Opinion ID: 2450000
Heading Depth: 1
Heading Rank: 3

Heading: The Court of Appeals's Error

Text: Under Rule 42(e), the trial court is charged with the responsibility of determining that the settlement is fair, adequate, and reasonable. Ball v. Farm & Home Sav. Ass'n, 747 S.W.2d 420, 423 (Tex.App.-Fort Worth 1988, writ denied) (citing In re Corrugated Container, 643 F.2d at 207). Approval of a class action settlement is within the sound discretion of the trial court and should not be reversed absent an abuse of that discretion. Crouch v. Tenneco, Inc., 853 S.W.2d 643, 646 (Tex.App.-Waco 1993, writ denied); Ball, 747 S.W.2d at 423. In other words, in reviewing the trial court's judgment, the appellate court must not merely substitute its judgment for that of the trial court. Factors the court should consider in determining whether to approve a proposed settlement are: (1) whether the settlement was negotiated at arms' length or was a product of fraud or collusion; (2) the complexity, expense, and likely duration of the litigation; (3) the stage of the proceedings, including the status of discovery; (4) the factual and legal obstacles that could prevent the plaintiffs from prevailing on the merits; (5) the possible range of recovery and the certainty of damages; (6) the respective opinions of the participants, including class counsel, class representatives, and the absent class members. Ball, 747 S.W.2d at 423-24 (citing Parker v. Anderson, 667 F.2d 1204, 1209 (5th Cir.), cert. denied, 459 U.S. 828, 103 S.Ct. 63, 74 L.Ed.2d 65 (1982)). Put another way, the trial court must examine both the substantive and procedural aspects of the settlement: (1) whether the terms of the settlement are fair, adequate, and reasonable; and (2) whether the settlement was the product of honest negotiations or of collusion. Pettway v. American Cast Iron Pipe Co., 576 F.2d 1157, 1169 (5th Cir.1978), cert. denied, 439 U.S. 1115, 99 S.Ct. 1020, 59 L.Ed.2d 74 (1979). Those defending the settlement must show that the evidence related to these factors supports approval of the settlement. The trial court correctly analyzed the fairness of this settlement according to the six Ball factors. First, the trial court found that the agreement had been reached as a result of honest, arms' length negotiations and that there was no evidence of collusion or fraud. Second, the trial court found that the case involved extremely complex issues of liability and damages and that a jury trial would consume considerable time and resources. Third, the trial court also found that sufficient discovery had been conducted to allow the parties to make an informed decision about the relative merits of the case and the settlement. Fourth, the trial court found that only a fraction of one percent of the class had filed any objection to the terms of the settlement. See 881 S.W.2d at 428-30. While the court of appeals acknowledged that these factors favored approval of the settlement, it nevertheless concluded that [t]he trial court abused its discretion in approving the proposed settlement because this settlement is not fair, adequate, or reasonable to the class members as a whole, on whose behalf the action was initiated. 881 S.W.2d at 433. In essence, the court of appeals overturned the settlement because it decided that the potential windfall to GMC outweighed all the reasons supporting approval. The primary basis for this conclusion was the apparent disparity between the value of the settlement to members of the class and the potential economic benefit to GMC. The court of appeals's opinion illustrates several areas of concern with the settlement in this case. First, the alleged defect in the gas tank design would not be corrected, leaving more than 600,000 class members driving what are allegedly unreasonably dangerous vehicles. Second, more than half of the class would be unable or unwilling to redeem the coupons in connection with the purchase of a new GMC truck within fifteen months of receiving the certificate. [2] Thus, more than half of the class would receive no benefit at all from the coupons, although all class members would be bound by the settlement. Third, the court objected to a settlement requiring claimants to pay up to $30,000.00 for a new truck, in order to receive a $1,000.00 benefit. In essence, the court of appeals questioned whether having to pay such a price for a relatively small rebate was fair. Fourth, as we have mentioned, the court worried that the coupons would translate into a sales bonanza for GMC. Evidence revealed that even with the $1,000.00 rebate provided by the certificates, GMC could expect a profit of $2,000.00-$3,000.00 on each new truck sale. Assuming 46% of the 645,000 claimants purchased new trucks, GMC stood to recover tremendous profits from this settlement. We nevertheless agree with GMC and the class representatives that the court of appeals erred in holding that the trial court's approval of the settlement was an abuse of discretion. Although the settlement may well have translated into higher truck sales for GMC, the agreement was by no means one-sided in light of significant problems the class members faced on the merits of their claims. In this vein, the trial court made the following findings of fact: 14. The Court finds that there are substantial legal issues, including the statute of limitations and other issues, that make the likelihood of maintaining class certification through trial and recovery for plaintiffs uncertain. 15. The Court finds that there is uncertainty about the Plaintiffs' ability to prove liability. 16. The Court finds that there is uncertainty about Plaintiffs' ability to prove damages. While we appreciate the uncertain value of this noncash settlement, the court of appeals erred in its preoccupation with the benefits of the settlement to GMC and its apparent disregard of the difficulties the trial court found with the plaintiffs' case on the merits. See In re General Motors Corp. Engine Interchange Litig., 594 F.2d 1106, 1132 n. 44 (7th Cir.), cert. denied, 444 U.S. 870, 100 S.Ct. 146, 62 L.Ed.2d 95 (1979) (stating that the strength of the plaintiff's case on the merits balanced against the amount offered is the crucial factor in evaluating the fairness of the settlement). As the trial court found, none of the class members reported any problems with the operation of their trucks, the market value of the trucks as measured by the Kelley Blue Book had not declined relative to comparable trucks manufactured by other companies, and no expert offered a reliable means of curing the alleged defect. See 881 S.W.2d at 429. In short, the individual class members faced considerable problems with proving any damages at all. Furthermore, there was a strong likelihood that a large proportion of the class members' claims against GMC would have been barred by the statute of limitations. The side-saddle gas tank design had been advertised as early as 1973 and had been the subject of litigation since the early 1980s. Even if the discovery rule applied here, which we do not decide, the statute of limitations presented a serious impediment to recovery for almost all of the class members because this suit was not filed until November 1992. It is also noteworthy that the trial court's assessment of the Texas plaintiffs' claims was echoed by the federal district court in the national class action, In re General Motors Corp. Pickup Truck Fuel Tank Prods. Liab. Litig., 846 F.Supp. 330, 336 (E.D.Pa.1993) (Perhaps the greatest weakness in the plaintiffs' case is the lack of proof of economic damages.), rev'd, 55 F.3d 768 (3d Cir.), cert. denied, ___ U.S.___, 116 S.Ct. 88, 133 L.Ed.2d 45 (1995), and by the Third Circuit. In re General Motors Corp., 55 F.3d at 814-17. The class representatives apparently decided that accepting the certificates was preferable to proceeding with a lengthy lawsuit based on dubious evidence of damages, while GMC apparently opted for providing the certificates rather than exposing itself to continuing defense costs and potentially greater liability. In other words, both sides compromised. `[I]nherent in compromise is a yielding of absolutes and an abandoning of highest hopes.' Cotton v. Hinton, 559 F.2d 1326, 1330 (5th Cir.1977) (quoting Milstein v. Werner, 57 F.R.D. 515, 524-25 (S.D.N.Y. 1972)). In deciding that the potential windfall to GMC outweighed the reasons supporting the class compromise, we hold that the court of appeals substituted its judgment for that of the trial court as to what constituted a fair, adequate, and reasonable settlement.