In Re: Prudential Insur.

Opinions of the United
1998 Decisions States Court of Appeals
for the Third Circuit

7-23-1998

In Re: Prudential Insur.
Precedential or Non-Precedential:

Docket 97-5155,97-5156,97-5217,97-5312

Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_1998

Recommended Citation
"In Re: Prudential Insur." (1998). 1998 Decisions. Paper 169.
http://digitalcommons.law.villanova.edu/thirdcircuit_1998/169

This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova
University School of Law Digital Repository. It has been accepted for inclusion in 1998 Decisions by an authorized administrator of Villanova
University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.
Volume 1 of 2

Filed July 23, 1998

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

Nos. 97-5155, 97-5156, 97-5217 & 97-5312

IN RE: PRUDENTIAL INSURANCE COMPANY
AMERICA SALES PRACTICE LITIGATION AGENT ACTIONS

RICHARD P. KRELL, MDL transfer, N.D. Ohio,
DNJ Civil Action No. 95-6062

v.

PRUDENTIAL INSURANCE COMPANY OF AMERICA

Richard P. Krell, as well as Objectors
Elizabeth Bajek, Amanda Bajek,
Helen Bartsch, Mark Ciconte,
Raymond Dolce, Margaret Dolice,
Louise Duggan, Peter Duggan,
Charles Duncan, Mary Howe, Mary Krell,
William Morris, Diana Racer, Thomas Racer,
Gweneth Reidel, The Estate of Carl J. Scalzo,
Marie Scalzo, Terry Sligar, Alice Smith,
Jerry Smith, and William Walton,
Appellants at Nos. 97-5155/5156/5312

IN RE: PRUDENTIAL INSURANCE COMPANY
AMERICA SALES PRACTICE LITIGATION AGENT ACTIONS

RICHARD JOHNSON,
Intervenor-Plaintiff in District Court

Richard E. Johnson,
Appellant at No. 97-5217
On Appeal from the United States District Court
for the District of New Jersey
(D.C. Civil Action No. 95-cv-04704)

Argued January 26, 1998

Before: SCIRICA, ROTH and RENDELL, Circuit Judges

(Filed July 23, 1998)

MICHAEL P. MALAKOFF, ESQUIRE
(ARGUED)
Malakoff, Doyle & Finberg
The Frick Building, Suite 200
Pittsburgh, Pennsylvania 15219

Attorney for Appellants,
Richard P. Krell, et al.

LYNDE SELDEN, II, ESQUIRE
Lynde Selden Chartered
501 West Broadway, Suite 845
San Diego, California 92101

Attorney for Appellant,
Richard E. Johnson

MELVYN I. WEISS, ESQUIRE
(ARGUED)
Milberg, Weiss, Bershad, Hynes &
Lerach
One Penn Plaza, 49th Floor
New York, New York 10119

ALLYN Z. LITE, ESQUIRE
Goldstein, Lite & DePalma
Two Gateway Center, 12th Floor
Newark, New Jersey 07102

Attorneys for Appellee,
George A. Zoller, Class Action
Plaintiff Representative

2
REID L. ASHINOFF, ESQUIRE
(ARGUED)
MICHAEL H. BARR, ESQUIRE
Sonnenschein, Nath & Rosenthal
1221 Avenue of the Americas,
24th Floor
New York, New York 10020

Attorneys for Appellees,
The Prudential Insurance
Company of America and
Ron D. Barbaro

BRIAN S. WOLFMAN, ESQUIRE
(ARGUED)
ALAN B. MORRISON, ESQUIRE
Public Citizen Litigation Group
1600 20th Street, N.W.
Washington, D.C. 20009

Attorneys for Amicus Curiae-
Appellant, Public Citizen, Inc.

JOHN J. GIBBONS, ESQUIRE
Gibbons, Del Deo, Dolan, Griffinger
& Vecchione
One Riverfront Plaza
Newark, New Jersey 07102-5497

Attorney for Appellee,
Robert C. Winters

FREDERICK B. LACEY, ESQUIRE
LeBoeuf, Lamb, Greene & MacRae
One Riverfront Plaza
Newark, New Jersey 07102

Attorney for Appellee,
Frances K. Beck, as Executrix of
the Estate of Robert A. Beck

3
TABLE OF CONTENTS

OPINION OF THE COURT 6

I. BACKGROUND AND PROCEDURAL HISTORY 8
A. The Multi-State Life Insurance Task Force 8
B. The Federal Class Action 11
1. The Proposed Settlement 16
a. The Alternative Dispute Resolution process 17
b. Basic Claim Relief 20
c. Enhancements To the Task Force Plan 20
2. The Fairness Hearing 23

II. ISSUES RAISED ON APPEAL AND STANDARD OF
REVIEW 25

III. JURISDICTION 26
A. Subject Matter Jurisdiction 26
1. Federal Question Jurisdiction as a Basis for
Supplemental Jurisdiction 28
2. Diversity Jurisdiction as a Basis for Supplemental
Jurisdiction 34
B. Personal Jurisdiction 39
C. Article III 40

IV. CLASS CERTIFICATION 42
A. Settlement-Only Class Certification 42
B. Class Certification under Rule 23 45
1. The Rule 23(a) Criteria 46
a. Numerosity 46
b. Commonality 47
c. Typicality 49
d. Adequacy of Representation 52
2. The Rule 23(b) Criteria 55
a. Predominance 55
b. Superiority 59
C. Conclusion 60

V. THE FAIRNESS OF THE PROPOSED
SETTLEMENT 60
A. The Girsh Factors 66
1. The complexity and duration of the litigation 66
2. The reaction of the class to the settlement 66
3. The stage of the proceedings and amount of
discovery completed 68

4
 4. The risks of establishing liability and
damages 69
a. Replacement Claims 70
5. The risks of maintaining the class action
through trial 72
6. The ability of the defendants to withstand a
greater judgment 73
7. The range of reasonableness of the settlement
fund in light of the best possible recovery and
all the attendant risks of litigation 74
B. Other Objections 78
1. The Rules Enabling Act and the McCarran -
Ferguson Act 78
2. Failure to Allow Discovery 79
C. "Other Sales Claims" 80
1. The Alleged Expansion of the Class 81
2. Adequacy of Class Notice 83
D. Conclusion 87

VI. ATTORNEYS' FEES 88
A. The Fee Agreement 88
B. Fee Opinion 90
C. Analysis 96
1. "Clear-Sailing" Fee Agreement 99
2. Adverse Effect on Class Members 101
3. Fairness of the Award 102
a. The Value of the Settlement 102
b. The Appropriate Percentage Recovery 107
c. Lodestar Calculation 110
i. Multiplier 110
ii. Time Records 113
D. Conclusion 114

VII. KRELL'S MOTION TO RECUSE 114
A. Procedural History 114
B. Legal Standard 116
C. Krell's Arguments on Appeal 116
1. Ex Parte Meetings 116
2. The Conference With State Insurance
Regulators 117
3. Rutt v. Prudential 119

VIII. CONCLUSION 121

5
OPINION OF THE COURT

SCIRICA, Circuit Judge.

This is an appeal from the approval of the settlement of
a nationwide class action lawsuit against Prudential Life
Insurance Company alleging deceptive sales practices
affecting over 8 million claimants throughout thefifty states
and the District of Columbia.

The class is comprised of Prudential policyholders who
allegedly were the victims of fraudulent and misleading
sales practices employed by Prudential's sales force. The
challenged sales practices consisted primarily of churning,
vanishing premiums and fraudulent investment plans, and
each cause of action is based on fraud or deceptive
conduct. There are no allegations of personal injury; there
are no futures classes. The settlement creates an
alternative dispute resolution mechanism and establishes
protocols to determine the kind and amount of relief to be
granted. The relief awarded includes full compensatory
damages consisting of what plaintiffs thought they were
purchasing from the insurance agent. There is no cap on
the amount of compensatory damages for those who
qualify, and although punitive damages are not included in
the settlement, Prudential has agreed to pay an additional
remediation amount in addition to the payments made
through dispute resolution process.

The case involves five consolidated appeals from the
judgments of the District Court for the District of New
Jersey approving the settlement and awarding attorneys'
fees to class counsel. Appellants, members of the certified
class who object to the settlement, challenge the district
court's jurisdiction, the certification of the settlement class,
the fairness of the settlement itself, the award of attorneys'
fees, and the district court's refusal to disqualify itself.

We hold the district court properly exercised jurisdiction.
Federal subject matter jurisdiction is properly grounded on
the alleged violations of the federal securities laws.
Although most of the claims implicate state law,

6
supplemental jurisdiction is proper because all of the
claims arise out of a common nucleus of operative fact. The
district court had personal jurisdiction over the class
because actual notice was given to each of the 8 million
policyholders by direct mail, and disseminated through
television, radio and print advertising throughout the fifty
states and the District of Columbia. We also hold there was
no reason for the district court to recuse itself from these
proceedings.

The district court properly certified a national class under
Fed. R. Civ. P. 23(b)(3). The court assessed the numerosity
and commonality of the asserted claims, the typicality of
those claims, and the adequacy of representation provided
by the named plaintiffs and class counsel, and found they
satisfied the certification standards. The court also
concluded the proposed class action was the superior
means of addressing plaintiffs' claims of widespread sales
abuse, and the issues common to all members of the class
predominated over individual issues related to the members
of the class.

We hold the district court properly evaluated the
settlement, finding it fair, reasonable and adequate.
Prudential's deceptive practices occurred nationwide. It may
be argued that problems national in scope deserve the
attention of national courts when there is appropriate
federal jurisdiction. Because of the extraordinary number of
claims, fairness counsels that plaintiffs similarly injured by
the same course of deceptive conduct should receive similar
results with respect to liability and damages. The proposed
class settlement offers plaintiffs several advantages,
including full compensation for their injuries, no obligation
to pay attorneys' fees, and a relatively speedy resolution of
their claims. The alternative dispute resolution process is
sensible and provides adequate safeguards for individual
treatment of claims, including appeals. We will affirm the
district court's approval of the class certification and the
settlement.

The district court awarded $90 million in attorneys' fees
as a percentage of a common fund created under the
settlement. We will vacate and remand the fee award and
ask the district court to recalculate the fee to account for

7
work done by the multi-state task force whose efforts
served as a basis for the final settlement in this case.
Furthermore, we question the multiplier employed in the
lodestar analysis used by the court to cross check the size
of the fee award. Although granting discovery on fee
applications is within the sound discretion of the district
court, we will ask the district court to reconsider whether
it should grant limited discovery to the objectors on the fee
application.

I. BACKGROUND AND PROCEDURAL HISTORY

This case began in early 1994, when the first of many
individual and class action lawsuits alleging improper sales
and marketing practices was filed against Prudential, the
nation's largest life insurer. As lawsuits began to
accumulate, the New Jersey Insurance Commissioner
sought to organize a group to investigate the allegations
against Prudential.1 The resulting investigation into market
conduct sought to determine the scope of any improper
sales practices, and to develop a remedial plan designed to
compensate injured policyholders, to prevent future
violations, and to restore public confidence in the insurance
industry. Report of The Multi-State Life Insurance Task Force
and Multi-State Market Conduct Examination of The
Prudential Insurance Company of America at 2 ("Task Force
Report"). While the Task Force proceeded with its
investigation, federal and state court actions alleging sales
practice abuses by Prudential continued to accumulate.
Although our primary concern is the outcome of the federal
litigation, the history of both the Multi-State Life Insurance
Task Force's investigation and the various lawsuits filed
against Prudential overlap to a certain degree, and thus
warrant discussion.

A. The Multi-State Life Insurance Task Force

At the instigation of the New Jersey Insurance
Commissioner, the Multi-State Life Insurance Task Force
was formed on April 25, 1995, with the stated goal of
_________________________________________________________________

1. The New Jersey Department of Banking and Insurance also conducted
an independent market conduct investigation of Prudential's New Jersey
business. Its report was issued on July 9, 1996.

8
conducting a thorough and extensive examination of
Prudential's sales practices during the period from 1985
until 1995. In all, thirty states and jurisdictions elected to
participate.2 The Task Force interviewed 283 agents and 27
sales management executives, and reviewed voluminous
materials provided by Prudential. Among those materials
were internal computer data bases reflecting complaints,
policy transactions, and agent discipline. The Task Force
also reviewed market conduct reports prepared by other
states which had examined Prudential's business practices,
and examined the historical developments which affected
sales practices in the insurance industry.3

In July 1996, the Task Force issued its final report, citing
widespread evidence of fraudulent sales practices and
inadequate supervision by Prudential's management. It
explained that Prudential's records revealed the company
_________________________________________________________________

2. According to the Task Force Report, eleven states and the District of
Columbia "actively participated" in the investigation: Arizona, Arkansas,
California, Illinois, Maryland, Massachusetts, Minnesota, Nevada, New
Jersey, Ohio, and Washington. These twelve jurisdictions represented
approximately 36.5 percent of the 10.7 million Prudential policies sold
during the investigation period. Report of the Multi-State Life Insurance
Task Force and Multi-State Market Conduct Examination of the Prudential
Insurance Company of America at 1-2 ("Task Force Report"). The Attorney
General of the State of Connecticut began a separate investigation of
Prudential in April 1995, in response to the filing of a class action
complaint in United States District Court for the District of Connecticut.
Although the Connecticut Insurance Commissioner subsequently joined
the Multi-State Task Force, the Attorney General completed its
independent investigation and issued a report on November 21, 1995.

3. According to the Task Force Report, a combination of regulatory and
economic changes in the 1970s and 1980s created an atmosphere within
the insurance industry that was more amenable to the replacement of
insurance policies. For example, the rise in interest rates allowed
insurance companies to offer new products "designed to compete with
banks, money market funds and newly founded life insurers," and thus
led companies to abandon their usually conservative approach. Task
Force Report at 7. At the same time, the original model replacement
regulations, which stated that replacement transactions were generally
not in the best interest of the customer, were modified to allow for these
transactions in certain cases. See discussion infra S V.A.4. & n.66. As a
result of these changes, replacement activity flourished.

9
"knew of cases of alleged misrepresentation and other
improper sales practices by its agents, and in many
instances failed to adequately investigate and impose
effective discipline." Task Force Report at 15. According to
the report, interviews with Prudential agents revealed "little
if any consistency in agent training and agent awareness of
company and regulatory guidelines." Id. at 16. While the
Task Force concluded that not all of the sales during the
time period investigated were fraudulent or improper, it
recognized the difficulty in ascertaining precisely which
policyholders had been harmed,4 and therefore
recommended the implementation of a remediation plan
which would "reach out to all potentially affected
policyholders." Id. at 17-18. Under the plan, which was
developed with Prudential's input and cooperation,
policyholders were given the option of pursuing claims in
an Alternative Dispute Resolution process ("ADR") or
through a "no-fault" remedy known as Basic Claim Relief.5

As part of the Task Force Plan, Prudential agreed to
conduct an extensive outreach program, including
individual notice to all persons who purchased a policy
between 1982 and December 31, 1995. Those electing the
ADR process could submit their claim for evaluation. The
remediation plan addressed four categories of claims:
financed or replacement sales; sales involving abbreviated
payment plans; life insurance sold as an investment; and
other claims "falling outside of the first three categories." Id.
at 19. Those electing Basic Claim Relief would be eligible for
preferred-rate loans or the opportunity to purchase
discounted policies.

Forty-three states and the District of Columbia signed a
Consent Order adopting the Task Force Plan, with the
understanding that if the pending class action achieved a
_________________________________________________________________

4. The Task Force found that, "[b]ecause of the nature of the
transactions and possible improprieties, an electronic analysis could not
identify every instance of sales abuse or violation of law or regulation."
Task Force Report at 6.

5. The structure of this remediation plan was based on a settlement
reached between a number of the class counsel here and New York Life
Insurance Company in a similar class action. Task Force Report at 198.

10
better result, the Task Force and the states could join in
the improved plan. The Task Force also recommended a
separate $35 million fine to be divided among the states
and the District of Columbia.

B. The Federal Class Action

While the Task Force was conducting its investigation,
parties continued to file individual claims and class actions
against Prudential in both state and federal court. On
February 6, 1995, named plaintiff Nicholson filed a class
action in Illinois state court which was removed one month
later to the United States District Court for the Southern
District of Illinois. The Kuchas plaintiffs filed their federal
class action on February 28, 1995 in the District of
Connecticut. Four other federal class actions were filed in
the District of New Jersey in early 1995. Appellant Krell
filed his class complaint in Ohio state court in June 1995.

On April 26, 1995, Prudential moved to consolidate the
various federal actions in the District of New Jersey. On
August 3, 1995, the Judicial Panel on Multidistrict
Litigation granted Prudential's motion and transferred
several actions to the District of New Jersey.6 Prudential
then removed the various state actions to federal court,
including the Krell action, and requested these additional
cases be consolidated in New Jersey. The MDL Panel
granted that request as well.7

In October 1995, the district court appointed Melvin
Weiss of Milberg, Weiss, Bershad, Hynes & Lerach and
Michael B. Hyman of Much, Shelist, Freed, Deneberg,
Ament, Bell & Rubenstein as Co-Lead Counsel for plaintiffs,
and ordered plaintiffs to file a consolidated complaint. On
October 24, 1995, plaintiffs filed the First Consolidated
Amended Class Action Complaint.
_________________________________________________________________

6. More than 100 actions have been centralized in the District of New
Jersey by the MDL Panel. In re The Prudential Ins. Co. of America Sales
Practice Litigation, 962 F. Supp. 450, 479 n.13 (D.N.J. 1997) ("Fairness
Opinion").

7. Appellant Krell moved the district court to remand his case to state
court. After the district court denied that motion on April 16, 1996,
Krell
filed a petition for mandamus relief with this Court. We denied that
motion without opinion on September 25, 1996.

11
The named plaintiffs filed suit on behalf of all persons
who purchased new or additional life insurance policies
between January 1, 1980 and the time of the complaint as
a result of Prudential's alleged fraudulent scheme. 8 They
alleged that Prudential management developed and
implemented a fraudulent scheme to sell life insurance
policies through a variety of deceptive sales practices,
including "churning," "vanishing premium," and
"investment plan" sales tactics. Plaintiffs also challenged
Prudential's dividend practices, among them the so-called
"investment generation approach," and "Prudential's
deceptive administration of class members' policies to
conceal fraudulent sales and effectuate the scheme,
including Prudential's use of unauthorized policy loans and
similar contrivances to deplete policyholders' cash values."
Lead Counsel Brief at 5. The Complaint alleged violations of
Sections 10(b) and 20(a) of the Securities Exchange Act of
1934, common law fraud, breach of contract, bad faith,
negligent misrepresentation, negligence, unjust enrichment,
and breach of state consumer fraud statutes.

On December 26, 1995, Prudential moved to dismiss the
complaint under Fed. R. Civ. P. 12(b)(6). At the same time,
Prudential approached Lead Counsel to discuss a possible
settlement. Those discussions ended, however, when Lead
Counsel indicated they would not settle the case without
significant discovery. The parties renewed their settlement
discussions in early 1996, after Prudential agreed to
provide discovery, but once again failed to reach an
agreement. When the talks ceased, Prudential stopped its
production of documents. Lead Counsel nevertheless
pursued its own investigation, interviewing approximately
thirty former Prudential agents and customers, and
reviewing the limited array of documents provided by
Prudential.

The district court granted Prudential's motion in part on
May 10, 1996, dismissing without prejudice all claims of
three of the five named plaintiffs, and several claims of the
_________________________________________________________________

8. Krell declined to join the class, claiming that Ohio policyholders with
replacement claims deserved the protection of Ohio insurance law. Krell
Brief at 5.

12
remaining two. It also noted that plaintiffs would not likely
prevail on many of their claims at trial. The district court
then ordered Prudential to provide plaintiffs with copies of
the substantial discovery materials already provided to the
Task Force.

Following the issuance of the Task Force Report in July
1996, Lead Counsel and Prudential once again entered
settlement negotiations, and again Prudential agreed to
Lead Counsel's demands for discovery.9 By August 8, 1996,
Prudential had provided plaintiffs with over 70 boxes of
documents in response to Lead Counsel's requests.

On September 19, 1996, plaintiffs filed their Second
Amended Consolidated Complaint. The Second Amended
Consolidated Complaint contained essentially the same
claims as the first, alleging Prudential implemented a
systematic fraudulent marketing scheme which made use
of false and misleading sales presentations, policy
illustrations, and marketing materials. Once again, the
Complaint specifically referred to Prudential's "churning,"
"vanishing premium," and "investment plan" sales tactics.10
Each of the named plaintiffs claimed to have been injured
by this common scheme, and alleged one or more of the
specified sales practices.11 Plaintiffs also sued several
_________________________________________________________________

9. According to Lead Counsel, the negotiations then proceeded through
three stages. The first, from July 6th through August 16th, involved
preliminary negotiation of the terms of settlement. During the second
phase, which ran from August 17th through September 22nd, the
parties negotiated the details of the actual Settlement Agreement.
Finally, from September 23rd until October 28th, the parties worked out
the final Stipulation of Settlement. Weiss Aff.P 103.

10. While the Complaint stated that "Prudential's scheme involved [these]
three notorious deceptive life insurance sales tactics," Second Am. Cons.
Compl. P 5, the allegations detailed therein also refer to other sales
abuses which fall outside these three categories. See, e.g., Second Am.
Cons. Compl. P 89-91 (alleging Prudential took affirmative steps to
conceal its misrepresentations); P 114-16 (alleging Prudential agents
informed the Nicholson plaintiffs to "ignore" notices concerning lapses in
their policies); P 128 (alleging a Prudential agent made unauthorized
withdrawals from the policy of named plaintiff Dorfner).

11. Carol Nicholson brought suit as executrix of the estate of her
deceased husband Keith. From 1966 to 1984, the Nicholsons purchased

13
persons in their individual capacities: Robert A. Beck,
Prudential President from 1972 until 1979 and Chairman
from 1978 until 1987; Ronald D. Barbaro, Prudential's
President from 1990 until 1992; and Robert C. Winters,
Chairman and CEO from 1987 until 1994, and President
from 1993 until 1994.

According to the Second Amended Consolidated
Complaint, Prudential was aware of these fraudulent sales
practices as early as 1982, when internal investigations
_________________________________________________________________

four Prudential policies worth approximately $30,000. In 1986, Keith
Nicholson purchased an addition $100,000 policy, allegedly as a result
of Prudential's fraudulent sales practices. Carol Nicholson alleged
churning, vanishing premium and investment plan claims.

Martin Dorfner and his wife operate a small grocery store in
Pennsylvania. By July 1989, they owned several Prudential policies.
Dorfner alleges that his Prudential agent informed the Dorfners that they
were entitled to a "free" policy, and proceeded to open another whole life
policy for them using funds drawn from their existing policies. In
addition, the same agent persuaded the Dorfners to purchase a $50,000
variable appreciable life insurance policy from Prudential in April 1991,
allegedly using misleading sales information. Dorfner brought suit in
January 1995, alleging churning and vanishing premium claims.

Vincent and Elizabeth Kuchas are Connecticut residents who
purchased individual variable life policies from Prudential. In 1987,
their
agent suggested that they purchase additional policies. The Kuchases
allege that they informed the agent that they were seeking an investment
similar to an IRA, and could not afford an investment plan if they had
to continue payment on their current Prudential policies. The agent
allegedly persuaded the Kuchases to purchase two VAL policies while
misinforming them as to their continuing payment obligations with
respect to their initial policies. In September 1994, the Kuchases learned
that the initial policies had lapsed and that their agent had taken out
loans against the initial policies to pay for the VALs. They filed suit in
February 1995.

Norman Gassman, an Ohio citizen, filed suit against Prudential in May
of 1995, alleging an investment plan claim. According to Gassman, a
Prudential agent persuaded Gassman to take $20,000 from a certificate
of deposit and "invest" it in a VAL policy. Gassman alleges that the agent
held himself out as a "financial planner" or"financial consultant" and
explained that a VAL policy was part of an "investment plan," paid a
higher rate of interest than a CD at a low risk, and was tax free. In
reliance on these representations, Gassman purchased the VAL policy.

14
discovered patterns of abuse involving financed insurance.
Plaintiffs alleged that Prudential failed to take serious steps
to combat the abuses, focusing instead on "damage control"
and warning internal auditors not to "rock the boat." For
example, when Prudential's auditing department tested a
new computer system to detect churning in its Minneapolis
office, sales dropped off sharply. Instead of addressing the
concerns raised by the audit department, Prudential merely
referred the matters to the "marketing" group, which took
no steps to stop the fraudulent activities. Second Am. Cons.
Compl. P 86.

Three days after the filing of the Second Amended
Consolidated Complaint, Prudential and class counsel
entered into a settlement agreement. There were three
preconditions to the agreement. First, those states which
had adopted the Task Force Remediation Plan through the
execution of the Consent Order had to agree to modify the
Consent Order to conform to the Settlement Agreement.
Second, the final Stipulation of Settlement had to be
executed by October 28, 1996. Lastly, the parties reserved
the right to modify the Stipulation of Settlement to reflect
any new information revealed by class counsel's ongoing
discovery.12 The Settlement Agreement did not address
attorneys' fees.13

On October 28, 1996, the parties filed a final Stipulation
of Settlement. At that time, the district court issued an
order conditionally certifying a national settlement class,
directing issuance of class notice, issuing an injunction,14
_________________________________________________________________

12. On October 25, 1996, Prudential formally responded to plaintiffs'
discovery requests, producing over one million pages of documents, 160
computer diskettes, and more than 500 audio and video tapes. See
Weiss Aff. P 85.

13. Although S K of the Settlement Agreement was entitled "Attorneys'
Fees, Costs and Expenses," subsection K.1 was left blank. Subsection
K.2 addressed certain additional expenses to be included in any payment
of fees, and guaranteed that any payment of fees would not reduce the
remedies provided under the agreement. Subsection K.3 also provided
that Prudential's liability for fees would be limited only to those fees
expressly provided for by the Settlement Agreement.

14. The injunction barred policyholders from pursuing overlapping
litigation unless the policyholder had opted out of the class, and

15
and scheduling a fairness hearing for January 21, 1997.
The notice was sent to each of the more than 8 million
class members by first class mail on or before November 4,
1996, and gave them until December 19, 1996 to file
objections or opt out of the class.15

1. The Proposed Settlement

The proposed settlement was largely based on the Task
Force Report and its proposed remediation plan. Like the
Task Force plan, the settlement proposed a remediation
scheme by which class members had the option of either
pursuing their claims through an Alternate Dispute
Resolution procedure or electing Basic Claim Relief. The
proposed settlement class included all persons who owned
one or more Prudential insurance policies between January
1, 1982 and December 31, 1995, with certain exceptions.16
_________________________________________________________________

prevented them from excluding other policyholders from the class. After
the class notice was mailed, several named plaintiffs in a competing
nationwide class action, filed and certified in Alabama state court three
days after the Settlement Agreement was signed (the"Steele action"),
opted out of the class. The so-called "Steele Opt-outs" also attempted, as
class representatives in the Steele action, to execute opt-outs on behalf
of the entire class. At Prudential's request, the district court issued an
Order to Show Cause on January 22, 1997. On May 28, 1997, the
district court ruled that the opt-out of the Steele class was null and
void
as a violation of the permanent injunction. The Steele Opt-outs filed an
appeal with this Court. We affirmed the district court in an unpublished
opinion.

15. In December 1996, Krell moved the district court to recuse itself. The
district court denied the motion, and Krell's subsequent petition for
mandamus relief was denied by this Court without opinion on April 4,
1997.

16. The following were explicitly excluded from the class: 1)
policyholders
who were represented by counsel and had already settled a claim and
signed a release with Prudential; 2) policyholders that are corporations,
banks, trusts or other non-natural entities that purchased policies as
corporate or trust-owned life insurance and under which a) there are
fifty or more separate insured individuals, or b) the aggregate premium
paid over an eight year period, ending with the close of 1996, exceeds $1
million; and 3) those policyholders who were issued policies in 1995 by
Prudential Select Life Insurance Company of America. Stipulation of
Settlement at 13.

16
The class included approximately eight million Prudential
policyholders who own or owned approximately 10.7 million
policies.

a. The Alternative Dispute Resolution process

Under the ADR process contained in the proposed
settlement, class members who believed they had been
misled could submit a claim to Prudential. The claim form
provided to all potential class members contained both
narrowly drawn questions designed to elicit information
relating to specific evidentiary scoring criteria established
under the settlement, as well as more open-ended
questions allowing claimants to explain the exact nature of
their claims. Claimants were also asked to submit any
supporting documents in their possession. Prudential
established a toll-free hotline to allow claimants to speak to
a Claimant Support team, whose members are specially
trained to answer policyholder inquiries, assist with filling
out claim forms, and advise them with respect to the
collection of supporting documents. Once the claim form
was submitted, Prudential was obligated to locate all of its
records pertaining to the claim and submit them for
consideration.

Once a claim has been filed and all the relevant materials
gathered, the claim is subject to a four tier review process.
At the first level, the claim would be examined by a member
of the Claim Evaluation Staff, who will apply a set of
specific criteria for each of four general categories of sales
complaints: (1) financed insurance (taking a loan against an
existing policy in order to pay the premiums on a new
policy); (2) abbreviated payment plans (using dividends
from a policy to pay the premiums on that policy); (3) life
insurance sold as an investment; and (4) other improper
sales practices.17 Based on the application of the
established criteria, the reviewers then assign a score from
zero to 3 to each claim.18 The Claim Evaluation Staff is
_________________________________________________________________

17. The financed insurance criteria include an assessment of Prudential's
conformity with state replacement laws.

18. The scoring system set forth in the Stipulation of Settlement is as
follows:

17
comprised of specially trained Prudential employees who
are not associated with Prudential's individual life
insurance sales force.

Any claim not receiving a score of "3" will automatically
be reviewed by a team of independent claim evaluators who
are selected by class counsel and representatives of the
state regulators. This team will apply the same criteria as
the Claim Evaluation Staff, and make a written
recommendation if it believes the claimant's score should
be adjusted.

That recommendation is then examined by a member of
the Claim Review Staff, which is comprised of Prudential
employees who have not worked as or had supervisory
authority over Prudential sales agents. The determination of
the Claim Review Staff may not be appealed by Prudential.
The claimant, however, may appeal the decision to the
_________________________________________________________________

- A score of "3" is assigned in the event that either (i) Company
Documentation expressly supports the Misstatement, or (ii) the
Agent Statement confirms the Claimant's allegation of the
Misstatement and this confirmation is not undermined by Available
Evidence.

- A score of "2" is assigned in the event that the alleged
Misstatement is not expressly in writing and the Agent Statement
denies the allegations, but (i) Available Evidence, on balance,
supports the Claimant's allegation of the Misstatement, or (ii) the
Agent has a Complaint History.

- A score of "1" is assigned in the event that the alleged
Misstatement is not expressly in writing and the Agent Statement
denies the allegation, and Available Evidence, on balance, neither
supports nor undermines the Claimant's allegation of the
Misstatement.

- A score of "0" is assigned in the event that Available Evidence
exists which undermines the Claimant's allegation of the
Misstatement and suggests that no Misstatement occurred.

- A score of "N/A" is assigned in the event that the Claim
Resolution
Factor is "not applicable" to the Claim submitted.

Prudential Alternative Dispute Resolution Guidelines, Stipulation of
Settlement, Ex. B, at 9.

18
fourth level of review, the Appeals Committee. The Appeals
Committee is selected by class counsel and representatives
of the state regulators from a list agreed upon by class
counsel, the state regulators, and Prudential. While the
Appeals Committee must apply the same criteria, its review
of the claim is de novo.19

The relief afforded a claimant varies depending on the
final score he or she is awarded. Those obtaining a score of
zero are afforded no relief. Those with a score of"1" may
obtain relief only through Basic Claim Relief. Those with
scores of "2" or "3" are entitled to compensatory relief.20
_________________________________________________________________

19. During this phase of the review, claimants may receive cost-free
representation from a representative selected by class counsel and
approved by the state regulators. The claimant is entitled to a full
rehearing if the representative determines that a "manifest injustice" has
occurred.

20. Under the Stipulation of Settlement, the following relief is available
based on the category of claim proven:

Financed Insurance - The policyholder may obtain a refund of the
loans, dividends, or values improperly used, with interest in some
cases. The policyholder also may be entitled to cancel the "new"
policy and get back some or all of the premiums paid, with interest
in some cases.

Abbreviated Payment - The policyholder may be permitted to cancel
the policy `and obtain a refund of some or all of the premiums
paid,
with interest in some cases. Alternatively, the policyholder may be
permitted to keep the policy without having to make any additional
out-of-pocket payments for some or all of the premiums due.

Investment Product - The policyholder may be allowed to cancel the
policy and obtain a refund of some or all of the premiums paid,
with
interest in some cases. Alternatively, the policyholder may be able
to
exchange the policy for an annuity.

Other Claims - If a policyholder was misled in some other way, the
policyholder may be allowed to cancel the policy and obtain a
refund
of some or all of the premiums paid, with interest in some cases,
or
may be able to use the refund to purchase another policy.

Fairness Opinion, 962 F. Supp. at 490 (citing February 1, 1997 Notice
at 7-8).
19
b. Basic Claim Relief

Basic Claim Relief allows the class member to obtain one
or more forms of relief without having to demonstrate
liability on Prudential's part. The available forms of Basic
Claim Relief include: (1) low interest loans to help policy
holders make premium payments on existing policies; (2)
enhanced value policies which allow members to purchase
new policies with additional coverage paid for by Prudential;
(3) deferred annuities enhanced by contributions from
Prudential; and (4) the opportunity to purchase shares in
designated mutual funds enhanced by a contribution from
Prudential.

c. Enhancements To the Task Force Plan

The district court found the settlement improved upon
the Task Force's remediation plan in several ways. Fairness
Opinion, 962 F. Supp. at 492-95. First, the court found
that the settlement improved the structure of the ADR
process by including class counsel and their
representatives in the monitoring process, and improving
the claim scoring criteria21 and evidentiary factors used to
analyze ADR claims.22 It also enhanced the remedies
_________________________________________________________________

21. The district court noted several improvements to the Settlement's
ADR process that would enhance the ability of a policyholder to establish
the presumption that he or she was misled. These enhancements to the
ADR process were:

(1) Provided that boilerplate statements in policy illustrations
and
contracts explaining that the dividends, interest or investment
returns are "not guaranteed" or "non-guaranteed," will not
independently undermine a claim;

(2) Reduced from six complaints to three the number of policyholder
complaints against an agent which would entitle a claimant to a
score of at least "2"; and

(3) Extended the period during which policyholder complaints would
be considered from July 9, 1996 to February 1, 1997.

Fairness Opinion, 962 F. Supp. at 492.

22. The district court also noted the proposed settlement "include[d]
significant improvements in the factors and evidentiary considerations

20
available through both the ADR process and Basic Claim
Relief,23 and provided for a blanket waiver of statute of
_________________________________________________________________

used to evaluate claims." Fairness Opinion, 962 F. Supp. at 492. The
court found that the settlement enhanced the Task Force ADR plan by:

(1) Allowing a claimant's score to be raised if documents
originally
kept by Prudential that could affect the scoring have improperly
been destroyed and no copies can be located;

(2) Allowing the claimant's score for "churning" to be raised if
12%
of the selling agent's total sales were "financed insurance" sales,
as
opposed to a threshold figure of 15% under the Task Force plan;

(3) Allowing a claimant's score to be raised if blank, unsigned
disbursement forms were used without the policyholder's consent;

(4) Allowing a claimant's score to be raised for "vanishing
premium"
claims if an agent used the phrases "vanishing premium" or
"vanishing point" in writing in connection with the sale of the
policy
at issue;

(5) Removing as a negative consideration the fact that a policy
lapsed prior to the date when the premiums were to "vanish", if it
appears that the policyholder became aware, prior to the
misrepresented "vanish" date, that the policy would not perform as
illustrated;

(6) Requiring Prudential to contact agents regarding policies they
sold to obtain additional information about the sale of the policy,
and to encourage honest responses by agreeing not to take
disciplinary action against an agent based on his or her truthful
statements;

(7) Removing Prudential from its co-equal role with the regulators
in
the selection of a representative to advocate on behalf of the
claimant at the arbitration level, and eliminating the $10 million
cap
on the funding the representative could receive; and

(8) Creating an entirely new position, the "Claimant
Representative,"
selected by Class Counsel and responsible for overseeing the entire
process on behalf of the claimant, including the initial claim
review.
Id. at 492-93.

23. The enhancements to the ADR remedies were:

(1) The settlement provided 100% interest to claimants scoring a
"2"
or a "3" in the ADR process (compared to the Task Force plan,

21
limitations and other defenses which Prudential might
otherwise have.

Second, it provided minimum financial guarantees which
were not contained in the Task Force plan. In addition to
the uncapped relief provided under both the Task Force
plan and the proposed settlement, Prudential guaranteed to
pay at least $260 million for each 110,000 claims remedied
(up to 330,000), with a minimum payment of $410 million
regardless of the number of claims remedied. Prudential
also agreed to pay an additional remediation amount based
on a sliding scale from $50 to $300 million, depending on
the number of claims remedied. This amount was to be
allocated by the district court.
_________________________________________________________________

which provided zero interest for scores of "2"), and allows
rescission
of the policy and a refund of the premiums, with interest;

(2) The settlement allowed a claim receiving a either a "2" or a
"3"
to receive relief where a policy lapsed before the claimant died,
as
opposed to the requirement under the Task Force plan that a
claimant receive a "3." three.

(3) Full compensatory relief for a vanishing premium claim where a
Prudential agent promised the claimant would have a"paid up"
policy;

(4) Removal of the exclusion in the Task Force plan which prevented
claims on behalf of the decedent where the policyholder/decedent
died while the policy was in force.

Fairness Opinion, 962 F. Supp. at 493-94.

The court found that the settlement enhanced the Basic Claim Relief
by:

(1) Eliminating fifty basis points on Optional Premium Loans;

(2) Increasing Prudential's contributions to the annual premiums
for
Enhanced Value Policies;

(3) Increasing Prudential's contributions toward the purchase price
of Enhanced Value Annuities;

(4) Creating a new form of Basic Claim relief known as Mutual Fund
Enhancements, for which Prudential would contribute 4% of the
initial purchase price to the fund, up to a maximum of $2,000.
Id. at 494.

22
Finally, the district court noted the "Proposed Settlement
establishe[d] an unparalleled outreach program to ensure
that class members are adequately informed." Fairness
Opinion, 962 F. Supp. at 492. This included mailing
individual notice to over 8 million current and former
policyholders, and publishing summary notices in the
national editions of The New York Times, The Wall Street
Journal, USA Today, and The Newark Star Ledger. The
summary notice was also published in the largest
newspaper in each of the fifty states and the District of
Columbia. In addition, the Stipulation of Settlement
provided that, following final approval of the settlement,
post-settlement notice would be (a) mailed to each class
member, (b) published in the national editions of The New
York Times, The Wall Street Journal, USA Today, The
Newark Star Ledger, and other regional newspapers, and (c)
disseminated through television and radio advertising "on
stations having representative regional coverage."
Stipulation of Settlement at 27-29. Finally, the outreach
program established a six-day-a-week toll-free "800"
number, staffed by specially trained personnel, to answer
class member questions.24 The Task Force plan did not
describe how its outreach program would be implemented.
Fairness Opinion, 962 F. Supp. at 494.

2. The Fairness Hearing

The district court held the fairness hearing on February
24, 1997.25 At that time the court heard oral argument from
all parties who requested the opportunity to speak,
including objectors. The district court also permitted
appearances by several states and allowed the California
Insurance Commissioner and the Florida Insurance
Commissioner to appear as amicus curiae. The court
allowed the Massachusetts Insurance Commissioner, the
Massachusetts Attorney General and the Texas Insurance
_________________________________________________________________

24. At oral argument, Lead Counsel noted that approximately 1.8 million
phone calls had already been processed. Tr. of Oral Argument, January
26, 1998, at 125 (Testimony of Melvyn Weiss).

25. The district court postponed the hearing date, originally set for
January 21, 1997, in order to allow policyholders more time to respond
to the class notice and to provide the parties more time to prepare.

23
Commissioner to intervene under Rule 24(b). The New
Jersey Department of Insurance appeared informally as
amicus curiae, on its own behalf and on behalf of the
Multi-State Life Insurance Task Force.
961absentee class members established in Zahn. This

argument relies heavily on the legislative history of the
statute, in particular the House Judicial Committee Report
that explicitly states S 1367 "is not intended to affect the
jurisdictional requirements of 28 U.S.C. S 1332 in diversity-
only class actions, as those requirements were interpreted
prior to Finley." H.R. Rep. No. 101-734 at 29 (1990),
reprinted in 1990 U.S.C.C.A.N. 6860, 6875 (footnote
omitted). The footnote to this section of the Report
specifically refers to Supreme Tribe of Ben-Hur and Zahn,
and supports the argument that the complete diversity and
amount-in-jurisdiction rules of those cases survive the
enactment of S 1367. Additionally, the Report of the Federal
Courts Study Committee urges Congress to "expressly
authorize federal courts to hear any claim arising out of the
same `transaction or occurrence' as a claim within federal
jurisdiction, including claims, within federal question
jurisdiction, that require the joinder of additional parties,
namely, defendants against whom that plaintiff has a
closely related state claim." Report of the Federal Courts
Study Committee 47 (1990) (quoted in Russ, 961 F. Supp.
at 815). The limited scope of the Committee's suggestion
can be read as support for upholding the restrictions of
Zahn.36

The cases addressing this issue reflect this difference of
opinion. The only two appellate courts to examine this
question have both found the language of the statute
_________________________________________________________________

36. The Federal Courts Study Committee Working Papers showed that
the matter had come to the attention of the Committee. 1 Federal Courts
Study Committee Working Papers and Subcommittee Reports 561 n.33
("From a policy standpoint, [Zahn] makes little sense, and we therefore
recommend that Congress overrule it."). Nonetheless, the Committee did
not adopt the proposal and, indeed, cautioned against reliance on the
Working Papers. See Preface to Working Papers ("These [Working Papers]
were valued background materials which the Committee determined
should be published for general consideration whether or not the
Committee agreed with their substantive proposals. . . . In no event
should the [Working Papers] be construed as having been adopted by the
Committee.").

37
controlling, and concluded that S 1367 overrules Zahn. See
In re Abbott Laboratories, 51 F.3d 524, 528 (5th Cir. 1995);
Stromberg Metal Works v. Press Mechanical, Inc., 77 F.3d
928, 930 (7th Cir. 1996). The Abbott Laboratories court
reasoned that it could not "search legislative history for
congressional intent unless [it found] the statute unclear or
ambiguous," and that in the absence of such ambiguity
"the statute is the sole repository of congressional intent."
51 F.3d at 528-9 (citing United States v. X-Citement Video,
Inc., 513 U.S. 64, 68-71 (1994); West Virginia Univ. Hosps.,
Inc. v. Casey, 499 U.S. 83, 99-100 (1991)). Because it
found the plain language of the statute unambiguous, the
court concluded that "under S 1367 a district court can
exercise supplemental jurisdiction over members of a class,
although they did not meet the amount-in-controversy
requirement, as did the class representatives." Id. at 529.

Unlike the class action facing the court in Abbott
Laboratories, the Court of Appeals for the Seventh Circuit
addressed this question in the context of two plaintiffs
seeking to join an additional claim that did not meet the
amount-in-controversy requirement. Stromberg, 77 F.3d at
930. The Stromberg court also reasoned that "[w]hen text
and legislative history disagree, the text controls," and
allowed the exercise of supplemental jurisdiction in that
instance. 77 F.3d at 931 (citing In re Sinclair, 870 F.2d
1340 (7th Cir. 1989)).

Most of the district courts that have addressed this issue
have concluded otherwise. These courts have relied
primarily on the legislative history to find that Zahn is still
good law. See, e.g., Russ, 961 F. Supp. at 817-20; Crosby
v. America Online, Inc., 967 F. Supp. 257, 263-64 (N.D.
Ohio 1997); Griffin v. Dana Point Condominium Ass'n, 768
F. Supp. 1299, 1301-02 (N.D. Ill. 1991). Judge Louis
Pollak's opinion in Russ, while conceding that the plain
language of the statute would appear to overrule Zahn,
presents a persuasive analysis of the legislative history and
the policy reasons supporting his conclusion that Zahn is
unaffected by the enactment of the supplemental
jurisdiction statute.

The district court here followed the reasoning of Abbott
Laboratories and concluded the plain language ofS 1367

38
overruled Zahn. Consequently, the district court found it
also had supplemental jurisdiction over the non-federal
claims of absentee class members based on its diversity
jurisdiction over the claims of the named plaintiffs.

The question is by no means an easy one. From a policy
standpoint, it can be argued that national (interstate) class
actions are the paradigm for federal diversity jurisdiction
because, in a constitutional sense, they implicate interstate
commerce, foreclose discrimination by a local state, and
tend to guard against any bias against interstate
enterprises. Yet there are strong countervailing arguments
that, at least under the current jurisdictional statutes, such
class actions may be beyond the reach of the federal courts.

Regardless of the relative strength of the competing
arguments over Zahn's continued viability, we need not
enter the fray. Because we have found that the district
court properly exercised supplemental jurisdiction over
class members' non-federal claims based on its original
federal question jurisdiction, we need not decide whether
the district court properly found it had supplemental
jurisdiction based on its exercise of diversity jurisdiction
over the claims of the named plaintiffs. The continued
viability of Zahn and its effect on class actions will
undoubtedly be addressed in the near future, either by the
Supreme Court or by Congress, and at present we need not
resolve the issue.

B. Personal Jurisdiction

The district court also found it had personal jurisdiction
over all members of the proposed class. We agree. In the
class action context, the district court obtains personal
jurisdiction over the absentee class members by providing
proper notice of the impending class action and providing
the absentees with the opportunity to be heard or the
opportunity to exclude themselves from the class. Phillips
Petroleum Co. v. Shutts, 472 U.S. 797, 811-12 (1985). The
combination of reasonable notice, the opportunity to be
heard and the opportunity to withdraw from the class
satisfy the due process requirements of the Fifth
Amendment. Consequently, silence on the part of those
receiving notice is construed as tacit consent to the court's

39
jurisdiction. Id.; see also Carlough v. Amchem Prods., Inc.,
10 F.3d 189, 199 (3d Cir. 1993).

The district court here directed that notice of the class
action be sent to all persons who owned one or more
Prudential insurance policies between 1982 and the
present. Initially, we note the provision of individual notice
to each class member is by no means typical of the notice
provided in most class actions, and certainly qualifies as
unprecedented. The notice provided here met the
requirements for personal jurisdiction. It explained that
each individual receiving notice was a member of the
proposed class, and clearly set forth the procedure for
opting out of the class. The notice also contained the
proposed release, which explained that all claims would be
waived if the individual did not elect to opt out of the class.
Consequently, we find the members of the proposed class
were adequately informed of their potential claims against
Prudential, and the district court had personal jurisdiction
over those members of the putative class who did not timely
opt out.37

C. Article III

Appellants also dispute the district court's finding that
this case qualified as a "case or controversy" under Article
III. Fairness Opinion, 962 F. Supp. at 505-6. Appellants
contend that, "whether analyzed under the feigned case
doctrine or as a failure of Article III standing," the inclusion
of both injured and uninjured policyholders in the certified
class violates the case or controversy requirement of Article
III because the parties have not suffered an "injury in fact."
Public Citizen Brief at 16. Appellants also contend the
inclusion and release of claims arising out of not only the
three primary activities complained of, but also based on
"other improper sales practices," disqualifies the action as
a case or controversy under Article III. Id. at 16-17. Amicus
curiae Public Citizen further argues that the record is
devoid of information concerning these other improper sales
_________________________________________________________________

37. Appellants have questioned whether the notice adequately described
the category of "other improper sales practices" claims so as to inform
members that they might have a valid, compensable claim against
Prudential. We believe it did. See discussion infra S V.C.2.

40
practices, that no plaintiff has claimed an injury as a result
of them, and that there was never an intent to litigate
them. Consequently, "there never has been any live
controversy between Prudential and the `other improper
sales practices' class." Id. at 17. The district court
addressed appellants' contentions and found them to be
without merit. Fairness Opinion, 962 F. Supp. at 506.

We agree with the district court. Article III requires that
federal courts may only adjudicate an actual "case or
controversy." As the district court noted, whether an action
presents a "case or controversy" under Article III is
determined vis-a-vis the named parties. Id. at 506 (citing
Allee v. Medrano, 416 U.S. 802 (1974)). "Once threshold
individual standing by the class representative is met, a
proper party to raise a particular issue is before the court,
and there remains no further separate class standing
requirement in the constitutional sense."1 Newberg on
Class Actions S 2.05 at 2-29 (3d Ed. 1992). The record in
this case is replete with examples of the adversarial nature
of these proceedings, and it is clear that all of the named
representatives have a valid "case or controversy" with
respect to Prudential's alleged fraudulent sales scheme.
There is also ample evidence that each named party has
suffered an "injury in fact" as a result of Prudential's sales
practices and therefore has standing to bring suit. Thus,
the named plaintiffs satisfy Article III. The absentee class
members are not required to make a similar showing,
because once the named parties have demonstrated they
are properly before the court, "the issue [becomes] one of
compliance with the provisions of Rule 23, not one of
Article III standing." Goodman v. Lukens Steel Co., 777 F.2d
113, 122 (3d Cir. 1985), aff'd, 482 U.S. 656 (1987).

We also note that, with respect to appellants' "feigned
case" argument, the notice and the ADR process here were
designed to determine which members of the class could
demonstrate a compensable injury as a result of
Prudential's allegedly deceptive practices. To require the
named plaintiffs to determine beforehand which of the 8
million policyholders were deceived and provide notice to
only those persons would eliminate the viability of the class
action device.

41
We also disagree that the parties never intended to
litigate the "other sales practices" claims. As discussed,
those claims, along with the three categories of specific
violations, were all intertwined as part of the common
scheme allegedly employed by Prudential. If the parties
litigated the churning, vanishing premium and investment
plan claims, they would have litigated their "other sales
practice" claims as well.

Based on the foregoing, we will affirm the district court's
exercise of jurisdiction.

IV. CLASS CERTIFICATION

A. Settlement-Only Class Certification

Under the Federal Rules of Civil Procedure, a district
court generally makes a determination whether to certify a
class "as soon as practicable after the commencement of an
action brought as a class action." Fed. R. Civ. P. 23(c)(1).
This certification may be conditional, and may be modified
as needed. Id. Although the initial complaint in this case
was filed on October 24, 1995, the district court delayed
consideration of the certification issue pending the outcome
of the Task Force investigation.38

On October 28, 1996, the district court conditionally
certified the proposed class for settlement purposes only.
Reviewing the class action device historically, the Supreme
Court noted that "[a]mong current applications of Rule
23(b)(3), the `settlement only' class has become a stock
device. . . . all Federal Circuits recognize the utility of Rule
23(b)(3) settlement classes." Amchem Prods. Inc. v. Windsor,
___ U.S. ___, 117 S. Ct. 2231, 2247 (1997) (citations
omitted); see also G.M. Trucks, 55 F.3d at 786-800
(examining the arguments for and against the use of
settlement classes). But drawing on Judge Edward Becker's
comprehensive opinion in Georgine v. Amchem Products,
Inc., 83 F.3d 610 (3d Cir. 1996),39 the Amchem Court noted
_________________________________________________________________

38. As noted above, the district court partially granted Prudential's
motion to dismiss on May 10, 1996.

39. The proposed settlement in Georgine was the by-product of ongoing
negotiation and litigation involving a group of asbestos manufacturers

42
the special problems encountered with settlement classes.
Although as a general matter it approved the certification of
classes for settlement purposes only, the Supreme Court
cautioned that the certification inquiry is still governed by
Rule 23(a) and (b), and that "[f]ederal courts . . . lack
authority to substitute for Rule 23's certification criteria a
standard never adopted - that if a settlement is`fair,' then
certification is proper." Amchem, 117 S. Ct. at 2248-49.

Consequently, a district court must first find a class
satisfies the requirements of Rule 23, regardless whether it
certifies the class for trial or for settlement. Amchem, 117
S. Ct. at 2248 ("The safeguards provided by the Rule 23(a)
and (b) class-qualifying criteria, we emphasize, are not
impractical impediments - shorn of utility - in the
settlement class context."); G.M. Trucks, 55 F.3d at 799-800
("In sum, `a class is a class is a class,' and a settlement
class, if it is to qualify under Rule 23, must meet all of its
requirements.").
_________________________________________________________________

and a myriad of plaintiffs whose cases had been consolidated in the
Eastern District of Pennsylvania by the Multidistrict Litigation Panel.
Counsel for both sides negotiated separate settlements to resolve both
the then-pending claims against the CCR and the inventory of unfiled
claims held by plaintiffs' counsel. Once the extant cases were settled,
the
parties filed the Georgine class action on behalf of approximately 2
million individuals who had not previously filed lawsuits against the
asbestos defendants, but who had been exposed to asbestos products
produced by defendants. While some members of the class had suffered
physical injuries as a result of their exposure, other members of the
class were "exposure-only" plaintiffs who had not yet developed any
asbestos-related illness. The parties simultaneouslyfiled a complaint, an
answer, a proposed settlement and a joint motion for conditional class
certification. The district court granted the motion, and subsequently
approved the settlement. On appeal, the Georgine court vacated the
district court's opinion and remanded for decertification of the class,
finding that the class did not satisfy the typicality, adequacy of
representation, predominance and superiority requirements of Rule 23.
Georgine, 83 F.3d at 618. The Supreme Court affirmed. Amchem, 117 S.
Ct. at 2244.

Throughout this opinion, we will distinguish between the opinions of
this Court and the Supreme Court by referring to the Supreme Court's
decision as Amchem, and referring to this Court's opinion as Georgine.

43
The district court may take the proposed settlement into
consideration when examining the question of certification.
Amchem, 117 S. Ct. at 2248.40 In Amchem, the Supreme
Court held "a district court [determining whether to certify
a class for settlement purposes only] need not inquire
whether the case, if tried, would present intractable
management problems . . . for the proposal is that there be
no trial." Id. at 2248. But at the same time the Court noted
that "other specifications of the rule - those designed to
protect absentees by blocking unwarranted or overbroad
class definitions - demand undiluted, even heightened,
attention in the settlement context." Id. In particular, the
Court emphasized the importance of applying the class
certification requirements of Rules 23(a) and (b) separately
from its fairness determination under Rule 23(e). The Court
noted that "[i]f a common interest in a fair compromise
could satisfy the predominance requirement of Rule
23(b)(3), that vital prescription would be stripped of any
meaning in the settlement context." Id. at 2249-50.41 At the
same time, the Court stressed the requirements found
under Rule 23(a), in particular the stricture that"the
representative parties will fairly and adequately protect the
interests of the class." Indeed, the key to Amchem appears
to be the careful inquiry into adequacy of representation.
Id. at 2248 ("Subdivisions (a) and (b) [of Rule 23] focus
court attention on whether a proposed class has sufficient
unity so that absent members can fairly be bound by
decisions of class representatives. That dominant concern
persists when settlement, rather than trial, is proposed.")

With this standard in mind, we will review the district
court's analysis of the Rule 23 certification criteria.
_________________________________________________________________

40. The district court did not have the benefit of the Amchem decision
when it rendered its opinion, and did not take settlement into
consideration when conducting its certification analysis.

41. In his separate opinion concurring in part and dissenting in part,
Justice Breyer, joined by Justice Stevens, questioned the consistency of
the majority approach. "If the majority means that these pre-settlement
questions are what matters, then how does it reconcile its statement
with its basic conclusion that `settlement is relevant' to class
certification." Amchem, 117 S. Ct. at 2254.

44
B. Class Certification under Rule 23

"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." G.M. Trucks, 55 F.3d at
799. In order to be certified, a class must satisfy the four
requirements of Rule 23(a): (1) numerosity; (2)
commonality; (3) typicality; and (4) adequacy of
representation.42 If the Rule 23(a) criteria are satisfied, the
court must also find that the class fits within one of the
three categories of class actions defined in Rule 23(b).43 In
this instance the parties sought to certify the class under
Rule 23(b)(3).44 In order to pass muster under Rule 23(b)(3),
_________________________________________________________________

42. Rule 23(a) provides:

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.

Fed. R. Civ. P. 23(a).

43. Rule 23(b)(1) authorizes certification in cases where separate actions
by or against individual class members would risk establishing
"incompatible standards of conduct for the party opposing the class,"
Rule 23(b)(1)(A), or would "as a practical matter be dispositive of the
interests" of nonparty class members "or substantially impair or impede
their ability to protect their interests," Rule 23(b)(1)(B). Rule 23(b)(2)
authorizes class actions seeking declaratory or injunctive relief, for
example civil rights cases alleging class based discrimination.

44. Rule 23(b)(3) provides:

(b) An action may be maintained as a class action if the
prerequisites of subdivision (a) are satisfied, and in addition:

* * *

(3) the court finds that the questions of law or fact common to the
members of the class predominate over any questions affecting
only individual members, and that a class action is superior to
other available methods for the fair and efficient adjudication of
the controversy. The matters pertinent to the findings include: (A)
45
the district court must determine that common questions of
law or fact predominate and that the class action
mechanism is the superior method for adjudicating the
case. The requirements of subsections (a) and (b) are
designed to insure that a proposed class has "sufficient
unity so that absent class members can fairly be bound by
decisions of class representatives." Amchem , 117 S. Ct. at
2248; see also Hassine v. Jeffes, 846 F.2d 169, 177 n.4 (3d
Cir. 1988) (" `[C]ommonality' like`numerosity' evaluates the
sufficiency of the class itself, and `typicality' like `adequacy
of representation' evaluates the sufficiency of the named
plaintiff . . . ."). As noted, these class certification
requirements are to be determined independently from the
court's determination of the "fairness" of the proposed
settlement under Rule 23(e).45 Amchem, 117 S. Ct. at 2248
(Rule 23(e) "was designed to function as an additional
requirement, not a superseding direction, for the`class
action' to which Rule 23(e) refers is one qualified for
certification under Rule 23(a) and (b).").

1. The Rule 23(a) Criteria

a. Numerosity

The court must find that the class is "so numerous that
joinder of all members is impracticable." Fed. R. Civ. P.
_________________________________________________________________

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.

Fed. R. Civ. P. 23(b)(3).

45. 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 a
manner as the court directs.

Fed. R. Civ. P. 23(e)

46
23(a)(1). No one has challenged the district court'sfinding
that the proposed class satisfies the numerosity
requirement. Indeed, the proposed class consists of more
than 8 million present and former policyholders.

b. Commonality

The commonality prong of Rule 23(a) asks whether"there
are questions of law or fact common to the class." Fed. R.
Civ. P. 23(a)(2).46 The district court found the proposed
class easily satisfied the commonality requirement, citing
several common factual and legal issues which the class
members would need to establish in order to prove
Prudential's liability.47 Fairness Opinion, 962 F. Supp. at
_________________________________________________________________

46. Courts frequently examine the Rule 23(a) requirement of
commonality in conjunction with Rule 23(b)(3)'s"predominance"
standard, reasoning that the "predominance requirement incorporates
the commonality requirement." Georgine, 83 F.3d at 626; 1 Newberg on
Class Actions S 3.13, at 3-71. Although the district court followed this
approach and examined the predominance and commonality
requirements together, appellants have not questioned the court's
finding that the proposed class satisfies this element of Rule 23(a).

47. The district court found that plaintiffs would need to establish the
following common factual issues at trial:

- Prudential's common course of conduct;

- Prudential's development of the sales presentations and
materials,
and artificial inflation and maintenance of dividend scales;

- the sale of replacement and vanishing premium policies by
material omission;

- the misrepresentation of po licies as investment or retirement
plans;

- the failure to train or sup ervise agents;

- Prudential's unwillingness to prevent deceptive sales practices;
and

- Prudential's scienter.

Fairness Opinion, 962 F. Supp. at 512.

The district court also found that plaintiffs would need to establish the
following common legal issues at trial:
47
512. The district court also noted that the MDL Transfer
Order recognized that the transferred actions "involve
common questions of fact . . . involv[ing] allegations that
deceptive life insurance sales practices occurred or were
encouraged as a [sic] result of some larger scheme or
schemes organized by Prudential." Id. (quoting August 3,
1995 Transfer Order at 1-2). Finally, the court found
Prudential had asserted affirmative defenses which were
common to all class members, and independently would
satisfy the predominance requirement. Id. at 512-13.48

We believe the court's finding that the proposed class
satisfied the commonality requirement was within its sound
discretion. A finding of commonality does not require that
all class members share identical claims, and indeed
"factual differences among the claims of the putative class
members do not defeat certification." Baby Neal v. Casey,
_________________________________________________________________

- whether policyholder relian ce could be presumed;

- whether Prudential's offer to finance a policyholder's purchase
of
a policy constitutes an enforceable financing contract distinct
from
the policy itself;

- whether Prudential breached the financing contract;

- whether Prudential breached an obligation of good faith and fair
dealing;

- whether constructive trust principles apply to premiums received
as a (result of deceptive sales practices;

- whether compensatory claims can be effectively quantified on a
class wide basis; and

- whether punitive damages sh ould be imposed.

Id.

48. The court also cited the following as examples of issues common to
all class members: Prudential's fraudulent concealment of its
misrepresentations; the use of substantially similar, and sometimes
identical, oral and written misrepresentations by Prudential agents in
furtherance of its fraudulent scheme; the required use of pre-approved
written marketing materials; and the fact that Prudential trained its
agents to use these fraudulent sales techniques. Fairness Opinion, 962
F. Supp. at 513-16.

48
43 F.3d 48, 56 (3d Cir. 1994) (citing Eisenberg v. Gagnon,
766 F.2d 770 (3d Cir. 1985)).49"The commonality
requirement will be satisfied if the named plaintiffs share at
least one question of fact or law with the grievances of the
prospective class." Id. As the district court found, the
allegations in the Second Amended Consolidated Complaint
raise numerous issues which all members of the class
would need to demonstrate in order to succeed at trial.
Consequently, the proposed class satisfies Rule 23(a)(2).

c. Typicality

The district court found the claims of the class
representatives were typical of the class as a whole. First,
the court noted all of the named plaintiffs have alleged
either churning, vanishing premium, or investment plan
claims, or some combination of the three. Second, it relied
on the "prominent guiding thread through all plaintiffs'
claims - Prudential's scheme to defraud" to support its
conclusion that the claims of the named plaintiffs are
typical of the class as a whole. Fairness Opinion, 962 F.
Supp. at 518. The court rejected the argument that"the
class fails for lack of typicality because no class
representative claims to have been injured by `other
improper sales practices.' " Id. The court reasoned that the
"class members injured by `other fraudulent sales practices'
have suffered the same injury - they are victims of
Prudential's deception - and have suffered the same generic
type of harm - they have economic damages - as the named
plaintiffs," thereby satisfying the typicality requirement. Id.
at 519 (citing General Tel. Co. of Southwest v. Falcon, 457
U.S. 147, 159 (1982)).

On appeal, Krell reasserts his argument that the
inclusion of the "other claims" defeats afinding of
typicality. In particular, Krell contends the named plaintiffs'
_________________________________________________________________

49. Krell objects to the district court's reference to Baby Neal,
complaining that the court was inappropriately applying the Rule
23(b)(2) standard for injunctive relief in a Rule 23(b)(3) class action.
The
objection is clearly without merit. The district court applied Baby Neal
in
the context of its Rule 23(a) "commonality" analysis, a factor applicable
whether the class action is brought under Rule 23(b)(2) or (b)(3).

49
claims cannot be representative of the class because the
"other claims" are not identified. Krell Brief at 29; see also
Public Citizen Brief at 13-16. Additionally, Krell contends
the court failed to consider the variations among the laws
of the 50 states, making its typicality analysis inadequate.50
Amicus Public Citizen, relying on Falcon, argues plaintiffs
must "show that the plaintiff class ha[s] been injured in the
same manner as ha[ve] the named representative[s]." Public
Citizen Brief at 15 (emphasis omitted).

"The concepts of commonality and typicality are broadly
defined and tend to merge." Baby Neal, 43 F.3d at 56
(citing 7A Charles A. Wright, et al., Federal Practice and
Procedure S 1764, at 247 (1986)). The typicality requirement
is designed to align the interests of the class and the class
representatives so that the latter will work to benefit the
entire class through the pursuit of their own goals. Id. at
57 ("The typicality inquiry is intended to assess whether the
action can be efficiently maintained as a class and whether
the named plaintiffs have incentives that align with those of
absent class members so as to assure that the absentees'
interests will be fairly represented."); 1 Newberg on Class
Actions, S 3.13. In this respect the commonality and
typicality requirements both seek to ensure that the
interests of the absentees will be adequately represented.
Falcon, 457 U.S. at 157 n.13. However, "neither of these
requirements mandates that all putative class members
share identical claims." Baby Neal, 43 F.3d at 56; Hassine
v. Jeffes, 846 F.2d at 176-77; Weiss v. York Hosp., 745
F.2d 786, 809 (3d Cir. 1984), cert. denied, 470 U.S. 1060
(1985). In addition, "factual differences among the claims of
the putative class members do not defeat certification."
Baby Neal, 43 F.3d at 56.

We believe the district court's typicality analysis is
correct. The named plaintiffs, as well as the members of the
proposed class, all have claims arising from the fraudulent
_________________________________________________________________

50. Krell also argues the court improperly evaluated the typicality
requirement because it merely presumed the factual and legal elements
of named plaintiffs' claims were aligned with the claims of absentee class
members. Krell's claim that the district court presumed typicality simply
ignores the findings contained in the district court's opinion.

50
scheme perpetrated by Prudential. That overarching
scheme is the linchpin of the Second Amended
Consolidated Complaint, regardless whether each class
member alleges a churning claim, a vanishing premium
claim, an investment plan claim, or some other injury
falling within the category of "other sales" claims.
"Commentators have noted that cases challenging the same
unlawful conduct which affects both the named plaintiffs
and the putative class usually satisfy the typicality
requirement irrespective of the varying fact patterns
underlying the individual claims." Baby Neal, 43 F.3d at
58. Consequently, the factual distinctions among and
between the named plaintiffs and the 8 million putative
class members do not defeat a finding of typicality. "[E]ven
relatively pronounced factual differences will generally not
preclude a finding of typicality where there is a strong
similarity of legal theories" or where the claim arises from
the same practice or course of conduct. Id.

This conclusion is further buttressed by the Supreme
Court's holding in Falcon. The Supreme Court reversed
certification of a class of Mexican-Americans who were
challenging their employers hiring and promotion decisions
on typicality grounds.51 Falcon, 457 U.S. at 157-59. Krell
relies on Falcon for the proposition that"across-the-board"
classes do not satisfy Rule 23. Krell Brief at 27-28. We
disagree. Falcon did not strike down "across-the-board"
classes per se, and, in fact, it agreed"with the proposition
underlying the across-the-board rule - that racial
discrimination is by definition class discrimination." Falcon,
457 U.S. at 157. The Court nonetheless reversed the class
certification because the district court had improperly
presumed that Falcon's claims were typical of the class
claims. In particular, the Court emphasized that Falcon's
claim was based on the theory of disparate treatment, while
_________________________________________________________________

51. Falcon involved a Mexican-American employee who was denied a
promotion, allegedly based on his national origin. After obtaining a
right-
to-sue letter from the EEOC, Falcon commenced a class action under
Title VII of the Civil Rights Act of 1964, alleging discrimination against
Mexican-Americans with respect to promotion. The class, however, was
comprised of all Mexican-American employees and Mexican-Americans
who had been denied employment.

51
the class claims relied on the theory of disparate impact.
Consequently, Falcon would need to "prove much more
than the validity of his own claim" in order to prove the
claims of the absentee class members, and thus his claims
were not typical of the class. Id. at 158.

The present case is readily distinguishable. Unlike the
plaintiff in Falcon, the named plaintiffs here have not relied
on allegations that they were singled out and defrauded by
Prudential. They have instead alleged that they suffered
harm as the result of the same company-wide conduct that
injured the absentee class members. The various forms
which their injuries may take do not negate a finding of
typicality, provided the cause of those injuries is some
common wrong. Baby Neal, 43 F.3d at 58 (citing Falcon,
457 U.S. at 157-59) ("Where an action challenges a policy
or practice, the named plaintiffs suffering one specific
injury from the practice can represent a class suffering
other injuries, so long as all the injuries are shown to result
from the practice."). In this instance, the alleged common
scheme provides an appropriate basis for a finding of
typicality. Since all members of the class would need to
demonstrate the existence of this scheme, their interests
are sufficiently aligned that the class representatives can be
expected to adequately pursue the interests of the absentee
class members. Amchem, 117 S. Ct. at 2248 (Rule 23 asks
"whether a proposed class has sufficient unity so that
absent class members can fairly be bound by decisions of
class representatives").

d. Adequacy of Representation

The final Rule 23(a) prerequisite encompasses two
distinct inquiries designed to protect the interests of
absentee class members. First, the adequacy of
representation inquiry "tests the qualifications of the
counsel to represent the class." G.M. Trucks, 55 F.3d at
800. Second, it "serves to uncover conflicts of interest
between named parties and the class they seek to
represent." Amchem, 117 S. Ct. at 2250. The district court
found that both class counsel and the named plaintiffs
satisfied these tests.

52
With respect to class counsel, the court found that
plaintiffs' counsel were highly competent and experienced
class action attorneys, and had pursued the interests of the
class vigorously. Fairness Opinion, 962 F. Supp. at 519-20.
With respect to the class representatives, the court found
named plaintiffs' interest in proving Prudential's"knowledge
and orchestration of the scheme to defraud" and their
"interest in obtaining relief commensurate with individual
injury," as well as punitive damages, demonstrates that
"there are no disparate interests to impair plaintiffs'
incentive to prosecute fully all aspects of their claims
against Prudential." Id. at 521.

Krell contests the district court's analysis on several
grounds. First, Krell disputes the district court'sfinding
that class counsel adequately served the interests of the
class. In particular, Krell argues that class counsel failed to
take adequate discovery, and that an improper "clear
sailing" fee agreement between class counsel and
Prudential created an impermissible conflict of interest.52
Krell Brief at 19-21, 51-53.

Second, Krell contends the inclusion of the category of
"other claims" defeats a finding of adequate representation.
Krell argues because policyholders have an equity interest
in any "surplus" of Prudential, the expansion of the class to
include policyholders with unidentified "other claims,"
whose interests were "adverse to those with asserted
claims," created a detriment on behalf of the"other"
policyholders for the benefit of those with asserted claims.
According to Krell, this conflict destroys the adequacy of
named plaintiffs' representation.

Third, Krell repeats his argument that the court's failure
to consider the variations among the laws of the 50 states
demonstrates that there was no adequate protection of the
claims of absentees. In particular, Krell claims there was a
conflict between class members with replacement claims
and those without, so that the district court should have
_________________________________________________________________

52. The court specifically noted that the fee agreement negotiated with
Prudential subsequent to the negotiation of the Proposed Settlement did
not undermine the adequacy of class counsel's representation. Fairness
Opinion, 962 F. Supp. at 519; see also infra S VI.C.1.

53
created a subclass of replacement claimants.53 Finally, both
Krell and Public Citizen argue the proposed class
improperly includes a subset of "futures" claimants,
thereby running afoul of Amchem.

We believe the district court exercised its sound
discretion when it found class counsel and the named
plaintiffs adequately represent the class. First, we believe
class counsel vigorously pursued this class action. Both the
uncapped nature of the proposed settlement and the
"unprecedented" outreach program indicate that class
counsel and the named plaintiffs have attempted to serve
the best interests of the class as a whole. Further, we agree
with the district court's finding that the attorneys' fee
arrangement between class counsel and Prudential did not
affect the adequacy of representation. See infra S VI.C.1.

Second, we also agree with the district court that the
named plaintiffs adequately represent the interests of the
absentee class members. As discussed, the crux of this
class action is the allegation that Prudential engaged in a
scheme to defraud policyholders by means of company-wide
deceptive sales practices. The named parties, like the
members of the class, would need to establish this scheme
in order to succeed on any of the claims in the Second
Amended Consolidated Complaint. Even those class
members with "other" claims share the common task of
demonstrating the existence and implementation of this
scheme. Consequently, we believe the proposed class
satisfies the adequacy of representation requirement of Rule
23(a).

We also reject the argument that the class as constituted
included persons who are currently unaware of their injury,
and that this "futures" class is barred under Amchem.
Amchem, of course, found the proposed class did not meet
the adequacy of representation standard because the
interests of those with present injuries differed from those
with "futures" claims. Amchem, 117 S. Ct. at 2251 (finding
that the economic interest of the currently injured
_________________________________________________________________

53. The district court explicitly rejected this argument. Fairness
Opinion,
962 F. Supp. at 522. For a more detailed discussion of Krell's
replacement claims, see infra S V.A.4.

54
claimants "tugs against the interest of the exposure-only
plaintiffs"). But Amchem is easily distinguished on its facts.
Unlike the "exposure-only" plaintiffs in Amchem, the class
members here need not wait to determine if they have been
harmed by Prudential's fraudulent sales practices. There is
no "future" manifestation of injury, because any injury
suffered by a member of the class has already occurred.
Having received notice of the pending class action and the
availability of relief, members of the class can determine
whether they have been victims of Prudential's fraud, either
through a review of their records or by calling the toll-free
number established by the settling parties. Consequently,
the district court exercised its sound discretion infinding
the proposed class meets the adequacy of representation
requirement of Rule 23(a)(4).

2. The Rule 23(b) Criteria

In order to certify an opt-out class under Rule 23(b)(3)
the district court must make two additional findings:
predominance and superiority. Issues common to the class
must predominate over individual issues, and the class
action device must be superior to other means of handling
the litigation. The district court found both requirements
were satisfied.

a. Predominance

The Supreme Court's recent decision in Amchem
addressed the application of the predominance prong to
"settlement only" classes. Although the Court made clear
that consideration of the proposed settlement was proper
when making a decision on class certification, it also placed
limits on the weight to be accorded to the settlement. In
particular, Amchem rejected the idea that the potential
benefits of settlement are relevant to the predominance
inquiry. According to the Court, the predominance "inquiry
trains on the legal or factual questions that qualify each
member's case as a genuine controversy, questions that
preexist any settlement." Amchem, 117 S. Ct. at 2249. The
court noted the "claims and defenses" relevant to both the
predominance test and the Rule 23(a)(4) adequacy of
representation inquiry "refer to the kinds of claims or

55
defenses that can be raised in courts of law as part of an
actual or impending law suit." 117 S. Ct. at 2249 n.18
(quoting Diamond v. Charles, 476 U.S. 54, 76-77 (1986)
(O'Connor, J. concurring in part and concurring in
judgment)).

In its predominance determination, the court focused
primarily on plaintiffs' allegation that Prudential engaged in
a common course of conduct by which it defrauded class
members, and concluded that "[w]here many purchasers
have been defrauded over time by similar
misrepresentations, or by a common scheme to which
alleged non-disclosures related, courts have found that the
purchasers have a common interest in determining whether
the defendant's course of conduct is actionable." Fairness
Opinion, 962 F. Supp. at 511 (citations omitted).

The district court also rejected the argument that
claimants' need to demonstrate reliance destroyed
predominance, reasoning that "reliance is an issue
secondary to establishing the fact of defendant's liability."
Id. at 516 (citing 1 Newberg S 4.26 at 4-104) ("Challenges
based on . . . reliance have usually been rejected and will
not bar predominance satisfaction because [reliance
pertains] to the right of a class member to recover in
contrast to underlying common issues of the defendant's
liability."). Additionally, the court noted that"most of the
plaintiffs' claims do not even involve a reliance element,"
including their claims for breach of contract, breach of
implied obligation of good faith and fair dealing, negligence,
negligent training and supervision, and unjust enrichment.
Id. Finally, the court found that, because "plaintiffs' fraud-
based claims stem largely from misleading omissions,"
reliance can be presumed. Id.

The district court also distinguished this case from
Georgine. First, the court reasoned that "Prudential's
alleged intentional use of the fraudulent sales tactics
provides the `single central issue' lacking" in Georgine. Id.
at 511 n.45. Whereas Georgine involved a variety of claims
encompassing scores of individual issues, a trial in this
instance would be focused on Prudential management's
conduct. Id. Second, the court noted the class here is
comprised of persons who purchased one type of product

56
(life insurance policies) from one company, in contrast to
the Georgine class members who were exposed to different
asbestos-containing products manufactured by different
companies. Finally, the district court noted the class here
lacked "futures" plaintiffs, because "class members are
readily identifiable and have already suffered injury by the
purchase of a product that was misrepresented." Id.

As the Supreme Court noted in Amchem, "[p]redominance
is a test readily met in certain cases alleging consumer or
securities fraud or violations of the antitrust laws. . . . [e]ven
mass tort cases arising from a common cause or disaster
may, depending upon the circumstances, satisfy the
predominance requirement." Amchem, 117 S. Ct. at 2250
(citing Adv. Comm. Notes, 28 U.S.C. App., p. 697). This
case, involving a common scheme to defraud millions of life
insurance policy holders, falls within that category. The
district court's opinion sets forth a litany of common issues
which the class must demonstrate in order to prevail. See
supra S IV.B.1 and n.47-48. While individual questions may
arise during the course of this litigation, we agree with the
district court that the presence of individual questions does
not per se rule out a finding of predominance. In particular,
the "presence of individual questions as to the reliance of
each investor does not mean that the common questions of
law and fact do not predominate." Eisenberg v. Gagnon, 766
F.2d 770, 786 (3d Cir. 1985).

Krell contends the district court did not conduct a proper
analysis under Rule 23(b)(3), and instead "presumed"
predominance by finding the central issue in this case was
nationwide deceptive conduct by Prudential's management.
We disagree. A review of the district court's fairness opinion
belies the contention that it merely presumed
predominance. See Fairness Opinion, 962 F. Supp. at 510-
17. The district court's finding that common issues
predominated in this case was within its sound discretion,
was supported by the record, and was amply demonstrated
in its opinion.

Krell also reasserts his argument that the class here
suffers the same defects as the class of asbestos plaintiffs
in Amchem. We find the district court's analysis of this
comparison convincing. The two cases are markedly

57
different, and easily distinguished. The Amchem class failed
the predominance inquiry because of the disparate
questions facing class members, based in part on their
differing levels of exposure, their differing medical histories,
and the presence of exacerbating conditions such as
smoking. Of course, the complexity of a case alleging
physical injury as a result of asbestos exposure differs
greatly from a case alleging economic injury as a result of
deceptive sales practices. The elements of proof are less
difficult when the vagaries of medical testimony and
scientific expertise are removed from consideration.
Furthermore, the Amchem class was further undermined by
the schism between the differing medical needs of currently
injured class members and exposure-only or "futures"
claimants. As noted, there is no "futures" class in this case.

We also reject Krell's contention that predominance is
defeated because the class claims are subject to the laws of
the fifty states. Courts have expressed a willingness to
certify nationwide classes on the ground that relatively
minor differences in state law could be overcome at trial by
grouping similar state laws together and applying them as
a unit. This Court has affirmed a class certification based
on a "creditable showing, which apparently satisfied the
district court, that class certification [did] not present
insuperable obstacles" relating to variances in state law.
See In re School Asbestos Litigation, 789 F.2d 996, 1010 (3d
Cir. 1986).54 In this instance Krell has failed to demonstrate
that the differences in applicable state law were sufficient to
foreclose a similar approach.55 In support of class
certification, plaintiffs compiled "a series of charts setting
forth comprehensive analyses of the various states' laws
potentially applicable to their common law claims."
Fairness Opinion, 962 F. Supp. at 525. The court
concluded that the "elements of these common law claims
are substantially similar and any differences fall into a
_________________________________________________________________

54. While we reached a different conclusion in Georgine, our decision
there turned on our belief that the case "could not be broken into
anywhere near that small a number of patterns." 83 F.3d at 627 n.13.

55. In addition, Krell's concern is addressed by the fact that "the ADR
scoring procedures specifically incorporate state replacement
regulations." Fairness Opinion, 962 F. Supp. at 550 n.79.

58
limited number of predictable patterns." Id. The district
court "considered the choice of law issues that confront[ed]
the Court and conclude[d] that these choice of law issues
[did] not render this class action unmanageable." Id. We
agree.

b. Superiority

Rule 23(b)(3) sets out several factors relevant to the
superiority inquiry.56 The district court addressed these
factors and found the class action mechanism was superior
to other possible means of adjudicating this case. First, the
court examined the relatively modest size of individual
claims and the sheer volume of those claims in the
aggregate, and concluded a class action presented the "only
rational avenue of redress for many class members." Id. at
523. Second, the court reasoned the relatively small
number of individual suits pending against Prudential
indicated that individual policyholders lacked a compelling
interest to control the prosecution of their own claims, and
at the same time represented a potentially great strain on
judicial resources. Third, the court found it was appropriate
to litigate the case in New Jersey, Prudential's principal
place of business. Finally, the district court determined that
the case, while challenging, would not present
insurmountable case management problems if it were tried.57
Id. at 525.
_________________________________________________________________

56. Rule 23(b)(3) lists the following factors for consideration by the
courts:

(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.

Fed. R. Civ. P. 23(b)(3).
57. While we believe the district court correctly analyzed whether
application of the laws of the fifty states would be manageable, we note
this analysis, depending on the facts in each case, may no longer be
necessary in the context of settlement-only class certification. See
Amchem, 117 S. Ct. at 2248 ("Confronted with a request for settlement-
only class certification, a district court need not inquire whether the
case, if tried, would present intractable management problems . . . for
the proposal is that there be no trial.").
59
Krell objects to the finding of superiority, claiming the
district court erred by only comparing the nationwide class
with the prospect of individual proceedings, without
considering the possibility of subclasses and without
allowing Krell to develop the subclass issue.

The superiority requirement asks the court "to balance,
in terms of fairness and efficiency, the merits of a class
action against those of `alternative available methods' of
adjudication." Georgine, 83 F.3d at 632 (citing Katz v. Carte
Blanche Corp., 496 F.2d 747, 757 (3d Cir.) (en banc), cert.
denied, 419 U.S. 885 (1974)). We believe the court's
superiority determination was within its sound discretion.
With respect to Krell's subclass argument, the district court
found no conflict between replacement and non-
replacement claimants. Fairness Opinion, 962 F. Supp. at
522. We agree. As discussed infra at S V.A.4., Krell has not
demonstrated that replacement claimants differ from other
class members so as to require the creation of a subclass.
Because the replacement claimants did not require
specialized or distinct treatment, the court's failure to
create a separate subclass for those claimants, as well as
its superiority determination, was not an abuse of
discretion.58

C. Conclusion

Based on our review of the prerequisites of Rule 23(a)
and 23(b)(3), we believe the "proposed class has sufficient
unity so that absent members can fairly be bound by
decisions of class representatives." Amchem, 117 S. Ct. at
2248. Consequently, we will affirm the district court's
certification of the class.

V. THE FAIRNESS OF THE PROPOSED SETTLEMENT

Even if it has satisfied the requirements for certification
under Rule 23, a class action cannot be settled without the
approval of the court and a determination that the
proposed settlement is "fair, reasonable and adequate."59
_________________________________________________________________

58. The district court expressly left open the possibility that it would
create subclasses if they became necessary. Fairness Opinion, 962 F.
Supp. at 525.

59. Both Rule 23(e) and Rule 23(c) require that notice of the proposed
settlement be given to all members of the class as directed by the court.
For a discussion of the notice provided, see discussion infra S V.C.2.

60
G.M. Trucks, 55 F.3d at 785. "Rule 23(e) imposes on the
trial judge the duty of protecting absentees, which is
executed by the court's assuring the settlement represents
adequate compensation for the release of the class claims."
Id. at 805 (citations omitted).

In deciding the fairness of a proposed settlement, we
have said that "[t]he 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." Id. at 806 (citations
omitted). At the same time, we have noted that cases such
as this, where the parties simultaneously seek certification
and settlement approval, require "courts to be even more
scrupulous than usual" when they examine the fairness of
the proposed settlement. Id. at 805. This heightened
standard is designed to ensure that class counsel has
demonstrated "sustained advocacy" throughout the course
of the proceedings and has protected the interests of all
class members. Id. at 806.

"The decision of whether to approve a proposed
settlement of a class action is left to the sound discretion
of the district court." Girsh v. Jepson, 521 F.2d 153, 156
(3d Cir. 1975). Because of the district court's proximity to
the parties and to the nuances of the litigation, we accord
great weight to the court's factual findings. Bell Atlantic
Corp. v. Bolger, 2 F.3d 1304, 1305-6 (3d Cir. 1993) (citing
Ace Heating & Plumbing Co. v. Crane Co., 453 F.2d 30, 34
(3d Cir. 1971)).

As the district court recognized, our decision in Girsh
sets out appropriate factors to be considered when
determining the fairness of a proposed settlement. Those
factors are:

(1) the complexity, expense and likely duration of the
litigation . . . ; (2) the reaction of the class to the
settlement . . . ; (3) the stage of the proceedings and
the amount of discovery completed . . . ; (4) the risks
of establishing liability . . . ; (5) the risks of
establishing damages . . . ; (6) the risks of maintaining
the class action through trial . . . ; (7) the ability of the

61
 defendants to withstand a greater judgment; (8) the
range of reasonableness of the settlement fund in light
of the best possible recovery . . . ; (9) the range of
reasonableness of the settlement fund to a possible
recovery in light of all the attendant risks of litigation
. . . .

Girsh, 521 F.2d at 157 (quoting City of Detroit v. Grinnell
Corp., 495 F.2d 448, 463 (2d Cir. 1974)) (the "Girsh
factors"). The court examined each of these factors and
found "the Proposed Settlement is indeed fair, reasonable,
and adequate and should be approved." Fairness Opinion,
962 F. Supp. at 534.

In addition to the Girsh analysis, the district court offered
other reasons for its conclusion that the settlement was fair
and reasonable. Describing the proposed settlement as
"exceptional," the court noted the settlement's structure
was based on the class action settlements approved in
Willson v. New York Life Ins. Co., No. 94-127804, 1995 N.Y.
Misc. LEXIS 652 (N.Y. Sup. Ct. Feb. 1, 1996), aff'd, 644
N.Y.S.2d 617 (A.D. 1st Dep't), and Michaels v. Pheonix
Home Life Ins. Co., No. 95-5318, 1997 N.Y. Misc. LEXIS
171 (N.Y. Sup. Ct. Jan. 3, 1997), both of which received the
praise of "[c]ourts, academic and industry experts, and
various independent organizations." Fairness Opinion, 962
F. Supp. at 535. The court also relied on the expertise of
the insurance regulators from the fifty states and the
District of Columbia, all of whom endorsed the settlement.

The court found the terms of the settlement "benefit[ ] the
class enormously," emphasizing the uncapped nature of the
relief, the fairness of the ADR process, and the availability
of Basic Claim Relief to those class members who either
elect not to participate in the ADR process or who cannot
demonstrate they have a compensable claim. The court
found this relief was enhanced by the inclusion of
"Additional Remediation Amounts," which it described as
the "punitive damage counterpart to the Proposed
Settlement," and by Prudential's agreement to pay all
attorneys' fees and costs associated with the settlement. Id.
at 535-36. Finally, the court emphasized the settlement
provided class members the opportunity to file claims
immediately after court approval of the settlement, rather

62
than waiting through what no doubt would be protracted
litigation. Id. at 536.

Krell raises several challenges to the district court's
fairness determination.60 First, Krell claims the district
court applied several of the Girsh factors improperly, and in
some cases not at all, and that it erred by not creating a
separate subclass to address replacement claims. Krell
Brief at 43-50. Second, he contends the district court's
fairness determination violated the McCarran-Ferguson Act
and the Rules Enabling Act by altering the substantive
contractual and statutory insurance rights of the class. Id.
at 36-40. Finally, Krell alleges the certification and fairness
proceedings lacked due process. Id. at 40-42.
_________________________________________________________________

60. Prudential contends that nearly "[e]very argument Krell makes is
based on th[e] mistaken premise that his `replacement claims' were
stronger than the misrepresentation claims of the other Class Members."
Prudential Brief at 41 & n.10. As a result, Prudential argues, all but one
of the objections to the settlement's fairness are"felled by Krell's error
of
law." Id. We do not agree that Krell's arguments can be dismissed so
easily, and will address Krell's replacement claim objections in the
context of his other arguments.

63