-46. 

 But even if the use of settlement classes did reduce a 

judge's capacity to safeguard the class's interests, it does not 

necessarily impair the ability of absentees to protect their own 

 

12. MCL 2d expressed concern about partial settlements 

(settlements only as to certain plaintiffs or certain defendants) 

since "[m]embers of the settlement class will almost certainly 

find it difficult to understand their position in the 

litigation." MCL 2d § 30.45. 
interests. Individual class members retain the right to opt out 

of the class and settlement, preserving the right to pursue their 

own litigation. See Premier Elec. Const. Co. v. N.E.C.A., Inc., 

814 F.2d 358 (7th Cir. 1987) (criticizing settlement classes 

because they create opportunities for one-way intervention). In 

fact, the use of the settlement class in some sense enhances 

plaintiffs' right to opt out. Since the plaintiff is offered the 

opportunity to opt out of the class simultaneously with the 

opportunity to accept or reject the settlement offer, which is 

supposed to be accompanied by all information on settlement, the 

plaintiff knows exactly what result he or she sacrifices when 

opting out. See 2 NEWBERG & CONTE § 11.27 at 11-51. See In re 

Beef Industry Antitrust Litigation, 607 F.2d at 174. 

 In sum, settlement classes clearly offer substantial 

benefits. However, the very flexibility required to achieve 

these gains strains the bounds of Rule 23 and comes at the 

expense of some of the protections the Rule-writers intended to 

construct. As Judge Schwarzer has explained: 

 one way to see [the settlement class] is as a 

commendable example of the law's adaptability to meet 

the needs of the time -- in the best tradition of the 

Anglo-American common law. But another interpretation 

might be that it is an unprincipled subversion of the 

Federal Rules of Civil Procedure. True, if it is a 

subversion, it is done with good intentions to help 

courts cope with burgeoning dockets, to enable 

claimants at the end of the line of litigants to 

recover compensation, and to allow defendants to manage 

the staggering liabilities many face. But as 

experience seems to show, good intentions are not 

always enough to ensure that all relevant private and 

public interests are protected. The siren song of Rule 
23 can lead lawyers, parties and courts into rough 

waters where their ethical compass offers only 

uncertain guidance. 

William W. Schwarzer, Settlement of Mass Tort Class Actions: 

Order Out of Chaos, CORNELL L. REV. (forthcoming). 

 D. Are Settlement Classes Cognizable Under Rule 23?

 Although not specifically authorized by Rule 23, 

settlement classes are not specifically precluded by it either; 

indeed, Judge Brieant has read subsection (d), giving the court 

power to manage the class action, as authorizing the creation of 

"tentative", "provisional", or "conditional" classes through its 

grant of power to modify or decertify classes as necessary. 

See, e.g., In re Baldwin-United Corp., 105 F.R.D. 475, 478-79 

(S.D.N.Y. 1984). And because of the broad grant of authority in 

Rule 23(d), at least one commentator has noted that the validity 

of temporary settlement classes is usually not questioned. 2 

NEWBERG & CONTE §11.22 at 11-31. Courts apparently share this 

confidence. Indeed, one court believed that "[i]t is clear that 

the Court may provisionally certify the Class for settlement 

purposes." South Carolina Nat'l Bank v. Stone, 749 F.Supp. 1419, 

(D.S.C. 1990). 
 We believe that the "provisional"13 or "conditional"14

conception of the settlement class device finds at least a 

colorable textual basis in the Rule. Rule 23(d) enables a court 

to certify a class, if it complies with its duty to assure that 

the class meets the rule's requisites by making appropriate Rule 

23 findings (see Part IV(E) infra). Some courts appear to have 

concluded that the built-in flexibility of the Rule, which 

enables the court to revisit the requisites and modify or 

decertify the class should its nature change dramatically during 

the negotiation process, renders it acceptable to determine class 

status after settlement and thus avoid scrutinizing and 

adjudicating class status at an earlier stage when the outcome is 

unknown. See, e.g., In re Baldwin-United, 105 F.R.D. at 483; In 

re Beef Antitrust Litig., 607 F.2d at 177 ("[T]he Court finds 

that a conditional class should be certified for the purpose of 

considering the proposed settlements.") 

 Alternatively, some courts have conceived of settlement 

classes as a "temporary assumption" by the court to facilitate 

settlement. See Mars Steel, 834 F.2d at 680; In re Beef Indust. 

 

13. The terms "tentative" and "provisional" appear to be used 

interchangeably. 

14. "Conditional" is actually a term that can be properly 

applied to all class actions, even those that are certified in 

the normal process. Under Rule 23(c)(1), the court retains the 

authority to re-define or decertify the class until the entry of 

final judgment on the merits. This capacity renders all 

certification orders conditional until the entry of judgment. 

See MCL 2d § 30.18. 
Antitrust Litig., 607 F.2d at 177; 2 NEWBERG & CONTE § 11.27 at 11-

50. The arguments of the late Herbert Newberg, one of the 

leading advocates of settlement classes, reflect an assumption 

that the Rule 23 determinations are merely postponed, not 

eliminated: 

 On analysis, however, it would appear that this 

argument [that courts using settlement classes 

circumvent the need to test the propriety of the class 

action according to the specific criteria of Rule 23] 

may be rebutted by perceiving the temporary settlement 

class as nothing more than a tentative assumption 

indulged in by the court . . . . The actual class 

ruling is deferred in these circumstances until after 

hearing on the settlement approval . . . . At that 

time, the court in fact applies the class action 

requirements to determine whether the action should be 

maintained as a class action . . . . 

2 NEWBERG & CONTE § 11.27 at 11-50.15 Newberg posits, therefore, 

that the temporary assumption conception of the settlement needs 

no special authorization since the court eventually follows the 

ordinary certification process, only deferring it until the 

settlement approval stage. 

 Courts have also relied on the more general policies of 

Rule 23 -- promoting justice and realizing judicial efficiencies 

-- to justify this arguable departure from the rule. 

 

15. See also In re Mid-Atlantic Toyota Antitrust Litig., 564 F. 

Supp. 1379, 1388 n.13 (D. Md. 1983) ("Completely ancillary to the 

proposed settlement, [a temporary settlement class] lasts only as 

long as the period betwen the preliminary approval of the 

settlement and the court's final determination on the settlement. 

In effect, a temporary settlement class serves only as a 

procedural vehicle for providing notice to putative members of a 

proposed class . . . ."). 
 [T]he hallmark of Rule 23 is flexibility . . . . 

Temporary settlement classes have proved to be quite 

useful in resolving major class action disputes. While 

their use may still be controversial, most Courts have 

recognized their utility and have authorized the 

parties to compromise their differences, including 

class action issues through this means. 

Weinberger, 698 F.2d at 72-73. One commentator found implicit 

authorization for settlement classes under a settlement-oriented 

interpetation of Rule 23: 

 [Rule 23] provides that a court may certify a common 

question class action when it will prove "superior to 

other available methods for the fair and efficient 

adjudication of the controversy." A judicially 

supervised and approved class action settlement, like a 

judicially supervised trial, is a means of hearing and 

determining judicially, in other words "adjudicating," 

the value of claims arising from a mass tort. As a 

result, if conditional certification of the case as a 

common question class action for settlement purposes 

would enhance the prospects for a group settlement, 

then Rule 23 authorizes certification. 

Roger H. Transgrud, Joinder Alternatives in Mass Tort Litig., 70 

CORNELL L. REV. 779, 835 (1985) (footnotes ommited). 

 It is noteworthy that resistance to more flexible 

applications of Rule 23 has diminished over time. See In re 

Taxable Mun. Bond Secur. Litig., 1994 WL 643143, *4 (E.D. La. 

1994) (commenting upon this trend). The evolution of the 

reception accorded settlement classes has manifested itself in 

the successive versions of the Manual for Complex Litigation. 

The first edition of the Manual criticized the initiation of 

settlement negotiations before certification, and discouraged all 

such negotiations. See MCL 1st § 1.46. The second edition 
recognizes the potential benefits of settlement classes but still 

cautioned that "the court should be wary of presenting the 

settlement to the class." MCL §30.45 at 243. The (draft) third 

version acknowledges that "[s]ettlement classes offer a commonly 

used vehicle for the settlement of complex litigation" and aims 

only to supervise rather than discourage their use. See MCL § 

30.45 at 192. 

 A survey of the caselaw confirms the impression that 

resistance to settlement classes has diminished: few cases since 

the late 1970's and early 1980's even bother to squarely address 

the propriety of settlement classes. Moreover, no court of 

appeals that has had the opportunity to comment on the propriety 

of settlement classes has held that they constitute a per se 

violation of Rule 23. See, e.g., Ace Heating & Plumbing Co. v. 

Crane Co., 453 F.2d 30, 33 (3d Cir. 1971) (finding no prohibition 

but granting absentees standing to appeal settlement approval); 

Marshall v. Holiday Magic, Inc., 550 F.2d 1173, 1176 (9th Cir. 

1977) (describing how court approved combined notice of the 

pendency of the class and the terms of the proposed settlement); 

In re Beef Antitrust Litig., 607 F.2d 167 (5th Cir. 1979); 

Corrugated Container Antitrust Litig., 643 F.2d 195, 223 (5th 

Cir. 1981) (upholding settlement despite pre-certification 

negotiations with some defendants); Weinberger v. Kendrick, 698 

F.2d 61 (2d Cir. 1982); Mars Steel, 834 F.2d 677, 681 (7th Cir. 

1987) (criticizing settlement classes but ultimately approving 
settlement). But some courts recognize that this practice 

represents a significant departure from the usual Rule 23 

scenario and thereby counsel that courts should scrutinize these 

settlements even more closely. 

 We acknowledge that settlement classes, conceived of 

either as provisional or conditional certifications, represent a 

practical construction of the class action rule. Such 

construction affords considerable economies to both the litigants 

and the judiciary and is also fully consistent with the 

flexibility integral to Rule 23. A number of other jurisdictions 

have already accepted settlement classes as a reasonable 

interpretation of Rule 23 and thereby achieved these substantial 

benefits. Although we appreciate the concerns raised about the 

device, we are confident that they can be addressed by the 

rigorous applications of the Rule 23 requisites by the courts at 

the approval stages, as we discuss at greater length herein. For 

these reasons, we hold that settlement classes are cognizable 

under Rule 23. 

E. Are the Rule 23(a) and (b) Findings Required for

Settlement Classes? Does Finding the Settlement

to Be Fair and Reasonable Serve as a Surrogate for the Findings?

 There is no explicit requirement in Rule 23 that the 

district judge make a formal finding that the requisites of the 

rule have been met in order to certify a class. However, most 

district judges have routinely done so, assuming that it was 

required, and in published opinions, a number of courts have 
endorsed or at least acknowledged the compelling policy reasons 

for doing so. See, e.g., Eisenberg v. Gagnon, 766 F.2d 770, 785 

(3d Cir. 1985); Plummer, 668 F.2d at 659; Interpace Corp. v. 

Philadelphia, 438 F.2d 401, 404 (3d Cir. 1971); MCL 2d § 30.13 

("The judge should enter findings and conclusions after the 

hearing, addressing each of the applicable requirements of Rule 

23(a) and (b)."). For example, where there has been some dispute 

over certification, a court should give the litigants, 

particularly the absentees, some statement of the reasons for its 

decision. Eisenberg, 766 F.2d at 785. Articulated findings also 

simplify the review of complex cases generally. Id. With 

respect to settlement classes, we hold that courts must make the 

findings because the legitimacy of settlement classes depends 

upon fidelity to the fundaments of Rule 23.16 

 Inasmuch as collusion, inadequate prosecution and 

attorney inexperience are the paramount concerns in precertification settlements, see Malchman, 706 F.2d at 433; Beef, 

607 F.2d at 174, the need for the adequacy of representation 

finding is particularly acute in settlement class situations, 

given the inquiry's purpose of detecting cases where there is a 

"likelihood that the litigants are involved in a collusive suit 

 

16. This conclusion is supported by the text of Rule 23(e). 

That section provides that "class action" may not be compromised 

without court approval, and arguably a case is not a "class 

action" in the absence of such findings. 
. . . ." Eisen v. Carlisle & Jacquelin, 391 F.2d 555, 562 (2d 

Cir. 1968). 

 There appears to be no authority contra this practice. 

Indeed, the courts and commentators that have endorsed settlement 

classes have seemed to assume that the approving court made the 

requisite class determinations at some point. For example, 

Newberg's argument rebutting the charge that the "tentative 

assumption" of class status by the court to foster settlement 

evades the Rule's strictures continues: 

 The actual class ruling is deferred in these 

circumstances until after [the] hearing on the 

settlement approval, following notice to the class. At 

that time, the court in fact applies the class action 

requirements to determine whether the action should be 

maintained as a class action . . . . 

2 NEWBERG & CONTE § 11.27 11-50. See also Whitford v. First 

Nationwide Bk., 147 F.R.D. 135, 142 (WD Ky. 1992) (disregarding 

even the possibility that these classes would not have to meet 

all of the normal certification requisites). Even the cases 

where the courts did not recognize a need to make the 

determinations demonstrate a heightened concern for fairness and 

a more cautious approach to settlement approval. See Ace Heating 

& Plumbing Co. v. Crane Co., 453 F.2d 30, 33 (3d Cir. 1971) 

(court must be doubly careful where negotiation occurs before 

certification and designation of a class counsel); Mars Steel, 

834 F.2d at 681 (applying a higher standard of fairness); Simer 

v. Rios, 661 F.2d 655, 664-66 (7th Cir. 1981) (requiring a higher 
demonstration of fairness); Weinberger v. Kendrick, 698 F.2d 61, 

69 (2d Cir. 1982) (emphasizing the extensive discovery and 

ability and experience of counsel). 

 Some courts have certified settlement classes "without 

articulating or consciously applying Rule 23 tests." 2 NEWBERG &

CONTE § 11.27 at 11-52. See, e.g., Mars Steel, 834 F.2d at 681 

(suggesting that the certification procedure may not be 

necessary to combat the potential for abuse created by the use of 

settlement classes since that potential is "held in check by the 

requirement that the judge determine the fairness of the 

settlement . . ."); Weinberger v. Kendrick, 698 F.2d at 73 

(determination that proposed settlement is fair, reasonable and 

adequate substitutes for Rule 23 findings); In re Beef Antitrust 

Litig., 607 F.2d 167, 177 (5th Cir. 1979); City of Detroit v. 

Grinnell, 495 F.2d 448, 464-65 (2d Cir. 1974) (rejecting 

contention that the court erred when it approved a settlement and 

acquiesced in the settlement's assumption of the existence of a 

proper class). Some courts neglecting the findings have taken 

the view that the notice of proposed settlement, which must be 

preliminarily approved by the court, "carries the necessary 

implication that the action complies with Rule 23." Beef, 607 

F.2d at 177. 

 We disagree both with this suggestion and with the 

conclusion that a fairness determination is a surrogate for Rule 
23 findings.17 Even if we set aside the problem of the court's 

inadequate information, the inquiry into the settlement's 

fairness cannot conceptually replace the inquiry into the 

propriety of class certification. Normally, a court makes the 

required commonality and typicality determinations by referencing 

the original class complaints in order to assure that the claims 

alleged by the named plaintiffs are common to the class (although 

the class need not share every claim in common, Hassine v. 

Jeffes, 846 F.2d 169, 177-78 (3d Cir. 1988)), and that the claims 

alleged by the named plaintiff occupy approximately the same 

position of centrality to the named plaintiffs as they do to the 

rest of the class. Weiss v. York Hosp., 745 F.2d 786, 810 (3d 

Cir. 1984), cert. denied, 470 U.S. 1060 (1985). Neither the 

existence of a settlement nor the terms of settlement affect the 

nature of this important inquiry. 

 The Rule 23(a) class inquiries (numerosity, 

commonality, typicality, and adequacy of representation) 

constitute a multipart attempt to safeguard the due process 

rights of absentees. Thus, the ultimate focus falls on the 

 

17. We note in this regard that other courts have made the 

determinations of adequacy of representation and homogeneity of 

the class when evaluating the fairness of the settlement for the 

express purpose of assuring that they possess enough information 

to execute their Rule 23(e) duty. See In re Beef Industry 

Antitrust Litig., 607 F.2d at 173 n.4 (quoting ARTHUR R. MILLER, AN 

OVERVIEW OF FEDERAL CLASS ACTIONS: PAST, PRESENT AND FUTURE (Federal 

Judicial Ctr. 1977)); see also In re Baldwin-United Corp., 105 

F.R.D. 475, 483 (S.D. N.Y. 1984) (making findings in the opinion 

which preliminarily approved the settlement). 
appropriateness of the class device to assert and vindicate class 

interests. Conversely, however, the process of negotiation does 

not reveal anything about commonality and typicality. One might 

argue that these requisites are merely means to the end of 

vindicated rights, and that observing the process of negotiation 

could demonstrate adequate vindication -- the true aim of the 

Rule. In our view, a court cannot infer that the rights of the 

entire class were vindicated without having assured that 

commonality and typicality were satisfied. 

 The 23(b)(3) determination is also important in the 

regulatory scheme. To be certified as a (b)(3) class, the judge 

must determine 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." FED. R. CIV. P. 23(b)(3).18 But the 

settlement approval inquiry is far different from the 

certification inquiry. In settlement situations, the superiority 

requirement arguably translates into the question whether the 

settlement is a more desirable outcome for the class than 

individualized litigation, and may assure that the settlement 

has not grossly undervalued plaintiffs' interests. But even if 

 

18. As the case before us involves a damages class under Rule 

23(b)(3), we do not address the application of the (b)(1) and 

(b)(2) requisites which, without the important right to opt out, 

involve different considerations. 
this is so, a point we neither concede nor decide, there remains 

the concern about conflicts between those appointed to represent 

class interests -- the lawyers and named plaintiffs -- and the 

rest of the class. These concerns, particularly acute with 

settlement classes, concentrate the focus of the certification 

inquiries on the representational elements. 

 Certainly, evaluating the settlement can yield some 

information relevant to the adequacy of representation 

determination under 23(a)(4). The settlement evaluation involves 

two types of evidence: a substantive inquiry into the terms of 

the settlement relative to the likely rewards of litigation, see

Weinberger, 698 F.2d at 73; Protective Comm. for Indep. 

Stockholders v. Anderson, 390 U.S. 414, 424, 88 S. Ct. 1157, 1163 

(1968), and a procedural inquiry into the negotiation process. 

The focus on the negotiation process results from the realization 

that a judge cannot really make a substantive judgment on the 

issues in the case without conducting some sort of trial on the 

merits, exactly what the settlement is intended to avoid. See

Malchman v. Davis, 706 F.2d at 433. Instead, the court 

determines whether negotiations were conducted at arms' length by 

experienced counsel after adequate discovery, in which case there 

is a presumption that the results of the process adequately 

vindicate the interests of the absentees. Weinberger, 698 F.2d 

at 74; City of Detroit v. Grinnell, 495 F.2d at 463; BaldwinUnited, 105 F.R.D. at 482 ("In order to supplement judicial 
examination of the substance of a compromise agreement, and 

because a court cannot conduct a trial in order to avoid a trial, 

attention must be paid to the process by which a settlement has 

been reached."). 

 Although the procedural focus on the fairness 

determination yields information pertinent to the adequacy of 

representation inquiry, it cannot fully satisfy the inquiry. 

That is because reliance on the negotiation process used to 

approve the settlement to satisfy the class certification 

requirements puts excessive pressure on the settlement approved 

determinations, and, more fundamentally, such a reliance may be 

circular. Cf. NEWBERG & CONTE § 11.28 at 11-54 (suggesting a 

greater need for a court to carefully articulate if reasons for 

settlement approval where the class was not separately 

certified). 

 Courts approving settlements have examined the 

negotiating process in light of the "experience of counsel, the 

vigor with which the case was prosecuted, and the coercion or 

collusion that may have marred the negotiations themselves." 

Malchman v. Davis, 706 F.2d 426, 433 (2d Cir. 1983) (citing 

Weinberger, 698 F.2d at 73; Grinnell, 495 F.2d at 465.). Some of 

these courts have suggested that the fact that vigorous, arm's 

length negotiations occurred should allay concerns about adequacy 

of representation. But these inferences depend on the implicit 

assumption that the lawyers actually negotiating really were 
doing so on behalf of the entire class, see 2 NEWBERG & CONTE § 

11.28 at 11-59, assumptions which are clearly unjustified in a 

context where the potential for intra-class conflict further 

emperils the class's representation. Far too much turns on the 

adequacy of representation to accept it on blind faith. 

 Without determining that the class actually was 

adequately represented, the district judge has no real basis for 

assuming that the negotiations satisfactorily vindicated the 

interests of all the absentees. The focus on the negotiation 

process also cannot address the part of the adequacy of 

representation inquiry intended to detect situations where the 

named plaintiffs are unsuitable representatives of the absentees' 

claims. To state that class members were united in the interest 

of maximizing over-all recovery begs the question. Although that 

observation might allay some concern about a conflict between the 

attorney and the class, a judge must focus on the settlement's 

distribution terms (or those sought) to detect situations where 

some class members' interests diverge from those of others in the 

class. For example, a settlement that offers considerably more 

value to one class of plaintiffs than to another may be trading 

the claims of the latter group away in order to enrich the former 

group. 

 In short, the prophylactic devices used by judges to 

approve these pre-certification settlements without ever formally 

certifying the class fail to satisfy the requirements of Rule 23. 
Without determining that the class claims are common and typical 

of the entire putative class and that the class representatives 

and their counsel are adequate representatives, we have no 

assurance that the district court fully appreciated the scope and 

nature of the interests at stake.19 Finally, we note that courts 

adopting the view that the formal class determinations are not 

necessary for settlement classes may be contravening not only the 

language of the rule but also the Supreme Court's requirement in 

General Telephone Co. of Southwest v. Falcon, 457 U.S. 147, 160, 

102 S. Ct. 2364, 2372 (1982) (disapproving the trial court's 

insufficient scrutiny of the named plaintiff's capacity to 

adequately represent the class), that "[a]ctual, not presumed, 

conformance with Rule 23(a) remains, however, indispensable." 

Thus, while we approve the provisional certification of a 

 

19. In Malchman v. Davis, 706 F.2d at 433, the court was 

satisfied by the district court's determination that the 

settlement class satisfied the adequacy of representation inquiry 

noting: "There is no doubt that the district court must make an 

independent evaluation of whether the named plaintiffs were 

adequate representatives of the class . . . . A judge has an 

obligation to consider whether the interest of the class are 

adequately represented." (citing East Texas Motor Freight Sys., 

Inc. v. Rodriguez, 431 U.S. 395, 403-06, 97 S.Ct. 189, 96-98 

(1977)); see also Plummer, 668 F.2d at 659 & n.4. We agree that 

this is an appropriate focus given the heightened potential for 

collusion, buy-offs and other abuses in settlement class 

situations where the negotiations occur before the court appoints 

class representatives and counsel. We still believe, however, 

that courts should assure that settlement classes meet all of 

the requirements of 23(a) and (b). This prescription is 

consistent with the heightened duty of courts in class action 

settlements to assure that the absentees' rights are adequately 

protected. 
settlement class to facilitate settlement discussions, final 

settlement approval depends on the finding that the class met all 

the requisites of Rule 23. 

F. Can There be a Valid Settlement Class That

Would Not Serve as a Valid Litigation Class?

 As we have previously explained, courts using the 

settlement class device must at some point definitively certify 

the class and satisfy themselves that the requisites of Rule 23 

have been satisfied. To avoid that process entirely would 

dismantle the rule's carefully constructed mechanism that serves 

to protect absentees' due process rights. Moreover, despite some 

courts' suggestions that the standards are less rigorous for 

settlement classes, we do not believe that Rule 23 authorizes 

separate, liberalized criteria for settlement classes. 

 At the outset we note that, while some other courts 

have nominally complied with the rule, they appear to have 

assumed that lower standards apply in settlement class cases. 

See Officers for Justice v. Civil Serv. Comm'n of San Francisco, 

688 F.2d 615, 633 (9th Cir. 1982), cert. denied, 459 U.S. 1217, 

103 S. Ct. 1219 (1983) ("[C]ertification issues raised by class 

action litigation that is resolved short of a decision on the 

merits must be viewed in a different light."); Fisher Bros. v. 

Phelps Dodge Indus. Inc., 604 F. Supp. 446, 450 (E.D. Pa. 1985); 

In re Dennis Greenman Securities Litig., 829 F.2d 1539, 1543 

(11th Cir. 1987) ("In reviewing settlement certifications, a 

special standard has been employed."); A.H. Robins, 880 F.2d at 
740 (in deciding whether to certify a class, settlement is at 

least an important factor in favor and might even be a per se 

ground for certification); Manual.2d at §30.45. Other courts 

have stated that settlement reduces the potential conflicts among 

the class and thus enhances the likelihood of meeting the 

criteria, presumably the same criteria a litigation class must 

satisfy. See, e.g., Bowling v. Pfhizer, Inc., 143 F.R.D. 141, 

159 (S.D. Oh. 1992). Newberg is of this view. See 2 NEWBERG &

CONTE §11.28, at 11-58. 

 According to Newberg, though settlement does not impact 

the numerosity requirement it may indeed increase the likelihood 

of meeting the commonality and typicality inquiries. "Typicality 

of claims in a settlement class context requires proof that the 

interests of the class representative and the class are commonly 

held for the purposes of receiving similar or overlapping 

benefits from a settlement." 2 NEWBERG & CONTE §11.28 at 11-58. 

On this theory, because the court has delayed the findings until 

the outcome of the litigation (i.e., the settlement agreement) is 

known, the judge conducts the inquiry based on the relative 

rewards to the class members rather than based on the various 

legal claims of class members. So long as all plaintiffs get 

similar benefits from the settlement, irrespective of the 

different strengths of their initial claims, the commonality and 

typicality inquiries are viewed as likely to be satisfied. 
 Under this approach, the adequate representation 

inquiry is also simplified in the settlement class context by a 

result-oriented approach toward the class requirement findings. 

Rather than asking whether the lawyers have sufficient resources 

and skills to prosecute the action (as would be the case with 

customary class certification procedures), courts, it is said, 

need only determine, in hindsight, whether the settlement was 

negotiated at arms' length, and whether the negotiations were 

long, thorough and deliberative. See In re Corrugated Container 

Antitrust Litig., 643 F.2d 195, 212 (5th Cir. 1981) (adequacy 

judged by sufficiency of settlement); In re Domestic Air Transp. 

Antitrust Litig., 148 F.R.D. 297, 341 (N.D. Ga. 1993) 

(inequitable distribution). Courts adopting this approach 

require proof only that named plaintiffs' and class interests are 

not antagonistic. See, e.g., Goodman v. Lukens Steel Co., 777 

F.2d 113, 123 (3d Cir. 1985) (relying on absence of conflict to 

find adequate representation); Lewis v. Curtis, 671 F.2d 779, 788 

(3d Cir. 1982) (finding named plaintiff an adequate 

representative despite small stake in litigation and ignorance of 

facts and claims); Steiner v. Equimark Corp., 96 F.R.D. 603, 610 

(W.D. Pa. 1983) ("The key question [for the adequacy of 

representation inquiry] is whether their interests are 

antagonistic."). In these cases, courts have effectively relied 
on the settlement's terms -- the outcome of the action -- to find 

the required absence of antagonism.20 

 We disagree with this approach, championed primarily by 

Newberg. There is no language in the rule that can be read to 

authorize separate, liberalized criteria for settlement 

classes.21 Although we acknowledge the need for flexible 

interpretation of Rule 23 to enable it to achieve its broader 

purposes of vindicating difficult individual claims and 

conserving judicial resources, see Beef, 607 F.2d at 177-78 

(discussing the policy needs for flexibility); Ace Heating, 453 

F.2d at 33 (recognizing need to give small claimants who did not 

 

20. For example, in finding adequate representation, one court 

noted: "[S]o long as all class members are united in asserting a 

common right, such as achieving the maximum possible recovery for 

the class, the class interests are not antagonistic for 

representation purposes." In re Corrugated Container Antitrust 

Litig., 1980-1 Trade Cas. (CCH) ¶63, 163 at 77,788 n. 10 (S.D. 

Tex. 1979), aff'd, 643 F.2d 195 (5th Cir. 1981) (citing WRIGHT &

MILLER, FED. PRACTICE & PROCEDURE CIVIL § 1768, at nn.7 & 8). 

21. Indeed, if any difference in standards is warranted, precertification settlement may raise the adequacy of representation 

standard. Since this inquiry must ascertain "whether there has 

been any collusion or undue pressure by the defendants on would 

be class representatives," see First Comm. Corp. of Boston 

Consumer Accts. Litig., 119 F.R.D. 301, 308 (D. Mass 1987); 

Alvarado Partners LP v. Mehta, 723 F. Supp. 540, 546 (D. Colo. 

1989), it must carry greater weight in the settlement class 

context where there is an enhanced potential for those evils. 

Thus, while the other 23(a) findings remain important when the 

action settles, the need to assure an absence of collusion and an 

alignment of interests assumes an especially crucial role. 

Reliance, for the class requisites analysis, on the settlement's 

terms and process also increases the importance of an independent 

conclusion of adequate representation (i.e., one not derived 

solely by reference to the nature of the negotiations). 
opt out the right to appeal a settlement approval), we emphasize 

that Rule 23 is designed to assure that courts will identify the 

common interests of class members and evaluate the named 

plaintiff's and counsel's ability to fairly and adequately 

protect class interests. See Katz v. Carte Blanche Corp., 496 

F.2d 747, 757 (3d Cir. 1974). Thus, actions certified as 

settlement classes must meet the same requirements under Rule 23 

as litigation classes. To allow lower standards for the 

requisites of the rule in the face of the hydraulic pressures 

confronted by courts adjudicating very large and complex actions 

would erode the protection afforded by the rule almost entirely. 

 Judge Posner has explained the animating concern behind 

this strict application. "The danger of a premature, even a 

collusive, settlement is increased when as in this case the 

status of the action as a class action is not determined until a 

settlement has been negotiated, with all the momentum that a 

settlement agreement generates . . . ." Mars, 834 F.2d at 680. 

 The foregoing discussion has focused on adequacy of 

representation, but the presence of commonality and typicality 

are equally important to the class action regime. Certifying a 

class without the existence of questions common to the class (or 

where the class representatives' claims are not typical) perverts 

the class action process and converts a federal court into a 

mediation forum for cases that belong elsewhere, usually in state 

court. On the other hand, the cases that make the settlement 
class device appear most useful are cases presenting the most 

unwieldy substantive and procedural issues, i.e., those diversity 

cases in which plaintiffs from many states are confronted with 

differing defenses, differing statutes of limitations, etc. -- 

precisely those cases that stretch the Rule to its outer-most 

limits. 

 This is a troublesome issue -- and a close one. Many 

mass tort actions have this problem. The School Asbestos cases 

and the Breast Implant cases had it, and this case does, as well. 

It may initially seem difficult to envision an actual trial of 

these cases because of the differing defenses certain to be 

raised under the various bodies of governing law. While the 

problem may be overstated,22 settlement classes still serve the 

useful purpose of ridding the courts -- state and federal -- of 

this albatross even though the case may never have been triable 

in class form. But if that were the primary function of the 

settlement class, the federal courts would have become a 

mediation forum, a result inconsistent with their mission and 

limited resources. In sum, "a class is a class is a class," and 

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

 

22. In the School Asbestos case, 789 F.2d at 996, the panel 

asked counsel to analyze all the claims and defenses and write a 

report reflecting whether the differing claims and defenses 

evidence a small number of patterns that would be amenable to 

trial through a series of special verdicts. The plaintiffs came 

up with a demonstration that the claims and defenses were 

reducible to four patterns. That, in our view, was sufficient to 

satisfy the commonality and typicality inquiries. The same might 

be true in this case. 
all of its requirements. The district court should keep these 

matters in mind on remand. 

V. IS THE SETTLEMENT CLASS PROPER HERE? 

 A. Were There Adequate Findings Under Rule 23(a)?

 Certain of the objectors in this case contend that the 

district court committed plain error by never actually certifying 

the class as required by Rule 23. See Brief of French Objectors 

at 18. This, of course, would be a serious error, since without 

certification there is no class action, and "[i]n a settlement 

entered without class certification the judgment will not have 

res judicata effect on the claims of absent class members." 

Simer v. Rios, 661 F.2d 655, 664 (7th Cir. 1981). 

 The district court certified the class provisionally in 

a pre-trial order. See Pretrial Order No. 7. We have already 

noted that provisional certification constitutes an acceptable 

means of facilitating settlement negotiations. See 2 NEWBERG &

CONTE §11.27 at 55-56. It appears that the court believed that 

it certified the class by "confirming" the provisional 

certification in its order approving the settlement. (JA 1708, 

1745.) However, the court did not make the findings we hold that 

Rule 23 requires, not even upon approving the settlement. 

Because we hold today that courts employing settlement classes 

must still make findings that the class complies with Rule 23(a) 

and the appropriate parts of Rule 23(b), the court's failure to 

comply with the rule in this respect is a plain error of law, and 
hence an abuse of discretion, requiring that the certification be 

set aside. 

 Our conclusion that the settlement class was not 

properly certified does not mean that the class could not be 

certified on remand. Accordingly, we must consider whether the 

existing record is adequate to support class certification, or 

whether further record development is required. 

B. Could the Class Requisites Have Been Met

On The Current Record?

1. Numerosity, Commonality, and Typicality

 As we have explained, a class action -- whether 

certified for settlement or litigation purposes -- must meet the 

class requisites enunciated in Rule 23. The district court did 

not make findings on these issues. The numerosity requirement of 

Rule 23(a) is plainly satisfied in this action encompassing 

nearly six million truck owners. The commonality and typicality 

inquiries of 23(a), however, raise substantial concerns about the 

sufficiency of this class. The record currently lacks the facts 

needed to establish these requisites, and the defendants also 

ardently maintain that the applicability of different defenses to 

different groups of plaintiffs would prevent the class from 

satisfying the commonality and typicality requirements. At this 

juncture, we leave open the possibility that, on remand, the 

district court may indeed find facts sufficient to support these 

elements. 

 2. Adequacy of Representation
 a. The Situation of the Fleet Owners

 This settlement class appears to fail to meet Rule 

23(a)'s adequacy of representation test. The adequacy of 

representation inquiry has two components intended to assure that 

the absentees' interests are fully pursued: it considers whether 

the named plaintiffs' interests are sufficiently aligned with the 

absentees, and it tests the qualifications of the counsel to 

represent the class. See Weiss v. York Hospital, 745 F.2d 786, 

811 (3d Cir. 1984); 2 NEWBERG & CONTE § 11.28 at 11-58. On the 

first prong, we are not satisfied that the interests of various 

class members were sufficiently aligned; indeed the settlement 

appears to create antagonism within the class. While some courts 

have been satisfied that there is no intra-class conflict where 

"all class members are united in asserting a common right, such 

as achieving the maximum possible recovery for the class," In re 

Corrugated Container Antitrust Litig., 1980-1 Trade Cas. (CCH) ¶ 

63, 163 at 77, 788 n.10 (S.D. Tex. 1979), aff'd. 643 F.2d 195 

(5th Cir. 1981), we disapprove such a myopic focus on the 

settlement terms. 

 In this case in particular, the conclusion that the 

settlement -- that (supposedly) maximized class recovery -- 

satisfied the requirement that class members' interests not be 

antagonistic ignores the conspicuous evidence of such an intraclass conflict in the very terms of this settlement. The 

substantial impediments to fleet owners using these certificates 
creates a conflict between their interests in this settlement and 

those of individual owners. (The named plaintiffs are all 

individual owners.) Moreover, the dubious value of the transfer 

option, see Part VI(A)(1)(c) infra, one of the principal 

responses to the fleet owners' objection, does little to reduce 

the disparity in the prospective value to the different sections 

of the class. 

 This is not a case where some plaintiffs share the 

prospect of a future claim with other class members who currently 

have such a claim. The fleet owners will never enjoy the 

benefits of the settlement terms, such as the intra-household 

transfer option, intended specifically for the benefit of 

individual owners. Thus, we must be concerned that individual 

owners had no incentive to maximize the recovery of the 

government entities; they could skew the terms of the settlement 

to their own benefit. Not surprisingly, the settlement leaves 

fleet owners with significantly less value than individual 

owners. At the very least, the class should have been divided 

into sub-classes so that a court examining the settlement could 

consider settlement impacts that would be uniform at least within 

the sub-classes. 

 b. Did Counsel Adequately Represent the

 Interests of the Entire Class?

 The other aspect of the adequacy of representation 

test, whether counsel is qualified and serves the interests of 
the entire class, also gives us reason to pause. 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 arms 

length from the defendant. See, e.g., Malchman, 706 F.2d at 433; 

Alvarado Partners, 723 F. Supp. at 546. The first criterion is 

no problem, for these counsel clearly possess the experience and 

skills to qualify them to pursue these sorts of actions. But the 

second and third points require attention in view of lack of 

significant discovery and the the extremely expedited settlement 

of questionable value accompanied by an enormous legal fee. 

 Before addressing the latter points, it is necessary to 

begin with some legal theory discussing the structural nature of 

fee arrangements in class actions of this type, having in mind 

that even honorable counsel -- like class counsel here -- may be 

compromised by the possibility of a large fee. 

 (1) Class Action Attorneys' Fees

 Theory and Structure 

 Beyond their ethical obligations to their clients, 

class attorneys, purporting to represent a class, also owe the 

entire class a fiduciary duty once the class complaint is filed. 

See 2 NEWBERG & CONTE § 11.65 at 11-183; Greenfield v. Villager 

Indus., Inc., 483 F.2d 824, 832 (3d. Cir. 1973). The large fees 

garnered by some class lawyers can create the impression of an 

ethical violation since it may appear that the lawyer has an 
economic stake in their clients' case. But class actions cannot 

be analyzed in the same framework as conventional bipolar 

litigation. Because of the collective action problems associated 

with cases where individual claims are relatively small, WRIGHT,

MILLER & KANE, 5 Federal Practice and Procedure § 1754 at 49, and 

the social desirability of many class suits (the private 

enforcement model), id. at 51; Sprogis v. United Airlines, Inc.

444 F.2d 1194 (7th Cir. 1971), large attorneys' fees serve to 

motivate capable counsel to undertake these actions. Thus, large 

fee awards standing alone do not suffice to show that the 

representation was inadequate or unethical. These allowances 

generally reflect the realization that the lawyer represents 

numerous individuals with somewhat varying interests, not an 

acceptance of the situation where the lawyer's personal interests 

trump the interests of the entire class. 

 Some commentators blame the system of compensating 

class action lawyers in a manner that fails to confront fully the 

differences between class action litigation and classical bipolar 

litigation for creating incentives that diverge markedly and 

predictably from their clients' interests. The leading critic is 

Professor Coffee. See John C. Coffee, Jr., Understanding the 

Plaintiff's Attorney: The Implications of Economic Theory For 

Private Enforcement of Law Through Class and Derivative Actions, 

86 COLUM. L. REV. 669, 671-72 (1986) (noting that critics "have 

argued that the legal rules governing the private attorney 
general have created misincentives that unneccessarily frustrate 

the utility of private enforcement. These critics have focused 

chiefly on the conflicts that arise between the interests of 

these attorneys and their clients in class and derivative actions 

. . . .") (hereinafter Understanding the Plaintiff's Attorney); 

Id. at 677 ("Ultimately, the most persuasive account of why class 

actions frequently produce unsatisfactory results is the 

hypothesis that such actions are uniquely vulnerable to collusive 

settlements that benefit plaintiff's attorneys rather than their 

clients."); John C. Coffee, Rescuing the Private Attorney 

General: Why the Model of the Lawyer as Bounty Hunter Is Not 

Working, 42 MD. L. REV. 215 (1983); John C. Coffee, The Unfaithful 

Champion: The Plaintiff as Monitor in Shareholder Litigation, 48 

SUM LAW & CONTEM. PROBS., 5 Summer 1985; Kevin M. Clermont & John D. 

Currivan, Improving on the Contingent Fee, 63 CORNELL L. REV. 529 

(1978); Murray L. Schwartz & Daniel J.B. Mitchell, An Economic 

Analysis of the Contingency Fee in Personal-Injury Litigation, 22 

STAN. L. REV. 1125 (1970). 

 Economic models have shown how conventional methods of 

calculating class action fee awards give class counsel incentives 

to act earlier than their clients would deem optimal. See

Coffee, Understanding the Plaintiff's Attorney, 86 COLUM. L. REV. 

at 688. Because, under a percentage of recovery award mechanism, 

the attorney will only enjoy a relatively small portion of 

whatever incremental award he can extract from the defendant, the 
defendant can pressure the plaintiffs' attorney into early 

settlement by threatening to expend large sums on dilatory 

tactics that would run the expenses up beyond what plaintiffs' 

attorneys can expect to profit. Id. at 690. Rather than 

presenting a possible solution, the lodestar method seemingly 

exacerbates the problem of cheap settlement by divorcing the fee 

award from the settlement's size, since plaintiffs' attorneys 

have no incentive to take the risk on a trial for potentially 

larger award to the class where their own fees will not 

necessarily reflect the greater risk taken on trial. See also

id. at 718 (discussing how lodestar method may create structural 

collusion). 

 Coffee also blames the principal-agent problem endemic 

to class actions for creating a situation where the defendants 

and plaintiffs can collusively settle litigation in a manner that 

is adverse to the class's interest: "At its worst, the 

settlement process may amount to a covert exchange of a cheap 

settlement for a high award of attorney's fees. Although courts 

have long recognized this danger and have developed some 

procedural safeguards intended to prevent collusive settlements, 

these reforms are far from adequate to the task." Id. at 714 

n.121 (citing cases). A number of commentators have identified 

settlements which afford only nonpecuniary relief to the class as 

prime suspects of these cheap settlements. See Coffee, 

Understanding The Plaintiff's Attorney, 86 COLUM. L. REV. at 716 
n.129; JONATHAN R. MACEY & GEOFFREY P. MILLER, The Plaintiffs' 

Attorneys Role in Class Action and Derivative Litigation: 

Economic Analysis and Recommendations for Reform, 58 U. CHI. L.

REV. 1, 45 n.10 (1991); Nancy Morawetz, Bargaining, Class 

Representation, and Fairness, 54 OHIO ST. L.J. 1, 5 n.40 (1993). 

 While courts may fail to appreciate adequately the 

distinction between conventional bipolar litigation and class 

actions in many respects, they may over-emphasize these 

differences in other respects. To be sure, courts will be 

willing to award fees in class actions that would appear 

extraordinary and arguably improper in conventional litigation. 

Nevertheless, some of the critiques based on ethical or collusive 

concerns remain instructive. Although subsequent versions seem 

to avoid a discussion, the Manual for Complex Litigation (First) 

acknowledged the potential for attorney-class conflict. It 

condemned fees that are paid separate and apart from the 

settlement funds paid to the class because amounts "paid by the 

defendant(s) are properly part of the settlement funds and should 

be known and disclosed at the time the fairness of the settlement 

is considered." MCL 1st § 1.46. 

 One court has noted that the "effect of such an 

arrangement [where the counsel fees are not resolved and the 

details not included in the class notice] may be to cause counsel 

for the plaintiffs to be more interested in the amount to be paid 

as fees than in the amount to be paid to the plaintiffs." In re 
General Motors Corp. Engine Interchange, 594 F.2d at 1131. 

Commentators have also noted how, where there is an absence of 

objectors, courts lack the independently-derived information 

about the merits to oppose proposed settlements. See Coffee, 

Understanding the Plaintiff's Attorney, 86 COLUM. L. REV. at 714 

n.131. Of course, by endorsing a practice where the class is, 

for practical purposes, deprived of information concerning the 

fees, courts foster a situation where there will be fewer 

objectors.23

 (2) The Stewardship of Counsel Here

 A number of factors militate against the conclusion 

that the class's interests were sufficiently pursued here. 

First, the settlement arguably did not maximize the class 

members' interests. Every owner received a coupon whose value 

could only be realized by purchasing a new truck. Significant 

obstacles existed to the development of a secondary market in the 

transfer certificates given that the transfer restrictions and 

their limited lifespan minimize the value of the transfer option. 

Second, class counsel effected a settlement that would yield very 

substantial rewards to them after what, in comparison to the $9.5 

million fee, was little work. 

 

23. The information on fee agreements may prompt potential 

objectors to oppose not only the awards but, also, to the extent 

they conclude arm's length negotiations were compromised, the 

adequacy of the settlement and the propriety of the class. 
 Third, the fact that the settlement involves only noncash relief, which is recognized as a prime indicator of suspect 

settlements, increases our sense that the class's interests were 

not adequately vindicated. The separate negotiation of the fee 

agreement and the failure to disclose the amount of the award in 

the class notice only enhance this sense that counsel may have 

pursued a deal with the defendants separate from, and perhaps 

competing for the defendant's resources with, the deal negotiated 

on behalf of the class. And although the degree to which a 

settlement hurts a defendant is not ordinarily a measure of the 

settlement's adequacy, the fact that this settlement might 

actually benefits GM by motivating current owners to buy new 

trucks from the company (the settlement may arguably be viewed as 

a GM sales promotion device) certainly does little to allay the 

concern that the settlement did not advance the interests of the 

class as much as it might have. 

 Fourth, our concern about the vigor of counsels' 

prosecution of the class claims, specifically the possibility 

that counsel did not do right by the class, is buttressed by the 

legacy of Prandini v. National Tea Co., 557 F.2d 1015, 1021 (3d 

Cir. 1977). In Prandini, this court recognized the potential for 

attorney class conflicts where the fees, while ostensibly 

stemming from a separate agreement, were negotiated

simultaneously. We characterized simultaneity of fee and 

settlement negotiations as a "situation . . . having, in 
practical effect, one fund divided between the attorney and 

client." To respond to this danger of collusion between the 

class counsel and defendant, Prandini and the Third Circuit Task 

Force Report on court awarded attorney's fees disapproved fee 

discussions until after the achievement and approval of 

settlement. See Prandini, 557 F.2d at 1021; Court Awarded 

Attorney's Fees, Report of the Third Circuit Task Force, 108 

F.R.D. 238, 266 (1985) [hereinafter Task Force].24 

 In this case, there were strong indications that such 

simultaneous negotiations in fact transpired. Indeed, there was 

evidence in a letter from class counsel that at least some 

portion of the fees and expenses had to have been negotiated 

simultaneously with the settlement. (Butler Letter on fees, 

Jenkins app. at 70-1). The court justified its dismissal of the 

allegation of simultaneous negotiation by citing (1) a statement 

in the letter that the "attorneys' fees were negotiated 

separately, after we agreed on everything else," and (2) GM's 

 

24. Other courts and authorities have followed this guide. See, 

e.g., Ashley v. Atlantic Richfield Co., 794 F.2d 128 (3d Cir. 

1986); MCL 2d § 30.41; 2 NEWBERG & CONTE § 11.29 at 11-62 

(recognizing potential for conflict where settlement and fees to 

be paid by defendant simultaneously negotiated). To implement 

this prophylactic bar fully, courts would have to require class 

counsel to disclose all understandings as to fees, not simply 

concluded, formal agreements. See MCL 2d § 34.42 at 237-39. 

Although it recognized that this prophylactic rule could impede 

some settlements by making it impossible for the defendant to 

size up its total liability (i.e. the sum of the settlement 

amount and any fees the defendant agrees to pay), Task Force 108 

F.R.D. at 267-69, the Task Force concluded that avoiding the 

conflicts justified this cost. 
reservation of the right to contest any award of fees that it 

deemed unreasonable. Even though we assume that these are 

factual findings, thus ordinarily deserving deference, we think 

these findings were made by reference to an erroneous legal 

standard. Indeed, neither of these bases is persuasive, 

especially in view of GM's acquiecence in a patently baseless 

ground for augmenting the counsel fee, see Part VII infra. 

 In considering the adequacy of representation, we are 

loath to place such dispositive weight on the parties' selfserving remarks. And even if counsel did not discuss fees until 

after they reached a settlement agreement, the statement would 

not allay our concern since the Task Force recommended that fee 

negotiations be postponed until the settlement was judicially 

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

an agreement. We recognize that Evans v. Jeff D., 475 U.S. 717, 

734-38, 106 S. Ct. 1531, 1541-43 (1986), overruled Prandini's 

strict rule prohibiting simultaneous negotiations. However, 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' representation. Consequently, the 

likelihood that the parties did negotiate the fees concurrently 
with the settlement in this case increases our concern about the 

adequacy of representation.25 

 Nor would GM's reservation of the right to appeal the 

fee award establish that the fee was negotiated separately since 

the likelihood that GM would want to contest an award based on a 

fee petition to which it agreed is quite small. The fact is 

confirmed by GM's "lay down" position with respect to the fee 

application. Although the Supreme Court clearly invalidated the 

use of mulitipliers in lodestar awards in 1992, see City of 

Burlington v. Dague, 112 S. Ct. 2638 (1992), GM did not apprise 

the district court of this fact when it was approving the fee 

award, or complain when the district court used a mulitplier in 

the calculations. This posture of GM suggests that its 

reservation of the right to appeal the fee award should not be 

given great weight in determining whether the settlement and 

attorney's fee were negotiated separately. But we hasten to add 

that we have not resolved these factors. We only hold today that 

the court did not make the necessary findings, and we remand to 

the district court so that it can make the necessary Rule 23 

findings. 

 The thrust of the foregoing discussion is that the 

circumstances under which the settlement evolved, made possible 

by the settlement class device, may have compromised class 

 

25. While the parties could have sought a waiver permitting 

simultaneous negotiations, Task Force at 269, the parties did not 

seek one here. 
counsel in a manner raising doubts as to adequacy of 

representation. The district court will examine this aspect of 

the matter on remand. Perhaps, on a more developed record, the 

adequacy of representation will be established. These concerns 

underscore the importance of having the district court make Rule 

23 findings. Although we do not believe that the class would 

meet the requirements for certification on the current record, we 

do not preclude the possibility that certification could be 

properly supported on a more developed record. Thus, we remand 

this action to the district court so that it can re-examine the 

class certification and the settlement and, if appropriate, 

certify the class by making the findings required by Rules 23(a) 

and (b). 

VI. IS THE SETTLEMENT FAIR, REASONABLE, AND ADEQUATE? 

 Invoking the correct standard of review under Girsh v. 

Jepson, 521 F.2d 153, 157 (3d Cir. 1975), the objectors also 

argue that the district court abused its discretion, when it 

approved the settlement as fair, reasonable and adequate. 

Because we leave open the possibility that the district court may 

on remand properly certify the class pursuant to Part V of this 

opinion, we must also address the district court's approval of 

the settlement. Rule 23(e) imposes on the trial judge the duty 

of protecting absentees, which is executed by the court's 

assuring that the settlement represents adequate compensation for 

the release of the class claims. See 2 NEWBERG & CONTE § 11.46 at 
11-105 to 11-106. Some courts have described their duty under 

Rule 23(e) as the "fiduciary responsibility" of ensuring that the 

settlement is fair and not a product of collusion. In re Warner 

Commun. Secur. Litig., 798 F.2d 35, 37 (2d Cir. 1986); see also, 

Plummer v. Chemical Bank, 668 F.2d 654, 658 (2d Cir. 1982); 

Grunin v. International House of Pancakes, 513 F.2d 114, 123 (8th 

Cir.), cert. denied, 423 U.S. 864 (1975); Alvarado Partners L.P. 

v. Mehta, 723 F. Supp. 540, 546 (D. Colo. 1989). At all events, 

where the court fails to comply with this duty, absentees have an 

action to enjoin the settlement. 2 NEWBERG & CONTE § 11.23. 

 In order for the determination that the settlement is 

fair, reasonable, and adequate "to survive appellate review, the 

district court must show it has explored comprehensively all 

relevant factors." Malchman, 706 F.2d at 434 (citing Protective 

Committee, 390 U.S. at 434; Plummer, 668 F.2d at 659). A number 

of courts have recognized the need for a special focus on 

precluding the existence of collusion. See Malchman, 706 F.2d at 

433 (advocating a focus on the negotiation process to uncover 

possible collusion); General Motors Interchange, 594 F.2d at 1125 

(finding a need for heightened scrutiny of the settlement 

stemming from the potential for collusive settlement). 

 The topic of class action settlement has received much 

attention, which is understandable given the growing frequency of 

the settlement of increasingly large claims through the class 

action device. See In re A.H. Robins Co., 880 F.2d 709, 739-40 
(4th Cir. 1989) (discussing the use of the device to settle 

various mass tort cases); In re Taxable Municipal Bond Secur. 

Litig., 1994 WL 643142 at *5 (noting the dramatic change in 

attitudes of courts and commentators toward the settlement 

class). The drive to settle class actions has also grown, 

notwithstanding the potential for collusive settlements to 

compromise absentee interests. Courts undertaking the special 

role of supervising class action settlements are apparently 

heeding the public policy in favor of settlement, see 2 NEWBERG &

CONTE § 11.41 at 11-85, and acknowledging the urgency of this 

policy in complex actions that consume substantial judicial 

resources and present unusually large risks for the litigants. 

 We have already noted the special difficulties the 

court encounters with its duties under Rule 23(e) in approving 

settlements where negotiations occur before the court has 

certified the class. Because of such difficulties, many courts 

have required the parties to make a higher showing of fairness to 

sustain these settlements. See, e.g., Ace Heating & Plumbing Co. 

v. Crane Co., 453 F.2d 30, 33 (3d Cir. 1971) ("[W]hen the 

settlement is not negotiated by a court designated class 

representative the court must be doubly careful in evaluating the 

fairness of the settlement to the plaintiff's class."); General 

Motors Interchange, 594 F.2d at 1125 (attributing a need for 

heightened scrutiny of the settlement to the potential for 

collusive settlement); Weinberger, 698 F.2d at 73 (higher showing 
of fairness required in pre-certification settlements and special 

focus on assuring adequate representation and the absence of 

collusion); Malcham v. Davis, 706 F.2d 426, 434 (2d Cir. 1983); 

Mars Steel v. Continental Ill. Nat'l Bank & Trust, 834 F.2d 677, 

681 (7th Cir. 1987); County of Suffolk v. Long Island Lighting 

Co., 907 F.2d 1295, 1323 (2d Cir. 1990); 2 NEWBERG & CONTE § 

11.23; MCL 2d § 30.42 (citing the informational deficiencies 

faced by the court and counsel in pre-certification settlements). 

We affirm the need for courts to be even more scrupulous than 

usual in approving settlements where no class has yet been 

formally certified. 

 Settlements that have survived this heightened standard 

have involved much stronger indications of sustained advocacy by 

the de facto class counsel than we observe in this case. See

Weinberger v. Kendrick, 698 F.2d 61 (2d Cir. 1982) (settlement 

discussions did not commence until after four years of discovery 

supplemented by another investigation by a trustee and after 

plaintiffs rejected the first settlement offer); In re Beef 

Indus. Antitrust Litig., 607 F.2d at 177-78 (settlement 

discussions began after six months of discovery; action pending 

for three years, court was fully briefed); City of Detroit v. 

Grinnell, 495 F.2d 448, 464 (2d Cir. 1974) (approving settlement 

after several counsel vied for position for four years and voiced 

strenuous objections, explaining that Manual's concerns about 

settlement classes articulated by the Manual for Complex 
Litigation only pertained to settlement in the early stages of 

litigation); cf. Plummer v. Chemical Nat'l Bank, 668 F.2d 654 (2d 

Cir. 1982) (rejecting settlement where plaintiffs' counsel relied 

on information voluntarily furnished by defendants). 

 There are certain basic questions that courts can ask 

to detect those cases settled in the absence of sustained effort 

by class representatives sufficient to protect the interests of 

the absentees. See MCL 2d § 30.41. For instance: Is the relief 

afforded by the settlement significantly less than what appears 

appropriate in light of the preliminary discovery? Have major 

causes of action or types of relief sought in the complaint been 

omitted by the settlement? Did the parties achieve the 

settlement after little or no discovery? Does it appear that the 

parties negotiated simultaneously on attorneys' fees and class 

relief? Even acknowledging the possibility of some overpleading, 

these questions raise a red flag in this case. 

 With the courts' heightened duty to scrutinize this 

pre-certification settlement and some of these rudimentary 

indicators in mind, we now apply our nine-factor Girsh test, see

Part III supra, and conclude from the balance of these factors 

that the district court's conclusion that the settlement was fair 

and reasonable constitutes an abuse of discretion. 

Coincidentally, this result tracks the conclusions of a Texas 

appeals court that, based on an analysis similar to that of 

Girsh, set aside an order approving a substantially identical 
settlement of similar claims brought by residents of Texas. See

Bloyed v. General Motors, 991 S.W. 2d at 422. 

 A. Adequacy of Settlement - General Principles

 This inquiry measures the value of the settlement 

itself to determine whether the decision to settle represents a 

good value for a relatively weak case or a sell-out of an 

otherwise strong case. The Girsh test calls upon courts to make 

this evaluation from two slightly different vantage points. 

According to Girsh, courts approving settlements should determine 

a range of reasonable settlements in light of the best possible 

recovery (the eighth Girsh factor) and a range in light of all 

the attendant risks of litigation (the ninth factor). See Girsh 

v. Jepson, 521 F.2d at 157; see also Malchman v. Davis, 706 F.2d 

426, 433 (2d Cir. 1983) (identifying a similar test); City of 

Detroit v. Grinnell Corp., 495 F.2d 448, 463 (2d Cir. 1974) 

(same). 

 In formulaic terms we agree that "in cases primarily 

seeking monetary relief, the present value of the damages 

plaintiffs would likely recover if successful, appropriately 

discounted for the risk of not prevailing, should be compared 

with the amount of the proposed settlement." MCL 2d § 30.44 at 

252. This figure should generate a range of reasonableness 

(based on size of the proposed award and the uncertainty inherent 

in these estimates) within which a district court approving (or 

rejecting) a settlement will not be set aside. See Newman v. 
Stein, 464 F.2d 689, 693 (2d Cir. 1972). The evaluating court 

must, of course, guard against demanding too large a settlement 

based on its view of the merits of the litigation; after all, 

settlement is a compromise, a yielding of the highest hopes in 

exchange for certainty and resolution. See Cotton v. Hinton, 559 

F.2d 1326, 1330 (5th Cir. 77). The primary touchstone of this 

inquiry is the economic valuation of the proposed settlement. 

 We turn to this analysis. As will appear, the district 

court's conclusion that the settlement was within the range of 

reasonableness rests heavily on the proposition that the class 

had never proven any diminution in value of the trucks. It 

ignored the fact that the coupons provided no cash value and made 

no provision for repairing the allegedly life-threatening defect. 

For the reasons that follow, we believe that the district court 

did not sufficiently scrutinize the valuations of the settlement, 

and that, on this record, the settlement appears to be 

inadequate. Consequently, we will conclude that the district 

court erred when it found that the settlement fell within the 

range of reasonableness. 

1. Valuation of the Settlement - Introduction

 The value of the $1,000 certificates is sharply 

disputed. GM argues that the certificates are worth close to 

their face value since they can be redeemed for a broad array of 

GM trucks and can be used in combination with dealer incentives. 

For those unable or unwilling to purchase another GM truck, GM 
argues, cash can be realized from transferring the certificate 

within the household for full value or selling the certificate 

for $500. Plaintiffs presented an expert, Dr. Itamar Simonson, 

who placed the value of the certificates between $1.98 and $2.18 

billion, based on an estimate that 34% to 38% of the class would 

redeem the certificate in purchasing a new truck and an 

additional 11% of the class would sell their certificates for 

$500. Objectors contest these estimates and many of the 

assumptions used to generate them. 

 We therefore analyze several of the foundations for the 

district court's evaluation. First, we inquire about the 

reliability of plaintiffs' witness's valuation. Second, we 

explore the adequacy of the district court's consideration of the 

possibility that some class members would not be able to use the 

coupons at all. Third, we inquire as to whether the quite 

significant restrictions on transfer of the certificates present 

obstacles to the development of a market so as to render the 

estimates of their worth unreasonably inflated. Finally, we 

consider whether the size of the attorneys' fees agreement 

suggests that GM attached a greater value to the class claims 

than proponents of the settlement would have us believe. These 

factors lead ineluctably to the conclusion that the district 

court over-valued this settlement, which in turn gives credence 

to the contention of the objectors that the proffered settlement 

was, in reality, a sophisticated GM marketing program. 
 a. Plaintiffs' Witness Dr. Itmar Simonsen

 Dr. Simonsen's methods and assumptions raise serious 

doubts about the reliability of the valuations they generated. 

Although Simonsen's conclusion was based on his estimate that 

between 34% and 38% of the class members would use the 

certificate, his own telephone survey revealed that only 14% of 

the class reported that they would "definitely" or "probably" buy 

a new truck. Apparently Simonsen only excluded those who 

responded that they would "definitely not buy" or "probably not 

buy" a new truck, a methodological choice which is questionable. 

Furthermore, Simonsen discounted the statistics by seemingly 

arbitrary factors in an effort to be "conservative," but without 

some basis or explanation for deriving those factors, we have no 

way of judging whether they were conservative or aggressive. 

 Even more importantly, the raw survey data probably 

over-state the prospects that the certificates will be used since 

there are substantial obstacles to obtaining and transferring the 

certificates, none of which Simonsen deals with. Finally, 

Simonsen supposed that a higher percentage of fleet owners would 

redeem the certificates, but this seems to disregard the 

statutory and regulatory constraints that often restrict fleet 

buyers' purchase decisions. Indubitably all of these concerns 

reduce the value of the settlement, yet Simonson appears simply 

to have multiplied his estimated number of users by the coupon 

amount or transfer value. 
 On the other hand, although various objectors have made 

a good argument that the net value of the certificates will also 

be eroded by rising truck prices (which would allegedly be 

influenced both by the huge number of certificates that would 

need to be redeemed within a relatively brief time and by the 

fact that dealers may take advantage of customers they know to be 

somewhat tied to the purchase of a GM truck by their desire to 

realize value from the coupon), we will, to be conservative, not 

take this factor into account. Even so Simonsen's methodology 

undermines his conclusion to the extent that his valuation cannot 

support the settling parties' case. 

 b. Inability of Class Members to Use Certificates

 The district court also erred by not adequately 

accounting for the different abilities (not inclinations) of 

class members to use the settlement. One sign that a settlement 

may not be fair is that some segments of the class are treated 

differently from others. See Piambino v. Bailey, 610 F.2d at 

1329; In re GM Corp. Engine Interchange Litig., 594 F.2d at 1128; 

MCL 2d § 30.41 at 236. Consequently, the fact that the coupon 

settlement benefits certain groups of the class and not others 

suggests that the district court did not adequately discharge its 

duties to safeguard the interests of the absentees. See In re 

Fine Paper Antitrust Litigation, 617 F.2d 22 (3d Cir. 1980) 

(ongoing duty of the judge to protect absentees); Piambino v. 

Bailey, 610 F.2d 1306, 1329 (duty to assure the settlement is 
fair, reasonable and adequate with respect to each category of 

the class). 

 People of lesser financial means will be unable to 

benefit comparably from the settlement. GM cites a number of 

other judicially approved class action settlements that awarded 

coupons and argues that, since this coupon provides far more 

consideration, it necessarily merits approval. See, e.g., New 

York v. Nintendo of Am. Inc., 775 F. Supp. 676, 679 (S.D.N.Y. 

1991) ($5 discount coupon for video game purchase approximately 

$200); In re Cuisinart Food Processor Antitrust Litig., 1983-2 

Trade Cas. (CCH) ¶ 65 at 680 (D. Conn. 1983) (discount coupons 

with maximum value of $100 for machines costing approximately 

$100 to $300); In re Domestic Air Transp. Antitrust Litig., 148 

F.R.D. 297, 331 (N.D. Ga. 1993) (certificates worth between $10 

and $200 for flights costing between $50 and $1500). 

 These cases, however, differ dramatically in the amount 

of money required to purchase the good -- i.e. to realize the 

certificate's value -- and in the frequency with which a typical 

consumer might expect to purchase the good. Whether a new truck 

costs between $20,000 and $33,000 as some objectors claim (JA 

1884, 1889-90, 2210) or some amount "far less" than that, as GM 

claims, this purchase is not comparable to buying a new food 

processor or even an airline ticket. As the district court 

acknowledged, "a substantial number of class members" (Op. at 18) 

would not be able to afford a new truck within the fifteen month 
coupon period. Both the high cost of the trucks and the 

infrequency of a consumer's purchase of a new truck (relative to 

the fifteen month redemption period) make using these 

certificates significantly more difficult than those in the other 

coupon settlements, for all class members but particularly for 

the poorer ones. 

 Even where class members do manage to use the 

certificates, we are concerned about their real value. It may 

not be the case that the certificates saved those class members 

$1,000 on something they would have otherwise bought; those class 

members may only have purchased new GM trucks because they felt 

beholden to use the certificates. Thus, rather than providing 

substantial value to the class, the certificate settlement might 

be little more than a sales promotion for GM, in just the way 

that the Bloyed court characterized the settlement as a 

"tremendous sales bonanza" for GM. Bloyed v. General Motors 

Corp., 881 S.W. 2d at 431. 

 We turn then to the fleet buyers, who constitute a 

readily identifiable category of plaintiffs arguably 

disadvantaged by the settlement. Budgetary constraints prevent 

some of them from replacing their entire fleets within the 

fifteen month redemption period.26 Competitive bidding 

 

26. This is true of, for example, the State of Iowa, State of 

Indiana, West Virginia Department of Transportation, State of New 

York, Commonwealth of Pennsylvania Department of Transportation 

and Department of General Services, County of Los Angeles, 

California, Jefferson Parish, Louisiana, and the City of New 

York. 
requirements also apparently impede many of these entities from 

being able to use the certificates. Because there is no 

assurance that GM will be the lowest bidder, the government 

entities bound by these requirements may not be able to use the 

certificates. See, e.g. The Louisiana Public Bid Law, LA. R.

STAT. § 38:2212(A)(1)(a). [Jefferson Parish Brief at 5]. The 

district court dismissed these objections saying it was 

"confident that ingenious counsel will be able to structure 

bidding requirements so that the governmental entities can take 

full advantage of the certificates." (Op. at 26.) The district 

court's observation, while perhaps partially accurate, represents 

far too cavalier a dismissal of a potentially serious intra-class 

and conflict inequity. 

 The named plaintiffs argue that, if certain fleet 

buyers and individuals were dissatisfied with the settlement's 

terms, they could simply opt-out of the class and pursue their 

own relief individually. (Plaintiff's Brief at 15 n.13.) While 

such an argument might theoretically be true, it ignores the 

realities of pursuing small claims. It would cost considerably 

more to litigate individual claims than the litigant could 

recover, using either a retrofit or a warranty theory to measure 

damages. And the district court apparently did not consider the 

possibility of a subclass of fleet owners, though that might 

alter the anatomy of the settlement. At all events, the right of 

parties to opt out does not relieve the court of its duty to 
safeguard the interests of the class and to withhold approval 

from any settlement that creates conflicts among the class. In 

sum, the relative inability of class members to use the 

certificates militates against settlement approval. 

 c. Value of the Transfer Option

 In order to support its conclusion that the settlement 

was reasonable and fair, the district court cited the ability of 

fleet buyers and those consumers with budget constraints to 

realize value from the certificates by transferring them. We 

believe the value of the transfer option is dubious, and 

consequently that the settlement was unfair to substantial 

portions of the class. 

 Simonsen's valuation of the settlement includes $157 

million attributable to transferred certificates. Simonsen 

calculated that holders of the certificates could realize $250 

from the sale of the transferred certificates (with a $500 face 

value). He gave no explanation for his assumption of a $250 

market value. To the extent that this methodology is also 

dubious, it compounds the skewing of the valuation wrought by his 

usage estimates, see Part VI(A)(1)(a) supra. 

 The value of this option depends on the development of 

a secondary market for these certificates. But there is no 

assurance that a market will develop; indeed, the restrictions on 

transfer, which GM claims are necessary to prevent fraud, pose 

significant barriers to the creation of such a market. The 
requirement that holders send in their $1,000 or original 

certificate to exchange for the $500 transfer certificate imposes 

very significant transaction costs since the parties must agree 

on a price before the original holder initiates the transfer 

process (which could easily last several weeks). During that 

process, there is substantial market risk, for the price of the 

transfer certificate could well move dramatically and induce a 

breach in the purchase agreement by one of the parties. Breaches 

would pose a real problem in this case because the transfer 

certificate cannot be reissued in another's name and thus cannot 

be resold. Because of these risks, individuals will be quite 

reluctant to contract for these transfer certificates. Even 

worse, the one-time transfer restriction also precludes the 

development of a market making clearing house mechanism. In our 

view, therefore, it is quite possible that holders will be unable 

to realize any significant value from the transfer option. 

 Aside from the effect of the transfer restrictions, we 

also question Simonsen's valuation on the basis that it did not 

account for the inability to use the transfer certificates in 

conjunction with other incentive plans. For example, the 

incremental value of the $500 transfer certificate to class 

members would be completely eroded if GM offers a $1,000 dealer 

rebate program, since the class member would be forced to choose 

between the plans and would therefore be no better off then the 

general public. 
 The district court did not take cognizance of these 

factors. It erred when it presumed development of a liquid 

market for these transfer certificates with very little support 

in the record for it, and when it relied on a putative value of 

the transfer option arbitrarily ascribed by plaintiffs' expert to 

find that the settlement was fair and reasonable. Although 

objectors might have made out an even stronger case by proffering 

their own expert on this valuation, the court has an independent 

duty to scrutinize the settlement's value and any evidence 

offered to support it. Accordingly, we find that evidence 

pertaining to the incremental value created by the transfer 

option does not support the valuation of the settlement. 

 d. GM's Implicit Valuation of the Claim

 Our concerns about the adequacy of the settlement are 

complicated by the generous attorneys' fees GM agreed to pay in 

this case. Although originally GM vigorously contested the 

viability of the class claims and the class, the company, in view 

of its willingness to pay attorneys' fees of $9.5 million, may, 

at the time of settlement, have valued the claims at some 

substantial multiple of the fee award.27 This $9.5 million 

 

27. GM was apparently so eager to have this $9.5 million fee 

approved that its counsel did not even object when the district 

court applied a multiplier notwithstanding clear Supreme Court 

precedent invalidating the use of multipliers. See City of 

Burlington v. Dague, 112 S. Ct. at 2638. In our view, the fact 

that counsel to this large multinational corporation did not 

object to this clear error raises a smoking gun signaling GM's 

awareness of the questionable settlement it made. 
attorney's fee award seems unusually large in light of the fact 

that the settlement itself offered no cash outlay to the class. 

GM's apparent willingness to pay plaintiffs' counsel close to 

$9.5 million indicates that the party in perhaps the best 

position to evaluate the claim may have thought the action, which 

both plaintiffs' counsel and the defense contend was not worth 

much, posed a significant enough threat to cause GM to strike a 

lucrative deal with plaintiff's counsel. 

 On the other hand, perhaps GM's valuation results only 

from the class counsel's decision to settle the action at an 

early stage and GM's desire to encourage that decision. Of 

course, a decision to settle that occurs at too incipient a stage 

of the proceedings also weighs against settlement approval. In 

short, while the settlement certainly presented difficult 

valuation issues, we believe that the district court erred when 

it uncritically accepted such high estimates of the settlement's 

value. 

2. Valuing This Settlement Relative to The Relief Requested

 The ninth Girsh factor also undermines the district 

court's decision. In the class action context, "the relief 

sought in the complaint" serves as a useful benchmark in deciding 

the reasonableness of a settlement. See Cotton v. Hinton, 559 

F.2d 1326, 1330 (5th Cir. 1977). Here the adequacy of the 

certificate settlement is particularly dubious in light of the 

claims alleged and the relief requested in the original 
complaint. The coupons offered by GM simply do not address the 

safety defect that formed the central basis of the amended 

complaint filed barely four months before the settlement.28 The 

district court gave two justifications for its conclusion that, 

notwithstanding this discrepancy, the settlement was fair. 

First, the court explained, "no objector that complains that the 

settlement fails to retrofit the alleged defect has been able to 

come forth with a practical and safe modification for the trucks 

that has been designed, evaluated and tested." (Op at 29.) 

Second, the court also relied on the fact that "[t]he proposed 

class settlement does not affect the rights of settlement class 

members to participate in any recall that NHTSA orders." (Op 34-

35.) 

 Considering the validity of these arguments, we 

conclude that they do not alleviate the substantial concerns 

created by the dramatic divergence of the settlement terms from 

the relief originally sought. This factor, therefore, 

strengthens our conviction that the settlement was not fair, 

reasonable, or adequate. 

 a. The Retrofit Issue

 It is true that there does not appear to be a 

consensus retrofit. For each of the suggested retrofits -- 

 

28. In the amended consolidated complaint, class counsel 

described the trucks as "rolling firebombs" and estimated that an 

additional 200 deaths would occur unless GM took prompt 

corrective action. (Oral Aug. Trans. 127, 257). 
relocation of the gas tank to the spare tire location, 

installation of a tank with a rubber bladder, or installation of 

a metal cage around the gas tank -- there was evidence that the 

retrofit was either ineffective or caused other performance 

problems for at least some model years. On the other hand, there 

was also evidence supporting the efficacy of various retrofits. 

For instance, GM's own documents considered all three options and 

found that all would enhance the safety of the fuel systems. (JA 

1863-64.) In addition, there was also potentially damaging 

testimony by Ronald E. Elwell, an engineering analyst at GM for 

fifteen of his twenty-eight years and its chief expert in 

defending the fuel tank location and design on the full-size 

trucks in a number of significant product liability cases, see, 

e.g., Bowman v. General Motors, 427 F.Supp. 234, 236 (E.D. Pa. 

1977). 

 In his deposition, Elwell testified that GM designed a 

retrofit using a steel cage which prevented the gas tanks from 

rupturing in side impact testing. He further testified that GM 

abandoned the retrofit (knowing, because of its own secret crash 

tests, of the increased fire danger) only because GM feared that 

it would give the public the wrong impression. (Jenkins App. 

119) GM attempted to impeach Elwell by characterizing him as a 

"disgruntled," (former) employee. By way of rehabilitation, 

objectors explain Ellwell's reduced duties as a result of health 

problems. Whether or not Ellwell's testimony could itself 
establish that the steel cage enhances safety, his testimony 

might have been important if the case had proceeded to trial. As 

a consequence, the district court abused its discretion when it 

summarily dismissed Elwell's testimony. 

 b. Availability of Other Remedies

 The district court also relied on the existence of the 

NHTSA recall mechanism and the class numbers' unencumbered right 

to bring personal injury suits to justify its approval of a 

settlement that did not secure any of the equitable relief 

originally requested. While individual tort suits are not 

barred, the court's approval of this settlement (which does 

nothing to redress the alleged danger) foregoes the opportunity 

presented by the pleadings29 to prevent injuries that tort suits 

can at best address only retrospectively. More importantly, the 

NHTSA remedy may be extremely limited in that it can only require 

a manufacturer to repair a vehicle first purchased within eight 

calendar years of the investigation. The court's observation 

that "all the plaintiffs may have statute of limitations problems 

in this action that may be equally as severe or worse than the 

eight year NHTSA limitation" does nothing to increase the value 

of the theoretical access to a NHTSA recall remedy to the owner 

or others who may be injured by the trucks at some future point. 

 

29. The pleadings alleged a dominant control theory which, if 

successful, would have required GM, the manufacturer and 

distributor of these vehicles, to remedy the allegedly 

unreasonable safety defects before they could cause or exacerbate 

the damage and injury resulting from a side impact collision. 
Hence, the potential existence of a partial recall under NHTSA 

does not dispel our doubts about the terms of the settlement 

diverging so far from the original complaint. In so concluding, 

we do not rely on the subsequent resolution of the NHTSA 

investigation, which did not include any recall. 

 In sum, we agree with the district court that the 

evidence of the existence of an effective retrofit to be 

contradictory; nevertheless, we think that the very murkiness of 

this evidence and the fact that certain key evidence was wrongly 

excluded, especially in light of the magnitude of the alleged 

safety defect, militates against approving a settlement attained 

at such an early stage of the litigation which does nothing to 

repair the vehicles, even if only by creating a fund to finance 

retrofits.30

 

30. The district court also based its conclusion that the 

settlement was reasonable relative to the best possible recovery 

(i.e., relative to the relief requested) on its doubts that a 

court could or should award the recall/retrofit remedy requested. 

The court expressed some doubt that it had the power to order a 

recall by injunction, citing Walsh v. Ford Motor Co., 130 F.R.D. 

260 (D.D.C. 1990) and National Women's Health Network Inc. v. 

A.H. Robins Co., 545 F. Supp. 1177 (D. Mass. 1982). Neither of 

these cases, however, conclusively establishes that the district 

court would lack the power to order a recall. The fact that no 

court has done it before and that there may be some logistical 

issues to surmount do not themselves support the court's 

conclusion; other class actions and complex litigation 

settlements have developed mechanisms for supervising and 

enforcing compliance with detailed affirmative injunctions. See, 

e.g., MCL.2d § 33.55 ("The court may also decide to appoint a 

master under Rule 53 to monitor future implementation of 

injunctive features of the settlement."). Although we intimate 

no view on the matter, it does seem to warrant further 

consideration. At all events, the district court could clearly 

have awarded relief that would require GM to set up a fund to 
 B. Complexity of the Suit

 This factor is intended to capture "the probable costs, 

in both time and money, of continued litigation." Bryan v. 

Pittsburgh Plate Glass Co., 494 F.2d 799, 801 (3d Cir.), cert. 

denied, 419 U.S. 900 (1974). By measuring the costs of 

continuing on the adversarial path, a court can gauge the benefit 

of settling the claim amicably. The district court here 

concluded that the litigation "would be mammoth" and would have 

resulted in a "substantial delay in . . . recovery." (JA 1708, 

1713-14). 

 While it is true, as the Youngs objectors argue, that 

the district court's conclusion in part depended on the ambitious 

definition of the class in terms of both geography and models 

included, (Youngs 25), the action would still involve a complex 

web of state and federal warranty, tort, and consumer protection 

claims even if the class had been subdivided and some of the 

legal issues simplified. Had the case not been settled, both 

plaintiffs and GM would have had to conduct discovery into the 

background of the six million vehicles owned by class members, 

including any representations allegedly made to plaintiffs. Each 

side would also have needed to hire or produce a retinue of 

experts to testify on a variety of complex issues. Undoubtedly, 

(..continued) 

finance retrofits initiated by the owners' individually. See

Bloyed, 881 S.W. 2d at 433. The district court, therefore, did 

not lack the power to order a remedy that would have been more 

responsive to the class's concern about leaving the trucks on the 

road. 
GM would have ardently contested the action at every step, 

leading to a plethora of pre-trial motions. In contrast, this 

settlement made its remedies immediately available and avoided 

the substantial delay and expense that would have accompanied the 

pursuit of this litigation. The district court thus correctly 

concluded that the complexity factor weighed in favor of 

approving the settlement. 

 C. Reaction of the Class

 In an effort to measure the class's own reaction to the 

settlement's terms directly, courts look to the number and 

vociferousness of the objectors. Courts have generally assumed 

that "silence constitutes tacit consent to the agreement." Bell 

Atlantic Corp. v. Bolger, 2 F.3d 1304, 1313 n.15 (3d Cir. 1993). 

However, a combination of observations about the practical 

realities of class actions has led a number of courts to be 

considerably more cautious about inferring support from a small 

number of objectors to a sophisticated settlement. See, e.g., In 

re Corrugated Container Antitrust Litig., 643 F.2d at 217-18; GM 

Interchange Litig., 594 F.2d at 1137. 

 In a class action case involving securities litigation, 

this court has recognized the possibility that the assumption 

that silence constitutes tacit consent "understates potential 

objectors since many shareholders have small holdings or 

diversified portfolios, . . . and thus have an insufficient 

incentive to contest an unpalatable settlement agreement because 
the cost of contesting exceeds the objector's pro rata benefit." 

Bell Atlantic Corp. v. Bolger, 2 F.3d at 1313 n.15. Although 

this is not a securities class action and the amounts at stake 

could be significant, the absentees may not fully appreciate the 

size of their potential claims since, by excluding those owners 

whose trucks have already experienced some mishap related to the 

fuel tank design, the class may include only those who have no 

reason (outside of media coverage) to know of the latent defect 

or the claim based on the alleged existence of that defect. 

 Even where there are no incentives or informational 

barriers to class opposition, the inference of approval drawn 

from silence may be unwarranted. As we noted earlier, Judge 

Posner has explained that "where notice of the class action is 

. . . sent simultaneously with the notice of the settlement 

itself, the class members are presented with what looks like a 

fait accompli." Mars Steel, 834 F.2d at 681. In this case 

especially, the combined notice largely defeats the potential for 

objection since the notice did not inform the class that the 

original complaint had sought a retrofit.31 Without information 

about the original complaint, absentees lacked any basis for 

comparing the settlement offered to them to the original prayer. 

 

31. There may also have been other deficiencies in the notice. 

The fact that the notice did not disclose the attorneys fees that 

the class counsel and defendants agreed to, and the fact that the 

notice suggested that class members could also have a recall 

remedy from NHTSA (though many of the trucks were so old that 

NHTSA lacked the power to recall them), may also have helped 

suppress potential objection. 
It is instructive that many of the better-informed absentees, the 

fleet owners, did object. 

 The fact that a poll conducted by class counsel's 

marketing expert reported that a minimum of 63% of the class 

would probably or definitely not use the coupon to purchase a new 

truck also suggests that the class could not possibly have so 

wholeheartedly endorsed the settlement. Moreover, one cannot 

infer approval of the settlement from requests for the transfer 

of the certificates, as the district court did. Those requests 

only signify that certain class members attempted to maximize the 

value they could realize from the settlement with which they were 

presented and thus might illustrate how futile class members 

thought objecting would be. 

 Although the absolute number of objectors was 

relatively low,32 there are other indications that the class 

reaction to the suit was quite negative: The seemingly low 

number of objectors includes some fleet owners who each own as 

many as 1,000 trucks, and those who did object did so quite 

vociferously. In conjunction with the already-noted problems 

associated with assuming that the class members possessed 

adequate interest and information to voice objections, the 

appeals of those who actually objected demonstrate that the 

reaction of the class was actually negative, and not supported by 

 

32. Of approximately 5.7 million class members, 6,450 owners 

objected and 5,203 opted out. 
the "vast majority of the class members" as the district court 

concluded. (Op at 8.) The class reaction factor plainly does 

not, contrary to the district court's conclusion, weigh in favor 

of approving the settlement. 

 D. Stage of Proceedings

 The stage-of-proceedings facet of the Girsh test 

captures the degree of case development that class counsel have 

accomplished prior to settlement. Through this lens, courts can 

determine whether counsel had an adequate appreciation of the 

merits of the case before negotiating. The district court found 

that this factor favored settlement approval, relying on the fact 

that settlement was presented for approval less than six months 

prior to the scheduled trial date. 

 Given the purpose of this inquiry, however, it is more 

appropriate to measure the stage by reference to the commencement

of proceedings either in the class action at issue or in some 

related proceeding. See In re Beef Antitrust, 607 F.2d at 180 

(court referred to discovery in companion cases); City of Detroit 

v. Grinnell Corp., 356 F. Supp. 1380, 1386 (S.D.N.Y. 1972), rev'd 

on other grounds, 495 F.2d 448 (2d Cir. 1974) (noting the 

extensive discovery in that and parallel cases); In re BaldwinUnited Corp., 105 F.R.D. at 483 (access to expert testimony and 

other evidence from parallel state court proceedings as well as 

to relevant public documents led court to believe counsel 

"availed themselves of all of these sources of information and 
conducted full adversarial negotiations. . ."); 2 NEWBERG & CONTE § 

11.45 at 11-102 n.247. 

 The relevant period of time this case was in litigation 

was quite brief; approximately four months elapsed from the 

filing of the consolidated complaint to reaching the settlement 

agreement. To be sure, we cannot measure the extent of counsel's 

effort from the time of the litigation alone; class counsel in 

this case are known to be quite industrious, and the district 

court properly considered class counsel's review of the materials 

from prior product liability proceedings and from the Moseley

personal injury case, Mosley v. General Motors Corp., No. 90-v6276 (Fulton County, Ga. Feb. 4, 1993). However, mere access to 

the materials from other proceedings does not establish that 

counsel developed the merits, particularly where the other cases 

were premised on different theories of recovery. While we have 

no doubt that class counsel diligently reviewed those materials 

during the relevant period, nothing in the record demonstrates 

that they had conducted significant independent discovery or 

investigations to develop the merits of their case (as opposed to 

supporting the value of the settlement), that they had retained 

their own experts, or that they had deposed a significant number 

of the individuals implicated in the materials from these other 

proceedings. It is particularly noteworthy that the plaintiffs 

did not depose Ronald Elwell, although he could potentially have 
offered evidence that would have substantially bolstered the 

plaintiffs' case. See Part VI(A)(2)(a) supra. 

 At all events, the inchoate stage of case development 

reduces our confidence that the proceedings had advanced to the 

point that counsel could fairly, safely, and appropriately decide 

to settle the action. While the district court may have, 

laudably, been attempting to minimize the funds expended on 

discovery in order to maximize the funds available to the class, 

we think that the district court erred by not assuring that 

adequate discovery had been taken. 

 Beyond the incipient stage of the case and the modest 

indications of substantive development, there is little basis for 

presuming vigorous proscution of the case from the fact that 

settlement negotiations occurred. In ordinary class action 

settlements (i.e., where the court certifies the class before 

settlement negotiations commence) courts can presume that the 

negotiations occurred at arm's length because they have already 

determined that the counsel negotiating on behalf of the class 

adequately represents the class's interests. See Part IV(E) 

supra, (discussion of adequacy of representation). In cases such 

as this one, however, where there has been no determination by 

the court that a proper class exists, the mere fact that 

negotiations transpired does not tend to prove that the class's 

interests were pursued. Id. In short, the incipient stage of 

the proceedings poses an even larger obstacle to settlement 
approval in settlement class situations than it would in normal 

class action settlements since courts have no other basis on 

which to conclude that counsel adequately developed the claims 

before deciding to settle. 

 Furthermore, to the extent that this stage-ofproceedings factor also aims to assure that courts have enough 

exposure to the merits of the case to enable them to make these 

evaluations, it cannot support settlement approval here. With 

little adversarial briefing on either class status or the 

substantive legal claims, the district court had virtually 

nothing to aid its evaluation of the settlement terms. We 

therefore conclude that the district court clearly erred in 

finding that this factor weighed in favor of settlement approval. 

 E. Risks of Establishing Liability

 By evaluating the risks of establishing liability, the 

district court can examine what the potential rewards (or 

downside) of litigation might have been had class counsel elected 

to litigate the claims rather than settle them. See In re 

Baldwin-United Corp., 105 F.R.D. 475, 482 (S.D.N.Y. 1985) 

(comparing advantages of an immediate cash payment with risks 

involved in long and uncertain litigation). The district court 

here concluded that this factor also weighed in favor of 

approving the settlement since "there appear[ed] to be a 

substantial risk in establishing liability because of the 

complexity and size of the case along with the legal and factual 
problems raised by GM." (Op. at 14) (JA 1708). While we agree 

with the district court that, on balance, the prospective 

difficulty faced by a nationwide class of establishing liability 

favored settlement, we believe the question is much closer than 

it thought, and thus the factors do not weigh heavily in favor of 

settlement as the district court believed. 

 We do not gainsay that the plaintiff class faced 

considerable obstacles in establishing liability. First, it is 

not clear that the plaintiffs could maintain the federal causes 

of action (the Lanham Act and Magnuson-Moss Act claims) without 

some proof that the trucks suffered some decline in value, which 

the class was unable to demonstrate by published Kelley Blue Book 

figures. Second, the trucks complied with the applicable federal 

safety standards during the relevant times. This would 

undoubtedly be strong, though not necessarily conclusive, 

evidence that the trucks were not (legally) defective. 

Statistics offered by GM also suggest that the trucks presented 

no greater risk than other trucks or vehicles. See (JA 1978, 

2168). Moreover, data from actual accidents, as opposed to crash 

tests, failed to reveal any statistically significant difference 

in post-collision fires, injuries or death relative to Ford or 

Dodge full-size pickups. Finally, to the extent that state law 

requires proof of individualized reliance for the 

misrepresentation claims, that would seem to pose a substantial 
barrier to proving class-wide liability (though, as noted below, 

that issue can be the subject of separate proceedings). 

 On the other hand, we are not impressed by some of the 

factors relied upon by the district court to support its finding 

of substantial risk in proving liability. The court cited the 

legal obstacles faced by the class, such as statutes of 

limitations varying in different states, the lack of vertical 

privity for the warranty claims (required in some states), the 

varying expiration of warranty durational limits, and the bar 

under some state laws to recovery for economic losses on tort 

claims. (JA 1708, 1718-22). In response to these concerns, we 

point out that variations in the state procedural rules 

applicable to the class members have not prevented courts, 

including this one, from adjudicating class claims. See Hoxworth 

v. Blinder, Robinson & Co., 980 F.2d 912, 924 (3d Cir. 1992) 

(affirming finding of (b)(3) predominance despite differences in 

state law). Moreover, even if these variations precluded the 

successful prosecution of the class claims, qua class claims, in 

this case they would not necessarily doom the action to failure. 

 Many of the difficulties posed by these variations 

could have been surmounted (or were more likely to be surmounted) 

if the action were not treated as a national class. Hence, the 

fact that the only other national automotive product defect class 

action ended in a defense verdict does not weigh heavily in favor 

of settlement. Indeed, to the extent that state-by-state 
variations in procedural laws created legal obstacles, the 

district court should have considered dividing the action into 

geographic sub-classes instead of considering the entire 

nationwide class to be hobbled. Additionally, the court should 

have considered making the inquiry we made in In re School 

Asbestos Litig., 789 F.2d at 1110, as to whether the case in 

terms of claims and defenses might fall into three or four 

patterns so that, with the use of special verdict forms, the case 

might have been manageable. 

 We also note that, in other cases, courts have 

certified nationwide mass tort class actions, which also include 

myriad individual factual and legal issues, relying on the 

capacity for a court to decertify or redefine the class 

subsequently if the case should become unmanageable. See, e.g., 

In re School Asbestos Litig., 789 F.2d at 1110 (3d Cir. 1986). 

See also Bruce H. Nielson, Was the Advisory Committee Right?: 

Suggested Revisions of Rule 23 to Allow More Frequent Use of 

Class Actions in Mass Tort Litigation, 25 HARV. J. LEGIS. at 469 

("Some federal district court judges have suggested that this 

problem could be overcome and that multistate and nationwide 

classes could be certified by . . . using Rule 23(c)(4) 

subclasses to account for variances in state law . . . ."); see 

infra discussion on Risks of Maintaining Class Status. In any 

event, the failure of the district court to analyze the 

applicability of these various defenses to the different groups 
of plaintiffs may itself constitute an abuse of discretion. See

Piambino v. Bailey, 610 F.2d 1306, 1329 (5th Cir. 1980) 

("[Vacatur] is demanded by the failure to assess the interests of 

the categories of plaintiffs and whether the settlement was fair, 

adequate and reasonable as to each." (emphasis in original)); see 

also Piambino v. Bailey, 757 F.2d 1112 , 1140 (11th Cir. 1985). 

 In addition, a plethora of other evidence buttressed 

the class claims. First, the depositions and affidavits from GM 

engineers, including Elwell, characterizing the design as 

indefensible, would have strongly supported the class claims 

notwithstanding the fact that Elwell was arguably vulnerable to 

impeachment on the basis of his own employment history. Second, 

the evidence from Zelenuk v. GM, No. 96-131262 (Tex. 1992), that 

GM concealed crash tests might have been admitted in this 

proceeding. Third, the fact that GM has prevailed in three of 

the eight C/K pickup product liability trials does not support 

the settlement by confirming the weakness of the underlying 

claims, for at least two other plausible interpretations could 

explain this statistic. The fact that plaintiffs prevailed in 

five of the eight actions suggests that the claim alleged here 

was not so weak after all, at least if alleged by suitable 

plaintiffs. Moreover, such a statistic understates plaintiffs 

recoveries for these types of claims by not accounting for the 

individual settlements that have been reached. 
 While we recognize that establishing liability would by 

no means have been easy or certain for the plaintiffs, the 

district court over-emphasized the importance of defenses 

applicable to only some class members under certain state laws 

and incorrectly discounted a significant body of evidence 

pertinent to proving liability. Therefore, it is not clear that 

plaintiffs faced the grave prospects on the merits that the 

district court apparently believed when it approved this 

settlement. In any event, the district court's failure to 

distinguish between groups of plaintiffs that did and those that 

did not confront difficult state law defenses constitutes an 

abuse of discretion. Piambino, 610 F.2d at 1329. 

 F. Risks of Establishing Damages

 Like the previous factor, this inquiry attempts to 

measure the expected value of litigating the action rather than 

settling it at the current time. The district court relied 

heavily on this factor in approving the settlement: "[B]ecause 

the plaintiffs cannot adequately prove diminished value [of the 

pickups], the court concludes that risks of proving damages weigh 

strongly in favor of approval of the proposed class settlement." 

(Op. at 15)(JA 1708, 1722). We do not share the district court's 

confidence, and conclude that this factor does not weigh strongly 

in favor of settlement. 
 GM argues that the class's warranty claim amounts to a 

claim for diminished resale value. Some United States Courts of 

Appeals and some state courts have rejected such claims either on 

the grounds that a warranty of merchantability does not include 

any guarantee about the product's resale value, see, e.g., 

Carlson v. General Motors Corp., 883 F.2d 287, 298 (4th Cir. 

1989), cert. denied, 495 U.S. 904 (1990), or on the basis that 

the tort law of many states precludes tort claims for purely 

economic loss, see GM APPX. tab 14, 3062, 3105. In assessing 

this Girsh factor, the district court relied on its belief that 

the class could not demonstrate any diminution of the trucks' 

value relative to Ford and Dodge trucks by referring to the 

Kelley Blue Book. 

 We do not, however, believe that this is the only 

permissible approach to measuring the value of the defect. 

According to the Uniform Commercial Code, "the measure of damages 

for breach of warranty is the difference at the time and place of 

acceptance between the value of the goods accepted and the value 

they would have had if they had been as warranted, unless special 

circumstances show proximate damages of a different amount." UCC 

§ 2-714(2). Although diminished resale value might represent one 

method of measuring the damage suffered by owners from the 

publicity about the fuel tanks, it does not fully measure the 

difference between the value the defect-free truck would have had 

at delivery and the actual value of the truck as delivered. 
Measuring damages with a focus on resale value confounds the 

effects of varying rates of depreciation with the effect of the 

defect on the market value. The comparisons to the trucks of 

other manufacturers are similarly deficient measures since they 

fail to gauge the effect of the defect on the value of the trucks 

at delivery. 

 The cost of a retrofit, which effectively puts the 

truck in the condition in which it allegedly should have been 

delivered, may constitute an alternative measure of the damages 

arising from the breach of warranty. It has the advantage of 

avoiding the speculative exercise of ascertaining the 

hypothetical value of defect free trucks. See, e.g., McGrady v. 

Chrysler Motors Corp., 360 N.E.2d 818, 821-22 (Ill. App. Div. 

1977) (affirming an award of actual repair expenses where 

measuring value of vehicles as warranted upon delivery would be 

speculative); Nelson v. Logan Motor Sales, Inc., 370 S.E.2d 734, 

737 (W. Va. 1988) (reversing a ruling that repair costs were not 

evidence relevant to the value of the goods as accepted). 

Nothing in the UCC precludes such a measure; in fact, § 2-714(1) 

of the Uniform Commercial Code provides: 

 Where the buyer has accepted goods and given 

notification he may recover as damages for any nonconformity the loss resulting in the ordinary course of 

events from the seller's breach as determined in any 

manner which is reasonable. 

(emphasis added)(citation omitted).33 

 

33. GM argues that a repair remedy is available only when it is 

less costly to the defendant than diminution in value. We think 
 Because the district court based its determination of 

this factor on its exclusive reference to the Kelley Blue Book 

and refused to consider alternative measures that appear to 

provide concrete (and substantial) damage figures, we believe 

that the court erred in finding that the risks of proving damages 

were so great that they strongly favored settlement approval. 

 G. Risks of Maintaining Class Status

 The value of a class action depends largely on the 

certification of the class because, not only does the aggregation 

of the claims enlarge the value of the suit, but often the 

combination of the individual cases also pools litigation 

resources and may facilitate proof on the merits. Thus, the 

prospects for obtaining certification have a great impact on the 

range of recovery one can expect to read from the action. 

 The district court found that this factor favored 

settlement, although it did not place great weight on it. (Op. 

at 16-17.) The court cited the "myriad factual and legal 

issues"34 and the vigorous contest waged by GM prior to 

(..continued) 

that such rigid rules are inappropriate, and that the court 

should carefully consider all of the proffered measures of 

damages. In any event, the costs of retrofit, though unsettled 

by the district court as of this juncture, will be less than the 

diminution in value (if the settling parties' valuation of the 

certificates is any indication of that diminution). 

34. The legal issues that might vary among class members 

included the claims of breach of warranty, negligent 

misrepresentation, and negligence and products liability, which 

would be based on the various state laws. Potentially variable 

factual issues included the fact that the disputed trucks did not 

use a single gas tank design, and the individualized proof of 
settlement negotiations as the basis for this finding. Id. Two 

observations, which the district court appeared to ignore, weaken 

the basis for its finding that the risk involved in maintaining 

class status favored settlement. 

 First, Rule 23(a) does not require that class members 

share every factual and legal predicate to meet the commonality 

and typicality standards. Baby Neal v. Casey, 43 F.3d 48, 56 (3d 

Cir. 1994); Hassine v. Jeffes, 846 F.2d 169 (3d Cir. 1988). 

Indeed, a number of mass tort class actions have been certified 

notwithstanding individual issues of causation, reliance, and 

damages. See, e.g., In re School Asbestos Litig., 789 F.2d at 

1009. Because separate proceedings can if necessary, be held on 

individualized issues such as damages or reliance, such 

individual questions do not ordinarily preclude the use of the 

class action device. See, e.g., Eisenberg v. Gagnon, 766 F.2d 

770, 786 (3d Cir. 1985). 

 For example, in School Asbestos, the court certified a 

nationwide (b)(3) class after counsel demonstrated to the court 

how the laws of the 50 states could be reduced to four general 

patterns, providing the framework for sub-classes if the 

nationwide action had proven unmanageable.35 School Asbestos, 

(..continued) 

reliance required in some jurisdictions for fraud, negligent 

misrepresentation, and breach of warranty claims. 

35. The district court could retain the sub-classes although 

they might not have properly been brought in that court 

originally. Cf. In re Agent Orange Prod. Liab. Litig., 100 

F.R.D. 718, 724 (E.D.N.Y. 1983) (recognizing hypothetical need of 

the court to apply the laws of different states); In re Agent 
789 F.2d at 1110. Although there was no such demonstration in 

this case, we have no reason to doubt that such a demonstration 

would have been possible, for we cannot conceive that each of the 

forty-nine states (excluding Texas) represented here has a truly 

unique statutory scheme, or that all of the model years possessed 

distinct fuel truck designs. Damage issues, moreover, are not as 

individualized as the district court seemed to assume: the cost 

of repair could have served as the measure, and that cost would 

not vary much among class members. Hence, it is quite possible 

that a nationwide class could have been properly certified here. 

 

 Second, even if the action could not be certified as it 

was originally filed, the district court disregarded the 

possibility that there were other ways to aggregate the 

litigation and/or adjudication of these claims. The court might 

have considered dividing the class into geographic or model-year 

subclasses or allowing the case to continue as a multi-district 

litigation for the remainder of pre-trial discovery. Each of 

those alternatives could have surmounted some of the individual 

issues while retaining some of the substantive advantages of the 

class action as framed here. Thus, the court's conclusion that 

this factor favored settlement may have reflected its mistaken 

all-or- nothing approach to certifying this national class. 

(..continued) 

Orange Prod., 580 F. Supp. 690 (E.D.N.Y. 1984) (performing choice 

of law analysis). 
 Additionally, some of the district court's bases for 

finding such a significant risk in the ability to maintain class 

status undermine our confidence in the appropriateness of the 

district court's certification of the settlement class. For 

instance, if the district court correctly concluded that there 

were insurmountable barriers to class treatment, it could not 

certify the class for settlement purposes. See Part IV(F) supra. 

It is true that settlement can reduce the differences among class 

members. But as we have explained, the standard for 

certification is the same for settlement classes as for 

conventional classes. 

 Moreover, if the class members' claims differed so much 

as to preclude certification even of geographic subclasses, a 

settlement that treats all class members alike cannot be adequate 

and fair to all of them. For reasons stated above, this 

settlement does not even appear to treat all members of the class 

equitably. See Parts V(B) and VI(A)(1)(b) supra. Indeed, the 

settlement arguably affords the least relief to those class 

members with the most valuable claims, i.e., the fleet owners. 

See Part VI(A)(1)(b) supra. The district court's concern, 

therefore, that the class could not maintain its class status, is 

somewhat inconsistent with its certification of the class for 

settlement purposes.36 

 

36. This anomaly is at least partially attributable to the 

court's failure to certify the class in the manner required by 

Rule 23. But some part of the inconsistency signals that the 
 We must agree that this class, even if appropriately 

crafted, confronted significant difficulties in maintaining its 

status in light of the claims alleged. Nevertheless, we are once 

again left with the impression that the district court too 

hastily approved a settlement because of its perhaps exaggerated 

concern that the quite ambitious initial nationwide definition of 

the class made it too difficult to form a class or group of 

classes capable of litigating these claims. 

 H. Ability to Withstand Greater Judgment

 We find no error in the district court's resolution of 

this final Girsh factor -- whether the defendant has the ability 

to withstand a greater judgment. The district court determined 

that GM "could withstand a judgment greater than the proposed 

settlement," (Op. at 17), although it did not attribute any 

significance to this finding "under these facts." 

 I. Summary

 Assuming arguendo that the district court had validly 

certified the settlement class (i.e., properly determined that it 

met the requisites of Rule 23) we hold that the settlement is not 

fair, reasonable, or adequate under the nine factor Girsh test of 

this circuit. The case was simply settled too quickly with too 

little development on the merits for certificates that may well 

be worth significantly less than the $1.98 to $2.18 billion 

(..continued) 

district court ignored the various ways that the class claims 

could be manageably litigated. 
estimate accepted by the district court. We conclude that the 

district court erred by accepting plaintiffs' witness' estimated 

valuations when those so clearly lacked a sound methodological 

basis and when there were so many other indications -- including 

the inability of fleet owners and less wealthy class members to 

use the certificates, the dubious value of the transfer option, 

and GM's own apparent valuation of the claim -- that the 

settlement was inadequate and unreasonable, and may even have 

been a marketing boon to GM. 

 Additionally, the failure of this settlement to abate 

the lingering safety problem, despite the vociferousness of the 

arguments for some recall or retrofit in the initial complaint, 

enhances our conviction that this settlement is inadequate. 

Beyond its dubious valuation of the settlement, the district 

court also over-estimated the risks of proving liability and 

damages and of maintaining class-status and under-estimated the 

true degree of opposition to the settlement. The district court, 

however, correctly applied the complexity-of-suit and defendantscapacity-for-greater-judgment factors. 

 Although we are not bound in any way by the proceedings 

in the separate Texas action, our decision today shares many of 

the concerns expressed by the Texas appellate court which set 

aside an approval of a very similar coupon settlement. See

Bloyed, 881 S.W. 2d at 422. Rule 42 of the Texas Rules of Civil 

Procedure, which governs class actions, is patterned after 
Federal Rule of Civil Procedure 23. The Bloyed court also was 

concerned about a settlement that provided absolutely nothing to 

those unwilling or unable to purchase another GM truck and that 

did nothing about the allegedly dangerous vehicles left on the 

road. The Texas court objected as well to the $9.5 million in 

attorneys fees negotiated between that class's counsel and GM. 

 Balancing the Girsh factors, on the current record, 

this settlement clearly fails to meet the standards required for 

judicial approval. We leave open the possibility, however, that 

the district court on remand might develope the record more 

fully, properly approve the settlement, in either its original or 

a re-negotiated form, and, following the guidance offered by this 

opinion, certify the settlement class. 

VII. APPROVAL OF THE ATTORNEYS' FEE AWARD

 The French and Young objectors also contest the 

district court's award of attorneys' fees. (Order Dec. 20, 1993 

and Feb. 2, 1994.) The court initially awarded fees without an 

independent review of the agreement, explaining its refusal to 

review the award: "[The fee agreement] is a matter of contract 

between the parties, rather than a statutory fee case, . . . and 

payment of the fees will have no impact on the class members 

...." (JA 1772, OP 3) Subsequently, on February 2, 1994, the 

court issued an "amplification" of its prior ruling, which 
justified the award under both the lodestar37 and the percentage 

of recovery38 methods. Class counsel maintain that the objectors 

lack standing to contest the agreement made between GM and 

themselves, and that the objectors waived their right to appeal 

the award by not raising their objections below. Although our 

disposition of the certification and settlement approval issues 

obviates the need for a review of the fee award at this stage 

(and moots the waiver question), we highlight some of the primary 

issues in analyzing the appropriateness of a particular fee 

agreement for the district court on remand (in the event that the 

record is expanded, the class certified, and the settlement 

approved). 

 At the outset, we note that a thorough judicial review 

of fee applications is required in all class action settlements. 

The district court did not accommodate practical realities here 

when, rationalizing its initial refusal to review the fee, it 

stated that the fee award was "to be paid by General Motors 

Corporation and will in no way reduce the recovery to any of the 

settlement class members." (JA 1771.) Indeed, this court has 

recognized that "a defendant is interested only in disposing of 

the total claim asserted against it; . . . the allocation between 

 

37. The lodestar method calculates fees by multiplying the 

number of hours expended by some hourly rate appropriate for the 

region and for the experience of the lawyer. 

38. The percentage of recovery method resembles a contingent fee 

in that it awards counsel a variable percentage of the amount 

recovered for the class. 
the class payment and the attorneys' fees is of little or no 

interest to the defense." Prandini v. National Tea Co., 557 F.2d 

1015, 1020 (3d Cir. 1977); 2 NEWBERG & CONTE § 11.09 (purpose of 

judicial review is to police abuses even where defendant pays 

plaintiff's fees). In light of these realities, class counsel's 

argument that objectors have no standing to contest the fee 

arrangement is patently meritless: the fee agreement clearly 

does impact their interests, as it is, for practical purposes, a 

constructive common fund. 

 Moreover, as discussed at length in the adequacy of 

representation section, see Part V(B)(3) supra, the divergence in 

financial incentives present here creates the "danger . . . that 

the lawyers might urge a class settlement at a low figure or on a 

less-than-optimal basis in exchange for red-carpet treatment for 

fees," Weinberger v. Great Northern Nekoosa Corp., 925 F.2d 518, 

524 (1st Cir. 1991). See also Prandini v. National Tea Co., 557 

F.2d at 1020 ("When the statute provides that a fee is to be paid 

as a separate item, the conflict between client and attorney may 

not be as apparent . . . . It is often present nonetheless."). 

This generates an especially acute need for close judicial 

scrutiny of the fee arrangements that implicate this concern. 

See In re Agent Orange Prod. Liab. Litig., 818 F.2d 216, 224 (2d 

Cir. 1987) ("The test to be applied is whether, at the time a 

fee sharing agreement is reached, class counsel are placed in a 

position that might endanger the fair representation of their 
clients and whether they will be compensated on some basis other 

than for legal services performed."); Piambino v. Bailey, 757 

F.2d at 1139 ("Because of the potential for a collusive 

settlement, a sellout of a highly meritorious claim, or a 

settlement that ignores the interests of minority classes 

members, the district judge has a heavy duty to ensure that . . . 

the fee awarded plaintiffs' counsel is entirely appropriate."). 

We have previously acknowledged that the potential for conflict 

between the class and its counsel is not limited to situations 

meeting the strict definitions of a common fund.39

 As we have also explained in this opinion, courts must 

be especially vigilant in searching for the possibility of 

collusion in pre-certification settlements. See Part IV(e) 

supra. In addition, the court's oversight task is considerably 

complicated by the fact that these attorney-class conflicts are 

often difficult to discern in the class action context, "where 

full disclosure and consent are many times difficult and 

frequently impractical to obtain." Agent Orange, 818 F.2d at 224 

(citations omitted). Finally, we emphasize that the court's 

oversight function is not limited to detecting "the actual abuse 

[that potential attorney-class conflicts] may cause, but also for 

 

39. The common fund doctrine provides that a private plaintiff, 

or plaintiff's attorney, whose efforts create, discover, 

increase, or preserve a fund to which others also have a claim, 

is entitled to recover from the fund the costs of his litigation, 

including attorneys' fees. Vincent v. Hughes Air West, Inc., 557 

F.2d 759 (9th Cir. 1977). 
potential public misunderstandings they may cultivate in regard 

to the interests of class counsel." Agent Orange, 818 F.2d at 

225 (citing Susman v. Lincoln American Corp., 561 F.2d 86, 95 

(7th Cir 1977), and Prandini v. National Tea Co., 557 F.2d 1015, 

1017 (3d Cir. 1977)); see also Grinnell I, 495 F.2d at 469; ABA 

Code of Professional Resp. Canon 9 (1975). On remand, therefore, 

the district court must be alert to the presence in the fee 

agreement of any actual abuse or appearance of abuse capable of 

creating a public misunderstanding. 

 Having emphasized the necessity for judicial review of 

fee awards in all class action settlements, we will briefly 

clarify some principles of fee approval for the district court to 

apply on remand if it certifies a class and approves settlement. 

 Because the district court purported to use both the 

lodestar and the percentage-of-recovery methods, the actual 

grounds for its approval of the fee are not entirely clear. 

Although it is sensible for a court to use a second method of fee 

approval to cross check its conclusion under the first method, we 

believe that each method has distinct advantages for certain 

kinds of actions, which will make one of the methods more 

appropriate as a primary basis for determining the fee. Here, 

for the reasons that follow, the court should probably use the 

percentage of recovery rather than the lodestar method as the 

primary determinant, although the ultimate choice of methodology 

will rest within the district court's sound discretion. 
 The lodestar and the percentage of recovery methods 

each have distinct attributes suiting them to particular types of 

cases. See Task Force, 108 F.R.D. at 250-53. Ordinarily, a 

court making or approving a fee award should determine what sort 

of action the court is adjudicating and then primarily rely on 

the corresponding method of awarding fees (though there is, as we 

have noted, an advantage to using the alternative method to 

double check the fee).40

 Courts generally regard the lodestar method, which uses 

the number of hours resonably expended as its starting point, as 

the appropriate method in statutory fee shifting cases. Because 

the lodestar award is de-coupled from the class recovery, the 

lodestar assures counsel undertaking socially beneficial 

litigation (as legislatively identified by the statutory fee 

shifting provision) an adequate fee irrespective of the monetary 

value of the final relief achieved for the class. 

 This de-coupling has the added benefit of avoiding 

subjective evaluations of the monetary worth of the intangible 

rights often litigated in civil rights actions. Outside the pure 

statutory fee case, the lodestar rationale has appeal where as 

here, the nature of the settlement evades the precise evaluation 

needed for the percentage of recovery method. The lodestar 

 

40. For example, a court can use the lodestar method to confirm 

that a percentage of recovery amount does not award counsel an 

exorbitent hourly rate; similarly, the percentage of recovery 

method can be used to assure that counsel's fee does not dwarf 

class recovery. 
method has the added benefit of resembling modes of fee 

determination in conventional bipolar litigation. On the other 

hand, the lodestar method has been criticized as giving class 

counsel the incentive to delay settlement in order to run up fees 

while still failing to align the interests of the class and its 

counsel, and because it does not rewarding counsel incrementally 

for undertaking the risk of going to trial. See Coffee, 

Understanding the Plaintiff's Attorney, 86 COLUM. L. REV. at 691. 

 Courts use the percentage of recovery method in common 

fund cases on the theory that the class would be unjustly 

enriched if it did not compensate the counsel responsible for 

generating the valuable fund bestowed on the class. See Task 

Force, 108 F.R.D. at 250. Because these cases are not presumed 

to serve the public interest (as evidenced by the lack of a fee 

statute), there is no social policy reason that demands an 

adequate fee. Instead, the court apportions the fund between the 

class and its counsel in a manner that rewards counsel for 

success and penalizes it for failure. Courts have relied on 

"common fund" principles and the inherent management powers of 

the court to award fees to lead counsel in cases that do not 

actually generate a common fund. See, e.g., In re Air Crash 

Disaster at Florida Everglades, 549 F.2d 1006 (5th Cir. 1977) 

(using common fund principles in settlement of consolidated 

cases). The rationale behind the percentage of recovery method 

also applies in situations where, although the parties claim that 
the fee and settlement are independent, they actually come from 

the same source. 

 We believe that this case presents a situation more 

closely aligned with the common fund paradigm than the statutory 

fee paradigm. Although class counsel and GM contend (and the 

district court believed) that the fee was a separate agreement, 

thus superficially resembling the separate awards in statutory 

fee cases, private agreements to structure artifically separate 

fee and settlement arrangements cannot transform what is in 

economic reality a common fund situation into a statutory fee 

shifting case. Certainly, the court may select the lodestar 

method in some non-statutory fee cases where it can calculate the 

relevant parameters (hours expended and hourly rate) more easily 

than it can determine a suitable percentage to award. But the 

court must vigilantly guard against the lodestar's potential to 

exacerbate the misalignment of the attorneys' and the class's 

interests. See Coffee, Understanding the Plaintiff's Attorney, 

86 COLUM. L. REV. at 717. 

 In this case, the fee clearly was not made pursuant to 

a statute; therefore no legislatively endorsed policy favors 

assuring counsel an adequate fee. And the settlement, though 

difficult to value, did not award the even more hard-to-value 

intangible rights that could in some limited circumstances 

justify using the lodestar method. In sum, although this case 
presents a hybrid, we believe that it more closely resembles a 

common fund case. 

 At all events, to the extent that the district court 

relied on the lodestar method, it erred by applying a multiplier. 

In the lodestar section of its analysis, the district court 

calculated the multiplier needed to apply to the simple lodestar 

result, $3,158,182, to obtain the requested amount, $9,500,000. 

(see Feb. order at 4-5.) After estimating the multiplier to be 

between 2.5 and 3, the court proceeded with a "contingent nature 

of the success" analysis of the multiplier's appropriateness from 

Lindy. See Lindy Bros. Builders Inc., v. American Radiator & 

Standard Sanitary Corp., 540 F.2d 102, 116-17 (3d Cir. 1976). 

The Supreme Court, however, has rejected the use of multipliers 

to enhance the lodestar's hourly rate amount. See City of 

Burlington v. Dague, 112 S. Ct. at 2638. Notwithstanding this 

clear Supreme Court precedent, GM's counsel failed to apprise the 

district court about Dague even though its pertinence was patent. 

 To the extent that the district court construed the fee 

agreement as a common fund, its analysis also appears to 

misapprehend key aspects of the percentage of recovery method. 

In common fund cases, a district judge can award attorneys' fees 

as a percentage of the fund recovered. See Blum v. Stenson, 465 

U.S. 886, 900 n.16, 104 S. Ct. 1541 n.16 (1984); In re Smithkline 

Beckman Corp. Secur. Litig., 751 F. Supp. 525 (E.D. Pa. 1990). 

One court has noted that the fee awards have ranged from nineteen 
percent to forty-five percent of the settlement fund. Id. at 

533. Here, the district court summarily asserted that, although 

it could not value the settlement precisely, "whatever method is 

used in computing the ultimate value of the settlement, the 

attorneys' fees sought in this action will constitute an 

extremely small percentage of the total value and will be minute 

compared to the aforesaid 19-45% range." (Feb. order at 10.) 

 Given our skepticism of the settlements' value 

generally and of Simonsen's estimates in particular (see supra

discussion on settlement fairness), we are much less sanguine 

that the $9,500,000 fee actually constitutes an acceptable 

percentage of the class recovery. On the current record, we are 

constrained to reject that conclusion. At the very least, the 

district court on remand needs to make some reasonable assessment 

of the settlement's value and determine the precise percentage 

represented by the attorneys' fees. The problem, however, is not 

simple, for arguably, any settlement based on the award of 

certificates would provide too speculative a value on which to 

base a fee award. (See Task Force, 108 F.R.D. at 250-53 

(discussing the preferability of the lodestar method for civil 

rights actions where the difficulty of valuing injunctive relief 

complicates the calculation of a fee using the percentage 

method.) 

 On remand, the district court might wish to examine the 

fee primarily under the percentage of recovery scheme. If so, 
the court will need to determine a precise valuation of the 

settlement on which to base its award. The court may however, as 

a check, want to use the lodestar method to assure that the 

precise percentage awarded is not unreasonable. 

VIII. OTHER ISSUES; CONCLUSION

 Objectors also appealed the district court's denial of 

discovery into the settlement negotiations and the adequacy of 

the notice with respect to the attorneys' fees. In light of our 

holding on the certification and settlement approval issues and 

its effect on the need for us to judge the fee award, we need not 

reach these issues. 

 For the foregoing reasons, we will vacate the orders 

certifying the provisional class and approving the settlement and 

remand for further proceedings consistent with this opinion. 

Parties to bear their own costs. 

In Re: General Motors Corporation Pick-Up Truck Fuel Tank 

Products Liability Litigation, Nos. 94-1064, 94-1194, 94-1195, 

94-1198, 94-1202, 94-1203, 94-1207, 94-1208 and 94-1219 

JOHN R. GIBSON, Senior Circuit Judge, concurring in the central 

holding and with the judgment. 
 The court today issues a truly masterful opinion. I 

concur fully in the central holding of the court that the 

district court failed to make adequate findings under Rule 23(a) 

to justify class certification, and that the case must be 

remanded to the district court for further proceedings, and 

amplification of the record. I concur fully in the reasoning of 

the court that supports this conclusion and holding, and concur 

specifically in Parts I, II, III, IV.A, D, E, F, and V.A and B.1 

of the opinion. 

 In addition, I certainly agree that it follows that the 

district court on remand must consider further the issues of the 

adequacy of representation, whether the settlement is fair, 

reasonable and adequate, and if reached, issues relating to 

attorneys' fees. 

 With respect to the remainder of the opinion, I am of 

the thought that some of the discussion is simply not required to 

support the holding we reach, specifically Part IV.B and C. In 

view of the fact that we are remanding for adequate findings 

under Rule 23(a), I think we need not reach the issue of whether 

the class requisites have been made on the current record, as we 

can anticipate that the district court will conduct further 

proceedings and make additional record in order to fully support 

such findings. Thus, I think Part V.B.2 dealing with adequacy of 

representation, Part VI dealing with whether the settlement is 

fair, reasonable and adequate on the record before us, and Part 
VII dealing with issues relating to the attorneys' fees simply 

need not be addressed in detail as they may come before this 

court on a far different record after remand. 

 I must make clear that I have misgivings about not 

joining in the full opinion. The opinion is a most thorough and 

scholarly analysis of the numerous issues surrounding settlement 

of class actions and approval of settlement classes. It will 

stand as the opinion of the court. My concerns are simply that 

the court has discussed areas that it need not reach.