In Re General Motors Corp. Pick-Up Truck Fuel Tank Products Liability Litigation

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Precedential or Non-Precedential: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.
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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.