Court Opinion

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Opinions of the United
1995 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

4-17-1995

In Re: General Motors Corp.
Precedential or Non-Precedential:

Docket 94-1064

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Recommended Citation
"In Re: General Motors Corp." (1995). 1995 Decisions. Paper 98.
http://digitalcommons.law.villanova.edu/thirdcircuit_1995/98

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           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 so-

called 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    pre-

certification           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 now-

expanded 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    pre-

certification 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; Baldwin-

United, 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, pre-
certification 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 intra-

class    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 non-

cash 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' self-

serving 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 Baldwin-

United 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-v-

6276 (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-of-

proceedings 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 non-
          conformity 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 defendants-

capacity-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.