# Appendix — Oswald v. General Motors Corp. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385006_0670%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1979 - **Citation:** 444 U.S. 870 ## Text la IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION In re GENERAL MOTORS CORPORATION MDL Docket No. 308 ENGINE LITIGATION MEMORANDUM OPINION AND ORDER Certain attorneys of the plaintiffs’ Executive Committee have raised objection to this court’s position on the burden of proof regarding the fairness hearing to be held concerning the proposed settlement proffered by defendant General Motors (hereinafter ““GM’’). These attorneys have also objected to the limitations on the scope of discovery set by this court, whereby the court has precluded inquiry into the settlement negotiations process between GM and the attorneys general who are parties to the proposed settlement agreement. These objections were voiced in a letter sent to the court by attorney Lawrence Walner pursuant to the court’s direction at the last status hearing. The substance of the letter has been treated by the court in motion form and will be filed for the record nunc pro tunc January 3, 1978, the date it was received. Defendant GM has responded to the plaintiffs’ request for discovery into the negotiation process by memorandum dated January 10, 1978. The first issue which the court addresses is the plaintiffs mistaken belief that the court has shifted the burden of proof to the opponents of the proposed settlement. This contention ignores the distinction between burden of proof and the burden of going forward with the evidence. This court stated at the pretrial conference on December 19, 1977, that the terms of the 2a settlement made a prima facie showing of fairness. This statement was not intended to shift the burden of proof from the proponents of the settlement. The court was and is merely trying to obviate the need for GM to make a lengthy record showing the fairness of the settlement if the opponents of the settlement have no material objections. GM will be required to establish, on the record, a basis for the proposition that the settlement is fair. Because the terms of the settlement appear to be reasonable to the court, in the interests of judicial economy we think this should be done in rebuttal to arguments made against the fairness of the settlement. The burden of showing the fairness of the settlement, however, remains with the proponents of that settlement. Certain plaintiffs’ counsel have also objected to this court's determination that the process of the negotiation of the pro- posed settlement between GM and the various attorneys gener- al who signed the agreement is not open to discovery. Plain- tiffs’ memorandum has cited a number of cases dealing general- ly with disclosure of relevant materials in discovery and with an objecting party’s opportunity to take reasonable discovery in order to formulate his objections. Bearing in mind the broad scope of discovery under the federal rules, we still do not find the negotiation process of the settlement to be relevani to the issue to be presented at the fairness hearing. As was stated in Liebman v. J. W. Peterson Coal & Oil Co., 73 F.R.D. 531 (N.D. Ill. 1973): “[{T]he primary criterion for the court in evaluating the fairness and adequacy of a proposal is an informed estimate of the probabil- ities of both liability and damages.” Jd. at 535. The Manual for Complex Litigation at pages 66 and 67 sets forth various considerations which may guide a court in the ultimate determination of whether a settlement is fair. How- ever, we fail to see how discovery into the negotiation process itself could add anything to the factors which this court will consider. To be sure, the fact that the proposed settlement was Od OO EO eee 3a negotiated, at least on one side, by persons who for the most part are not counsel of record in this action, is a factor to be considered. See Manual for Complex Litigation, pp. 63 and 64. At the same time, this court must recognize that these same negotiating parties, because of the potential overlap of class actions, were representing potential class members in the case at bar, albeit that representation was in the conduct of other cases seeking similar relief. As stated in the Manual for Complex Litigation, ‘In order to approve a settlement, the court must find that the proposed settlement is fair, reasonable, and adequate with respect to all classes and subclasses involved.” /d. at 65. This case has been prosecuted by no less than ten attorneys for the plaintiff class. Who better than those counsel should know the ultimate strengths and weaknesses of their case on both liability and damages? And who better than defendant GM and the plain- tiffs herein should have the discoverable material necessary to show liability and damages? Just as we find no relevancy to the settlement process carried out between GM and the various attorneys general, so do we see little, if any, relevancy in having attorneys general, who are signatories to the agreement, testi- fying at the fairness hearing. Should plaintiffs be able to demonstrate to the court some concrete reason for the relevancy of the negotiation process, the court would reconsider its ruling. At the present time, however, the court finds the negotiation process to be irrelevant to the considerations of the fairness hearing and, therefore, outside the scope of discovery. ENTER: /s/ FRANK J. MCGARR UNITED STATES DISTRICT JUDGE DATED: February 8, 1978 4a IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS : EASTERN DIVISION In re GENERAL MOTORS CORPORATION MDL Docket No. 308 ENGINE INTERCHANGE LITIGATION FINDINGS OF FACT AND CONCLUSIONS OF LAW REGARDING SUBCLASS SETTLEMENT This class action litigation is brought on behalf of pur- chasers of 1977 Oldsmobile cars who received such cars equipped, without their knowledge or consent, with V-8 engines produced by defendant's Chevrolet Motor Division. The class has been certified as to the issue of liability only under the Magnuson-Moss Warranty Act, 15 U.S.C.A. §§ 2301-12 (1977 Supp.). Subsequently, the court certified a subclass consisting of class members who entered into written purchase orders for their Oldsmobiles on or before April 10, 1977. The defendant, General Motors Corporation (GM), on December 19, 1977, tendered a proposed settlement to resolve the claims of the subclass members. After allowing the class representatives time to conduct discovery regarding the fairness of the proposed settlement, and after giving notice to all subclass members, the court conducted a hearing on objections to the proposed settlement which commenced on May I, 1978 and concluded on May 25, 1978. On the basis of its full consideration of the record before it, including the post-hearing briefs submitted by the parties, the court enters the following Findings of Fact and Conclusions of Law. Sa FINDINGS OF FACT Terms of Proposed Settlement 1. The proposed settlement provides that, upon execuuion of an appropriate release of claims, GM will pay to each of the 66,872 members of the subclass the cash sum of $200. The total cash sum to be paid to the subclass, if all members accept the settlement, is $13,374,400. (Setthement Agreement, § 6, filed 12/19/77; “Report on Exclusions from Class and Sub- class”, filed 5/23/78 (Tr. 1483) ) 2. Also as part of the settlement, GM will extend to each subclass member who owns an eligible vehicle a special me- chanical performance certificate, issued by GM's subsidiary, Motors Insurance Corporation (MIC), insuring components of the car’s power train (engine, transmission and drive axle) against mechanical breakdown or failure for a period of 36,000 miles or 36 months from the date of original delivery, which- ever occurs first. (Setthement Agreement, 96) The specific coverage and terms of the proposed insurance are matters of record and are not in dispute. (DX 49; PX 195)* The certificate will be noncancellable and transferable, meaning that it can be assigned to a subsequent purchaser of the vehicle. GM has represented that otherwise eligible losses incurred prior to the issuance date of an individual's certificate will be reimbursed upon submission of adequate documentation of the expense incurred. (Tr. 1483-84) 3. The settlement will give each subclass member the option either to accept the cash payment and insurance certifi- cate in exchange for a release of all his claims, or to reject the settlement and pursue such other remedies as he may feel are * All transcript citations are to the record of the fairness hearing unless otherwise indicated. Objectors’ exhibits are designated “PX” and defendant's exhibits are designated “DX”. Page references to“M_ ™” are to the MDL production numbers appearing on multi-page exhibits. 6a available. Thus, subclass members who desire to pursue, under state law theories, a larger award than provided for by this settlement, will not be precluded from doing so. Support for the Settlement 4. One factor considered by the courts in evaluating the fairness of a proposed class action settlement is the degree of support for, as well as opposition to, the settlement. Of the twelve consolidated cases before the court, the named plaintiffs in seven cases actively support the settlement, while plaintiffs in three cases objected and plaintiffs in two cases remained silent. (Tr. 18-20, 1412; “Notice of Intention to Appear at May l, 1978, Hearing and Summary of Objections to Proposed Settle- ment”, filed 4/17/78) 5. The response of the subclass members indicates exten- sive support for the settlement. Only eleven of the 66.872 subclass members submitted written objections pursuant to the class notice. (“Preliminary Report by Defendant GM Regard- ing Responses to Class Notices”, filed 5/1/78) Of these, three appeared to testify. (Shaffer, Tr. 229; Jasko, Tr. 202; Urfer, Tr. 90) Four other subclass members also appeared at the hearing to express objection to the settlement. (Gordon, Tr. 149: Seltzer, Tr. 170; Perko, Tr. 299; Schulman, Tr. 322) 6. In addition to the support of the majority of class representatives and nearly all subclass members, the settlement offer is supported by the attorneys general of forty-six states. Only the attorneys general of New York, Iowa, Kentucky and Louisiana have not accepted the settlement. (Tr. 1413: Tran- script of Proceedings, 12/19/77, pp. 3-9, 23-26) Of these, the Attorney General of New Yerk settled with GM on the basis of the May, 1977 offer. (DX 36) If the settlement is approved, GM has agreed to extend the offer to subclass members in all fifty states. (Block Ex. 1) Ta Adequacy of the Proposed Settlement 7. Without prejudging in any way the issues joined in the lawsuit, the court was concerned during the fairness hearing principally in assessing the comparability of the Chevrolet- produced engines with the Oldsmobile-produced engines in- volved in these proceedings. 8. Three Chevrolet-produced V-8 engines were used in 1977 Oldsmobiles. Two had a displacement of 350 cubic inches: the LM1 engine equipped with a four-barrel carburetor and the L65 engine equipped with a two-barrel carburetor. The third engine, designated LG3, was a 305 cubic inch displacement engine. (PX 76; DX 9, 11, 37, 38) 9. In the 1977 model year, Oldsmobile produced V-8 engines with 260, 350, and 400 cubic inch displacements. (PX 76; DX 38) Thus, the LG3 305 engine is not comparable in displacement to any engine produced by Oldsmobile. (Tr. 1149) In the 1977 model year, Oldsmobile equipped approxi- mately 20,000 cars with the LG3 305 as an optional engine. (DX 11) No objection to the settlement was filed by any purchaser of an Oldsmobile equipped with the LG3 305 engine. 10. In the absence of any objection relating to the LG3 305 engine and in the absence of any Oldsmobile-produced counterpart, the settlement appears adequate for those subclass members who selected that engine for their cars. The objecting class representatives adduced no evidence from which it could be concluded that the settlement is inadequate insofar as it relates to those purchasers. 11. Moreover, the engineering evidence presented by GM showed that the LG3 305 engine passed the same corporate durability test as the other GM engines involved in this litigation. (Tr. 1149-51) GM’s tests also indicate that the performance (or acceleration ) and fuel economy of that engine are satisfactory, falling between those of the 260 Oldsmobile- produced engine and the 350 engines produced by Oldsmobile 8a and by Chevrolet. (Tr. 1151-52) On this record, therefore, it can be concluded that the settlement is fair and adequate with respect to those subclass members who received the Chevrolet- produced LG3 engine. 12. Most of the evidence of engineering comparability presented during the hearing concerned the 350 engines, espe- cially the LMI Chevrolet-produced engine and the L34 Oldsmobile-produced engine. To a considerable extent. the facts were undispuied, although the inferences to be drawn from those facts are contested. Mindful that it has conducted a fairness hearing and not a trial, the court draws no final conclusions on this subject, but rather assesses the record to determine wheiher the settlement appears adequate in light of the parties’ competing positions regarding the comparability of the two engines. 13. The principal engineering expert to testify at the hearing on behalf of General Motors was a GM employee, Paul Johnson, an automotive engine expert with considerable ex- perience in designing, developing, and testing engines, in- cluding the Chevrolet small-block V-8 engine from which the LMI 350 engine is derived. (Tr. 964-73) He testified that the L34 and LMI engines are the same in basic concept (Tr. 979) and that both were rated at 170 horsepower as used in 1977 Delta 88's. (DX 38) Johnson explained that automotive engineers evaluate and compare automobile engines on the basis of three criteria: durability, performance, and fuel econo- my. (Tr. 981) 14. Through two automobile mechanics, the objectors identified several dimensional and other physical differences between the LMI and L34 engines. Johnson, GM’s expert. testified that the dimensional and other physical differences were immaterial to the comparative durability and performance of the two engines. Certain physical differences, he testified. reflected equally acceptable engineering solutions to the same engine design challenges. (Tr. 1077-1116, 1137-42) we on 94 Durability 15. According to the evidence, each type of engine is subjected to a corporate 200-hour wide-open throttle engine dynamometer test, a strenuous pass-fail test designed to put more wear and strain on the engine that will be imposed by a normal driver under normal driving conditions (Tr. 985-88; DX 13) 16. Both the L34 and LMI engines passed GM's 200-hour durability test. Johnson testified that these results indicate that the LMI and L34 engines are comparable in durability, that the durability of either engine will be Satisfactory to a person operating a car equipped with either engine, and that the engines will probably outlast the vehicles in which they are installed. (Tr. 988-92, 997; DX 14) The evidence also indicates that both types of engine passed an over-the-road 50,000-mile durability test as part of the Environmental Protection Agency's (EPA) certification procedures. (Tr. 995-96 ) 17. The objectors introduced Oldsmobile’s reported war- ranty repair data on the LMI and L34 engines as experienced in 1977 Delta 88 and Omega cars. These data indicate that between March, 1977, when this litigation was filed with its attendant publicity, and October, 1977, the frequency of war- ranty claims experienced by Oldsmobile was somewhat higher with the LMI engine than with the L34 engine. (PX 141) Oldsmobile’s warranty cost per engine was correspondingly higher on the LMI engine than on the L34 engine. (PX 142) 18. No evidence was submitted indicating that the dis- parity in warranty experience between the two engines reflected any difference in the durability or quality of the two engines. According to Johnson's testimony, warranty claims data in- dicate the correction of problems occurring in mass production which are made at no cost to the buyers. Such problems normally are identified early in the life of the particular car and are not apropos to the question of durability. 10a Performance 19. Engine performance is measured as acceleration potential or maximum performance capability. (Tr. 1002-03) GM's test data indicate that the LMI engine offers slightly better performance than the L34 engine, although the differ- ence might not be discernible to an average driver. (DX 15; Tr. 1002-03, 1330) The objectors’ principal mechanic witness agreed that the LMI engine offered somewhat better perform- »nce. (Tr. 789-91) 20. The slight edge given to the Chevrolet-produced LM1 engine in the area of performance or acceleration takes on added significance in view of the marketing evidence offered by the objectors which demonstrated that an optional 350 cubic inch engine was more likely to be selected by purchasers who desired higher performance. (PX 127, p. M5840; PX 143; Tr. 124) To the extent that subclass members chose an optional 350 engine over the base or standard engine offered in their 1977 Oldsmobiles to obtain higher performance, the record indicates that the LMI engine offered equal if not slightly greater performance than the Oldsmobile L34 350 engine. (Tr. 1134-35) Fuel Economy 21. The 1977 official EPA miles-per-gallon estimates were 18 mpg and 17 mpg on a combined city/highway basis for the L34 and LMI, respectively. (PX 169, 170) On the basis of an assumed price of 70¢ per gallon, the objectors urged that, over a driving cycle of 105,000 miles, the 1977 EPA-estimated differential would amount to a cost differential of approxi- mately $230. (PX 171) 22. GM’s expert testified that EPA mileage estimates are not based on over-the-road tests, but rather are calculated from measurements of emissions during in-place dynamometer tests. (Tr. 1009) His opinion was that differences of one mile-per- gallon in EPA estimates are not a reliable indicator of the relative fuel economy of two engines under actual driving conditions. (Tr. 1005; 1047-48) _ 23. This opinion is supported by other evidence in- troduced by GM. The EPA itself in a proposed rule has commented that “the relative ranking in the Guide for a 20 mpg car as compared to a 21 mpg car is not highly significant.” Fed. Reg., Vol. 43, No. 33 (Feb. 16, 1978) (p. 6818) (DX 22) In a separate study, two governmental engineers concluded: “For a 1 mpg difference in the EPA values between two vehicles, the probability of rank reversal in use is about 40% for the whole range of cars for one model year. In order to achieve a probability of correct ranking in use of 90% for any two vehicles from the whole population, the difference between the two vehicles must be about 5 mpg based on the EPA numbers.” A Comparison of Fuel Economy Results from EPA Tests and Actual In-Use Experience 1973-1977 Model Year Cars, February, 1978, page 23 (DX 23) 24. GM introduced the results of three over-the-road fuel economy tests involving comparisons of the L34 and LMI engines. In one test, conducted on September 22, 1976, Olds- mobile tested a Delta 88 equipped with an L34 engine against a Chevrolet Caprice, of comparable weight, equipped with an LMI engine. Based on the test results, the overall actual fuel economy was computed on a weighted basis of 16.30 mpg and 16.28 mpg for the L34 and LM1 engines, respectively. (DX 17, 25, 26) Using the objectors’ own measurement, this differential would result in a cost differential of only $5.53 between the two engines over a distance of 105,000 miles. (PX 171) However, when the September, 22, 1976 data (DX 17) are arithmetically averaged, the LMI surpasses the L34 in fuel economy. (DX 24) In any event, GM’s expert testified that the mpg differential was so small that it was beyond the engineer’s ability to measure it reliably. (Tr. 1018, 1040, 1048) 25. In another GM over-the-road test, involving a Delta 88 equipped with an LMI and a Delta 88 equipped with an L34 driven from Lansing, Michigan, to Phoenix, Arizona, the fuel l2a economy of the two engines was comparable, according to Johnson. (Tr. 1022; DX 20) The differential was computed at 0.45 mpg in favor of the L34 engine (Tr. 1053)—again, an amount he testified was too small to measure reliably. (Tr. 1040, 1048) The test reports also indicate that the L34 engine failed to meet prescribed emission levels both before and after the test, thus enhancing its fuel economy. (Tr. 1023-24) 26. As with the other two tests, Johnson testified that the data from the third over-the-road test demonstrated the fuel economy of the two engines to be comparable within the ability of the tests to discriminate. (DX 18; Tr. 1019) Based on the totality of fuel economy data available to him, Johnson’s expert engineering conclusion was that the two engines offered com- parable fuel economy in 1977 Oldsmobiles. (Tr. 1018, 1027, 1040) 27. Also regarding fuel economy, GM notified its dealers of its planned usage of the LMI engine in some Oldsmobile models prior to their production and gave its dealers proper 1977 EPA mpg estimates for that engine. (PX 179, 180; DX 37, 43) GM asked its dealers to hand-correct existing merchandising materials to reflect the new data. (PX 180, p. M4760) It also prepared wall posters for dealer showrooms and revised its new car catalogs to reflect the new EPA figures. (PX 180, p. M4760; PX 76, 78) GM’s evidence that an EPA mileage label bearing the proper EPA ratings was affixed to each new car equipped with an LMI engine was uncontradicted. (Tr. 686; DX 6, PX 40) Hence, steps were taken to supply con- sumers with proper EPA estimates for the LMI engine. (Tr. 73; DX 6; PX 40, 179, 180, 76) 28. This aspect of the case is further complicated by the characterization of the EPA mpg numbers as “estimates” even by the EPA. (PX 169, 1970, 40; DX 6) Promotional materials introduced by the parties reflect the caveat to consumers that: “EPA mileage ratings are estimates and your mileage may vary according to your own driving habits, the 13a condition of your car, and the type of equipment installed.” (DX 46) Some objecting subclass members testified that they were aware of this caveat at the time of purchase. (See, e.g., Tr. 73-74, 338) Moreover, the objectors conducted an over-the-road comparison from Texas to Illinois between two Delta 88’s, one equipped with a high-altitude L34 engine and the other with a low-altitude LMI engine. (DX 58, 59: Tr. 1555-59) While the comparison made does not appear to be a reliable indication of relative fuel economy, the fuel economy achieved by the LMI engine in the objectors’ own demonstration actually exceeded the combined city/highway EPA estimate for both the LM1 and L34 engines. (Tr. 1546, 847; PX 169, 226, 227) 29. With respect to the L65 350 engine, Johnson testified that it is similar to the LMI engine and has the same short block. (Tr. 1146) Because the L65 engine develops somewhat less horsepower with a two-barrel carburetor, he concluded that its durability would be at least equal to or greater than that of the LMI engine. (Tr. 1147) Johnson also testified that the performance or acceleration of the L65 would be less than that of the L34 engine by about the same amount as the LM1’s performance exceeds that of the L34. (Tr. 1147) According to Johnson, the fuel economy offered by the L65 engine was comparable to that offered by the LMI and L34 engines. (Tr. 1148) No significant evidence contradicting these conclusions was offered by the objectors insofar as the L65 engine is concerned. 30. For purposes of evaluating the proposed settlement. the evidence regarding the comparability of the LM1, L65, and L34 engines, even though contested at points, persuades the court that the settlement falls well within the parameters of reasonableness and fairness. However, the objectors have raised other objections to the settlement which the court also has considered in reaching its conclusion. The principal! l4a remaining objections are discussed in the balance of these findings. Transmission Usages 31. The objectors contended at the hearing that Oldsmo- bile used a different and less expensive transmission with the LMI engine in Delta 88 coupes and sedans than it used with the L34 engine in those vehicles. The record does not support this contention. Oldsmobile’s Director of Material Control testified that, effective March 30, 1976, Oldsmobile had released the THM 200 transmission for use with L34 engines in 1977 Delta 88 coupes and sedans. (DX 10; Tr. 653-55) Other evidence introduced by the objectors indicates that the THM 200 trans- mission was planned for use with the L34 engine in Delta 88 cars prior to the decision in September, 1976 to use the LMI engine in some of those cars. (PX 127, pp. M5884, M5914) Oldsmobile production figures verify that all 1977 Delta 88 coupes or sedans were equipped with a THM 200 transmission regardless of whether the L34 or LMI engine was installed in them. (DX 9; Tr. 657) In fact, both 1977 Delta 88 cars used by the objectors in their road comparison had THM 200 trans- missions. (Tr. 238) Replacement Parts Prices 32. The objectors maintained that a relevant measure of Jamages would be the net differential in the suggested retail eplacement parts prices for the LMI and the L34. The *vidence is conflicting on this point since GM’s evidence shows he Chevrolet-produced engine to be slightly more expensive han the Oldsmobile-produced engine if purchased as a replace- nent part. (DX 57) The objectors claim that the Oldsmobile ‘eplacement parts cost over $400 more than the Chevrolet yarts. (Tr. 748) 33. The court does not find it necessary to resolve this ‘videntiary conflict since the objectors’ evidence, even if accept- :d, has little or no probative value. (Tr. 747-53, 868) There is 10 showing that replacement parts prices reflect quality or other 15a relevant differentials between the two engines as opposed to differences in volume, distribution methods, packaging, and other matters related uniquely to the replacement parts busi- ness. To whatever extent relevant, the objectors’ evidence Suggests that the estimated manufacturing costs of the two engines were closely equivalent (PX 115) and that, insofar as Oldsmobile Division is concerned, it was more costly for it to use the LMI engine rather than the L34 engine. (Tr. 685, 698) Conduct of Negotiations 34. The objectors also complain that the settlement was negotiated in a manner inconsistent with the court’s pretrial orders. This objection, even if valid, does not bear on the adequacy of the proposed settlement and would not constitute sufficient grounds to withhold an otherwise fair settlement from consideration by the subclass members. However, since the issue is raised, a discussion of it is appropriate. 35. The settlement was negotiated by the Consumer Protection Committee of the National Association of Attorneys General, representatives of which appeared before the court on December 19, 1977 to apprise the court of the settlement. (Transcription of Proceedings, 12/19/77, pp. 3-9, 23-26) The offer to subclass members is part of a larger settlement package negotiated by the attorneys general in their capacities as official law enforcement officers with responsibility for enforcing the consumer protection laws of their respective states. (Settlement Agreement; Transcript of Proceedings, 12/19/77, pp. 23-26; Tr. 432, 438-39) Two of them, the attorneys general of Alabama and Illinois, are also counsel for class representatives in this litigation. The record reflects that the negotiations between GM and the attorneys general were known to at least some private counsel in advance of the settlement. (Tr. 442; Transcript of Proceedings, 12/ 13/77) When the fact of the negotiations was first raised with the court, no plaintiff claimed that the court’s orders were being violated, and the court encouraged the negotiations to continue. (Transcript of Pro- ceedings, 12/13/77, pp. 11-12, 16) l6a 36. Partly because private counsel for the class were not involved directly in the settlement negotiations, the court allowed them full opportunity for discovery into its adequacy and for clarification of its terms. Private plaintiffs’ counsel availed themselves of that opportunity and, as noted, six of them have concluded that the settlement is fair and reasonable in light of the ensuing investigation. (Tr. 18-20, 937-41) Full opportunity has been given to the objectors to call to the court’s attention any and all complaints regarding the settlement terms. Under the circumstances, the court is assured that no prejudice has resulted to the subclass members by reason of the manner in which the settlement was negotiated. Post-April 10 Purchasers 37. The objectors also express concern that approval of the proposed settlement will somehow prejudice the interests of class members who are not also members of the subclass. The court does not find this to be the case. The litigation will proceed as to post-April 10 purchasers without any prejudice to such legal rights and interests as they otherwise might possess. As observed in the ruling establishing a subclass and as further 2videnced in the hearing record, there are significant factual Jistinctions between the subclass members and other class members which justify selection of April 10 as a reasonable line of demarcation between them for settlement and other pur- soses. (DX 37) >unitive Damages 38. The parties are in disagreement over whether the Magnuson-Moss Act can be interpreted to authorize punitive lamages in cases such as these. The court does not find it lecessary to resolve that legal question in the context of its onsideration of the settlement’s fairness. Both sides introduced ubstantial evidence that GM’s decision to use the LM1 engine n Oldsmobiles was made by Oldsmobile management to satisfy inexpectedly high consumer demand for cars equipped with nd 17a 350 cubic inch engines, after it became clear that such demand was likely to outstrip Oldsmobile’s productive capacity for its L34 engine. (PX 127, pp. M5794, M5814, M5835, M5878, M5889-94; PX 117; DX 40; Tr. 616, 669) There is evidence that it is common industrial trade practice for manufacturers, in- cluding automobile manufacturers, to use parts and com- ponents, including engines and engine parts, supplied by out- side concerns. This same practice is and has been common among and between GM’s various divisions. (PX 101, DX 44; Tr. 155-56, 600, 617-19, 622-24, 1152-57) There is also evi- dence that Oldsmobile evaluated the LMI and L34 engines and found them comparable from an engineering standpoint prior to the start of their use in production. (DX 17; PX 115; Tr. 688) It was not disputed that Oldsmobile took affirmative steps promptly after its decision was made and before the Start of production to notify dealers of the change in engine availability (PX 179, 180) and specifically to delete references to “Rocket” 350 engines in promotional materials with respect to those models in which the LMI engine was to be used. (PX 78, 81- 84, 120; Tr. 371, 377, 381) 39. Based on the hearing record, the court is persuaded that the interests of the subclass members would not be well served by withholding the proposed settlement from them against the objectors’ contention that a claim for punitive damages eventually might be made out and sustained. Engine Servicing - 40. The recommended tune-up schedules for the LM1 and L34 engines suggest one more tune-up for the LMI than for the L34 over a 100,000-mile engine life. Johnson testified that the additional tune-up was included in EPA certifications to main- tain emissions levels in conjunction with manual transmissions and that the LMI engine had, in fact, operated fully satisfac- torily even when maintained in accordance with the tune-up intervals recommended for the L34. (Tr. 1001-02) This information was not, however, available to purchasers. 18a 41. The evidence indicates that the L34 engine may experience somewhat better oil economy than the LMI, although the degree of difference is not reliably estimated in the record. (Tr. 1062-63) The evidence also indicates, however, that oil economy differences would not affect durability or performance. (Tr. 1062) No evidence was offered indicating that the discounted value of any oil economy difference which might exist involved a significant financial detriment. Value of Insurance Certificate 42. The parties dispute the retail premium value to consumers of the insurance certificate offered as part of the settlement and the probable cost of the policy toGM. The only direct evidence relating to the retail premium value of the certificate consists of testimony and exhibits offered by a marketing vice president of GM’s MIC subsidiary. He testified that, to a person desiring comparable mechanical insurance coverage in the marketplace, a conservative estimate of the retail premium that he would be charged was $200. (Tr. 1658- 61, 1674-75; DX 48-56) The objectors dispute this valuation by arguing that most of the subclass members already possess a nontransferable certificate of comparable coverage issued by GM unilaterally in April, 1977, after the litigation commenced. (PX 190, 192) Instead of a $13 million aggregate retail value, the objectors place the policy’s value at $3 million. (Tr. 710) In evaluating a proposed settlement, the court may appropriate- ly consider the total benefits conferred on the class members by virtue of the litigation, even though some of the benefits were conferred prior to the settlement. 43. In truth, except for the indicia of value furnished by the premium cost of a similar policy, the real value of this feature of the settlement cannot be presently determined. If, in the future, there are relatively few mechanical problems with the Chevrolet-produced engines, the engines will have served the purchasers well and they will not have been damaged. Conversely, should the engines encounter a high rate of me- — 19a chanical problems, the greater will be the protection and “value” of the insurance. Since GM’s Premium costs are open- ended and will be adjusted retrospectively after all the policies expire (PX 195; Tr. 1656-57), its costs similarly will be lower if the engines perform well and wiil increase if and as mechanical problems are encountered with the engines or other covered power train components. Other Objections 44. Other objections have been made by the objecting plaintiffs and individual subclass members which are not explicitly addressed in these findings. The court has fully considered them, together with the objections discussed above, and regards them individually and collectively as being in- sufficient to cast serious doubt on the adequacy and fairness of the settlement. To the extent that subclass members may be dissatisfied individually with the settlement offer, they remain free to reject it and pursue such other legal recourse as may be available to them. 20a CONCLUSIONS OF LAW 1. The cour has jurisdiction over the subject matter and personal jurisdiction over the parties. 2. Pursuant to Rule 23, Fed.R.Civ.P., the court determines that the proponents of the proposed settlement have met their burden of persuading the court that the settlement terms are fair, reasonable, and adequate to subclass members, notwith- standing the objections presented to it. Approval will be granted to communicate the settlement offer to subclass mem- bers in a form of notice to be approved by the court. 3. On condition that the settlement is implemented, an appropriate order will be entered dismissing the litigation with prejudice on behalf of subclass members who accept the settlement, and dismissing the litigation as to subclass members who reject the settlement without prejudice to their right to pursue such individual state law remedies as may be available to them. 4. The court retains jurisdiction of the subclass litigation to supervise the settlement in accordance with the Settlement Agreement dated December 19, 1977. The court retains jurisdiction over the remaining class litigation for all purposes. _ ENTER: /s/ FRANK J. MCGARR UNITED STATES DISTRICT JUDGE DATED: July 17, 1978 2la IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION In re GENERAL MOTORS CORPORATION { MDL Docket No. 308 ENGINE INTERCHANGE LITIGATION | ORDER APPROVING SUBCLASS SETTLEMENT Pursuant to Findings of Fact and Conclusions of Law entered this day, the court hereby orders that: 1. The settlement proposed by defendant of the subclass claims is determined to be fair and reasonable and is approved by the court. 2. Defendant General Motors shall, at its expense, send an approved notice of settlement, together with appropriate claim form and release, to all subclass members who have not filed a timely request for exclusion from the subclass, by first class mail. All parties are given fifteen days to comment in writing upon the proposed notice of settlement submitted by General Motors. 3. After mailing of the settlement notice has been com- pleted, defendant General Motors shall file with the court an appropriate affidavit of mailing. Thereafter, defendant shall report to the court the names of those subclass members who have accepted the settlement. 4. The action on behalf of subclass members who accept and receive the settlement shall be and is hereby dismissed as to defendant General Motors with prejudice. 22a 5. The action on behalf of subclass members who do not accept the settlement shall be and is hereby dismissed as to jefendant General Motors. Dismissal as to those persons shall ye without prejudice solely to their rights to pursue such other ‘emedies as may be otherwise available to them. 6. The court retains jurisdiction over the subclass to upervise implementation of the settlement, and retains urisdiction as to the balance of the full class for all purposes for which the class was initially certified. ENTER: /s/ FRANK J. McGARR UNITED STATES DISTRICT JUDGE DATED: July 17, 1978 ——————r —— 23a IN THE UNITED STATES COURT OF APPEALS For THE SEVENTH CIRCUIT In re GENERAL MOTORS CORPO.) RATION ENGINE _INTER- CHANGE LITIGATION. Appeal of: Betty Oswald, on her own behalf and on behalf of all other persons similarly situated, and Phil No. 78-2036 Miller and Eileen Miller, on their . Argued S “ 28. 197 behalf and on behalf of all other (HefiGcg Ken, 96. loys persons similarly situated, eb. 26, 1979 Plaintiffs- Appellants, v GENERAL MOTORS CORPO- RATION, Def endant- Appellee. | Before FAIRCHILD, Chief Judge, and BAUER and WOOD, Circuit Judges. HARLINGTON WOOD, Jr., Circuit Judge. In 1976 the defendant, General Motors (GM), began substituting engines produced by its Chevrolet Division in many of the 1977 model year cars produced by its Oldsmobile Division. The discovery of the engine switch culminated in the commencement of a plethora of lawsuits against GM in the state and federal courts. The Judicial Panel on Multidistrict Litigation transferred those actions which had been filed in the federal courts to the United States District Court for the Northern District of Illinois for consolidated pretrial proceed- ings with several actions which were already pending there. See 28 U.S.C. § 1407. The district court certified that the actions could be maintained as a class action and later ap- proved the settlement of the actions as to one of two subclasses of Oldsmobile purchasers. This appeal is from the order of the district court approv- ing the subclass settlement. Although the facts are lengthy, the litigation’s history complex, and the resolution of the issues difficult, the issues may be stated with relative simplicity: 24a First, is the district court’s order approving the subclass settlement appealable? Second, should counsel prosecuting the appeal be limited to representing the interests of those class members who objected to the settlement before the district court? Third, did the district court err by refusing to permit appellants’ counsel to inquire into the conduct of the negotia- tions that led to the settlement? Fourth, did the district court err by dismissing with prej- udice the federal claims of those class members who declined to release their state law claims pursuant to the settlement agree- ment? We find that this court does have jurisdiction to entertain the appeal and hold that the trial court erred in approving the subclass settlement. Consequently, we reverse and remand the order of the district court with instructions. I. Facts A. The Engine Interchange Litigation Beginning in 1974, GM planners began considering the manufacturing requirements for GM cars for the 1977 model year. By 1976 various GM management committees began planning for extensive interdivisional engine exchanges. Be- cause the Chevrolet Division had a significant surplus produc- tion capacity, GM planners decided to rely on Chevrolet produced engines to meet part of the engine requirements of GM’s Buick, Oldsmobile and Pontiac Divisions. To institute the engine interchange in the Oldsmobile Division, GM used codes to identify the different engines that would be used in its 1977 Oldsmobiles. The Rocket 350 V-8 engine produced by Oldsmobile, for example, was given the code name “L34”; the Chevrolet engine used in place of the eeeeeEeEEeEeeeEeeeeeEeeEeEe—e—e——eeEeEe—ee—eEeEeEe—eEeEeEeEeEeEeEeEeEeEeEeEeEeEeEeEeEeEeEeEeEeEeEeEeEeEeEeEeeeeeSGEeeeeee 25a Rocket was given the code “LM1.”"1 Moreover, GM, over some objections by the Chevrolet Division, decided to adopt a common engine color for all of its engines. Thus, the distinctive red Chevrolet engine became blue. Despite the planned Oldsmobile-Chevrolet engine change, GM’s advertising, EPA gas mileage disclosures and communications to Oldsmobile dealers referred to the changes by the use of the codes. The switch from standard components to different com- ponents in Oldsmobiles was not confined to engines. GM used different components than it had used in previous years for other parts of the power train (the engine, transmission, and drive axle) in some of its Oldsmobiles. For reasons which do not appear with clarity in the record, GM decided in 1976 to install in all 1977 Oldsmobile Delta 88 coupes and sedans the THM 200 transmission instead of the THM 350, the trans- mission traditionally used in those cars. The THM 200, like the THM 350, is produced by GM’s Turbohydramatic Division. The THM 200, originally designed for use in the subcompact Chevette, was used in all 1977 Delta 88 coupes and sedans regardless of whether they contained Oldsmobile or Chevrolet engines. The appellants maintain that GM’s advertising mate- rials nevertheless indicated that the THM 350 was standard equipment in all 1977 Deltas. The case before this court is a subset of the Oldsmobile litigation spawned by the discovery of the engine interchange. After filing suit in the Cook County Circuit Court alleging violations of the Illinois Consumer Fraud and Deceptive Busi- ness Practices Act, Ill.Rev.Stat. ch. 121%, §§ 261-272, the ' Three Chevrolet produced V-8 engines were used in 1977 Oldsmobiles: the LMI, a 350 engine equipped with a four- barrel carburetor, the L65, a 350 engine equipped with a two- barrel carburetor, and the LG3, a 305 cubic inch displacement engine. The class eventually certified by the district court includes all purchasers of Oldsmobiles with Chevrolet engines regardless of which of the three Chevrolet engines the pur- chasers actually received. 26a Illinois Attorney General filed suit in the federal court for the Northern District of Illinois on behalf of the State of Illinois, which had purchased a 1977 Oldsmobile with a Chevrolet engine, and more than 100 other Oldsmobile purchasers.2 The complaint alleged that the sale of the Oldsmobiles without disclosure of their engine source violated the Magnuson-Moss Act, IS U.S.C. §§ 2301-2312, and sought certification of the 2 The Magnuson-Moss Act limits federal court jurisdiction over class actions prosecuted under the Act to those actions in which the amount of each individual claim is at least $25, the total amount in controversy is at least $50,000, and the number of named plaintiffs is at least 100. 15 U.S.C. § 2310(d)(3). Otherwise, presumably every consumer complaint alleging a violation of the Act could have been maintained in the federal courts, without regard to the amount in controversy, under 28 U.S.C. § 1337. Compare Barnette v. Chrysler Corp., 434 F.Supp. 1167 (D.Neb.1977) (individual action alleging a violation of the Act and seeking recovery of the purchase price of a defective car could not be maintained in federal court, because it failed to meet the $50,000 requirement). On the other hand, the Act’s amount in controversy requirements, by lowering from the usual $10,000 to $25 the amount necessary for individual claims but requiring an aggregate amount of at least $50,000, reduce the obstacles normally encountered in meeting the jurisdictional amount necessary to maintain a class action. See Snyder v. Harris, 394 U.S. 332, 89 S.Ct. 1053, 22 L.Ed.2d 319 (1969); Zahn v. International Paper Co., 414 U.S. 291, 94 S.Ct. 505, 38 L.Ed.2d 511 (1973). The number of named plaintiffs required, however, remains a substantial bar- rer to maintaining class actions under the Act. It was enacted by Congress to prevent “trivial or insignificant” class actions from being brought in the federal courts. H.R.Rep.No. 93- 1107, 93d Cong., 2d Sess., reprinted in [1974] U.S.Code Cong. & Ad.News 7702, 7724. Although the Illinois Attorney Gener- al’s complaint was the only complaint to satisfy the last jurisdictional requirement, we attach no particular significance to this fact. 27a action as a nationwide class action. The Oswald and Miller actions were later brought to the federal district court and consolidated with the State of Illinois action before Judge McGarr. Upon GM’s petition, the Judicial Panel on Multi- district Litigation transferred seven actions then pending in other federal courts to the Northern District for consolidated pretrial proceedings.4 3 General Motors characterizes the case before this court as “only the tip of a litigation iceberg” over GM’s interdivisional engine use. The widespread publicity given to the engine switch by the initial lawsuits bred additional lawsuits. Other Attorneys General soon filed state court actions against GM under state consumer protection statutes. Furthermore, many individual car buyers started state court proceedings seeking individual and sometimes class relief. Altogether, GM esti- mates, over 300 engine interchange actions were filed against GM since March 1977. Forty-one of the suits were filed as class actions and thirty-three were brought by state Attorneys Gener- al. Some of the actions were initiated by purchasers of 1977 Buicks and Pontiacs which, like the Oldsmobiles in this suit, were equipped with Chevrolet engines. At least two suits were filed by owners of 1977 Buicks and Cadillacs, alleging that they received cars equipped with Oldsmobile engines. See In re GMC Engine Interchange Litigation, 441 F.Supp. 933 (J.P.M.D.L.1977) (transferring actions to the Northern District of Illinois for consolidated pretrial proceedings). GM’s inter- divisional engine program also prompted investigation by the Federal Trade Commission. See GMC v. FTC, 1978-1 Trade Cas. 962,005 (N.D.Ohio 1977) (rejecting GM’s challenge to the authority of the Commission to undertake the in- vestigation). The bulk of the lawsuits, however, appear to involve 1977 Oldsmobiles, the subject of the litigation before this court. 4The Oldsmobile actions that eventually were consoli- dated for pretrial proceedings are: State of Illinois v. GMC, No. 77-C-927 (N.D.IIl.); Oswald v. GMC, No. 77-C-1006 (N.D.Ill.); Miller v. GMC, No. 77-C-1436 (N.D.IIl.); Skokie Central Traditional Congregation v. GMC, No. 78-C-1457 (N.D.IIl.); State of Alabama ex rel. Baxley v. GMC, No. 77-P- (footnote continued on next page) 28a On July 22, 1977, the district court entered an order adopting an agreement of the numerous counsel for the plain- tiffs in the consolidated cases. The order created an executive committee of six attorneys to represent the plaintiffs in all pretrial proceedings. See generally Manual for Complex Litiga- tion §§ 1.92-1.93.5 Although the committee was given broad power in the pretrial proceedings, the order provided that the committee could conduct settlement negotiations only with the consent of all counsel for the named plaintiffs. On October 13, 1977, the district court certified the consoli- dated cases as a class action. The order defined the class as “fa]ll persons ... who purchased 1977 Oldsmobile automo- (footnote continued from preceding page) 0881-S (N.D.Ala.); Creel vs. GMC, No. CA-77-P-0440-S (N.D.Ala.); Natter v. GMC, No. CA-77-P-0659-S (N.D.Ala. ); Balog v. GMC, No. 77-443 (W.D.P.a.); Pa.); Hannan v. GMC, No. 77-C-265 (E.D. Wis.); King v. GMC, No. M-77-24-CA (E.D. Tex.); Levine v. GMC, No. 77-C-849 (E.D.N.Y.); Parker v. GMC, No. S-77-0174(N) (S.D. Miss. ). The various federal actions were consolidated before the district court for pretrial purposes only. Although the actions have not been consolidated for trial purposes, the appellants do not contest, and we do not question, the district court’s author- ity to approve a settlement of all the actions before it. See 15 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure § 3866 at 374-76 (1976); Weigel, The Judicial Panel on ' Multidistrict Litigation, Transferor Courts and Transferee Courts, 78 F.R.D. 575, 582-83 (1978). The order certifying the class action found that each of the named plaintiffs would adequately represent the class and confirmed the representative status of each. Therefore we need not decide whether all of the actions are technically before us, because we find that the appeal of some of the named plaintiffs is sufficient to permit this court to consider the interests of all class members. See also Part III of this opinion infra. 5 All citations in this opinion unless otherwise noted are to the Manual’s fourth edition. Citations to particular pages follow the pagination of the Wright and Miller edition. 29a biles which without their knowledge or consent, contained V-8 engines manufactured by the Chevrolet Motor Division ...” The court dismissed all federal claims except the Magnuson- Moss claim and declined to exercise its power to take pendent jurisdiction over the related state law claims. The trial court recognized that parellel state court actions were pending, but rejected GM’s position that the state proceedings should pre- vent class certification on the Magnuson-Moss claim. Despite the certification of the class, no notice to class members was mailed to inform them of the pendency of the class action at that time. B. The Settlement Sometime during the fall of 1977, General Motors entered into settlement negotiations with representatives of the various state Attorneys General who had filed or were contemplating filing actions against GM.® A representative of the Illinois Attorney General who was also a member of the executive committee participated in the negotiations without leave of the district court or other counsel for the plaintiffs in the federal class action. On December 13, 1977, one of the counsel for the plaintiffs received word that a tentative settlement agreement had been reached by GM and the Attorneys General. The attorney, in essence, requested the district court to order immediate disclosure of the progress of the settlement negotia- tions or any agreements that had been reached. The trial court, however, regarded the motion as premature. Unwilling to interfere with communications between GM and the Attorneys General before an agreement was reached, the district court declined to order the requested relief. The trial judge remarked that he believed he had sufficient power over the approval of any settlement to protect the interests of class members. 6GM maintains that the negotiations were begun at the suggestion of the Consumer Protection Committee of the National Association of State Attorneys General. - 30a Six days later on December 19, the Illinois Attorney General in his capacity as one of the class counsel moved that the district court consider the settlement agreement between GM and all but five of the fifty state Attorneys General.” The proposed settlement provided that GM would provide to each consumer who had purchased a 1977 Oldsmobile, Buick or Pontiac equipped with a Chevrolet engine on or before April 10, 1977, $200 plus a 36-month or 36,000-mile extended warranty on the power train. In return each purchaser would be required to sign a release of all state and federal claims concerning the substitution of engines, components, parts, and assemblies in the car. GM also agreed to disclose the source of all engines of new GM cars for the next three years. The Attorneys General, in turn, promised to secure dismissals with prejudice of all actions prosecuted by them. The district court showed itself willing to consider the agreement as a basis for settling the class action. Although the court afforded private counsel time to conduct discovery to determine whether the settlement was fair, it denied the motion of some of plaintiffs’ counsel for discovery into the negotiations between the Attorneys General and GM. The court maintained that the negotiation process was irrelevant to the central issue of the fairness of the settlement. Furthermore, the district court entertained GM’s motion to redefine the class to include only those Oldsmobile purchasers to whom the settlement agreement contemplated payment. The class originally included all 1977 Oldsmobile purchasers who bought their cars before October 13, 1977, without knowledge that the cars had Chevrolet engines. The settlement agreement contemplated narrowing the class to purchasers before April 11, 1977. In an order dated: March 14, 1978, the trial court denied GM’s motion to redefine and narrow the class. The court did, 7 Several other state Attorneys General have since joined in the agreement. 3la however, designate “for purposes of sending the settlement notice” a subclass of pre-April 11 purchasers.® Notices inform- ing class members of the pendency of the class action were sent out shortly thereafter. The notice to settlement subclass members, in addition to informing them of the pendency of the action, informed them of the proposed settlement and gave them the opportunity, inter alia, to opt-out of the action or to object to the proposed settlement. The notice to class members not in the settlement subclass merely provided notice of the action and the opportunity to opt-out. In May 1978, pursuant to its authority under Fed.R.Civ.P. 23(e), the district court held a fairness hearing to determine whether it should approve the settlement. Because some of the private counsel objected to the settlement, the hearing was contested and lasted twelve days. The order of proof was irregular. Both sides submitted numerous exhibits. The plaintiff-objectors presented, among others, several 1977 Olds- mobile owners who objected to the settlement and two mechan- ics who testified that the substituted power train was inferior to the one GM allegedly warranted. GM relied largely on exhibits and the testimony of a Chevrolet staff engineer who testified that the power trains warranted and those provided were comparable. On July 17, 1978, after considering post-hearing memo- randa of the various sides in the litigation, the district court entered an order approving the subclass settlement as fair. Adopting GM’s proposed findings of fact almost verbatim, the district court found that the engines and other parts included in 8 The trial court also agreed with GM to broaden the class in one respect. The court, for the purpose of settlement only, struck the no-knowledge-or-consent requirement of the original class certification as to members of the settlement subclass. This conformed the subclass to the precise class of Oldsmobile purchasers contemplated by the GM-Attorneys General agree- ment. 32a the Oldsmobiles were “comparable” to those warranted. Resolving most of the other contested issues in favor of GM, the district court ordered the action dismissed as to all members of the subclass and directed GM to send an approved notice of settlement to each member of the subclass. Before the notice could be mailed, however, some of the plaintiff-objectors prosecuted this appeal. Il. Appealability The plaintiff-objectors prosecuting this appeal and GM agree that this court has jurisdiction to hear this appeal. The attorney for one of the plaintiffs and an objector to the settlement before the trial court, however, maintains that the trial court’s order approving the settlement is neither a final decision nor a collateral order within the meaning of 28 U.S.C. § 1291.10 Of course, we cannot determine this court’s jurisdic- 9 After the notice of appeal was filed, the Illinois Attorney General made a motion before the trial court requesting permission to send the settlement notice (with additional language indicating the pendency of the appeal) to subclass members. The trial court held that the appeal deprived it of jurisdiction to entertain the motion, but indicated that if it had had jurisdiction, it would have granted the motion. The Attorney General then, with the apparent acquiescence of the plaintiff-proponents and GM, moved this court for relief under Fed.R.App.P. 8(a). Because the contents of the notice were at issue on this appeal, we took the motion under advisement. Our decision on the merits of the appeal necessarily precludes sending out the notice in its present form. Accordingly, we hereby deny the motion. 10 Disagreement between attorneys for the class, as will become apparent, has become the norm in the conduct of this litigation. For our purposes, counsel for the class may be divided into basically three groups. Those who objected to the proposed settlement in the trial court shall be referred to as plaintiff-objectors. Despite the division over the appealability (footnote continued on next page) 33a tion by majority vote of counsel appearing before us and, even if the parties unanimously agreed to appeal the order, we would be required to raise the issue sua sponte. Levin v. Baum, 513 F.2d 92 (7th Cir. 1975). There is only one apparent obstacle to our hearing this appeal. The trial court’s division of the class into two subclasses arguably makes this a multi-party action subject to the require- ments of Fed.R.Civ.P. 54(b).'1 In an order following its approval of the subclass settlement, the trial court refused to make a determination that there was no just reason for delay (footnote continued from preceding page) issue, the attorney contesting the jurisdiction of this court to entertain the appeal is a member of this group. Those private counsel who supported the settlement shall be referred to as plaintiff-proponents. Finally, the Attorneys General from Illinois and Alabama who represented named plaintiffs in the trial court constitute the third group. The latter two groups have aligned themselves with GM on many of the issues in this appeal. 1 There is considerable doubt whether Fed.R.Civ.P. 54(b) was intended to govern the situation when two distinct subclasses are created from a single class and one subclass’ right to recover under a settlement neither affects nor is affected by the merits of the other subclass’ claim. Aside from the difficulty of construing “multiple parties” to encompass sepa- rate subclasses, the settlement of one subclass’ suit arguably should be treated as a separate lawsuit outside the ambit of Rule 54(b). This practical view of the position of the subclasses accords with the legal effect of creating subclasses under Fed.R.Civ.P. 23(c)(4). That rule provides that when a class is subdivided ‘teach subclass [shall be] treated as a class, and the provisions of this rule shall then be construed and applied accordingly.” Each subclass must independently meet the requirements of Rule 23 in order to be maintained as a class action, 7A C. Wright & A. Miller, Federal Practice and Procedure § 1790 at 191-92 (1972), and therefore it seems consistent with the spirit of the rules to treat each subclass action as a separate action for all purposes. 34a and to direct entry of judgment. We hold that, despite the refusal of the trial court to enter judgment pursuant to Rule 54(b), we have jurisdiction to review the order approving the subclass settlement as a collateral order. 12 The Supreme Court has taken an “intensely practical” approach when deciding whether judgments are appealable. Mathews v. Eldridge, 424 U.S. 319, 331 n. 11, 96 S.Ct. 893, 47 L.Ed.2d 18 (1976). In close cases the determination must be made by balancing the “inconvenience and costs of piecemeal review” against “the danger of denying justice by delay.” Gillespie v. United States Steel Corp., 379 U.S. 148, 152-53, 85 S.Ct. 308, 311, 13 L.Ed.2d 199 (1964). We are cognizant that the federal policy against piecemeal review admits no exception merely because the judgment appealed from affects the conduct of a class action. See Coopers & Lybrand v. Livesay, 437 US. 463, 98 S.Ct. 2454, 57 L.Ed.2d 351 (1978) (striking the death knell for the death knell doctrine); Weit v. Continental Illinois National Bank & Trust, 535 F.2d 1010 (7th Cir. 1976) (order requiring notice to class members is not a collateral order). We believe, however, that although the federal courts have nar- rowly interpreted the collateral order doctrine established in Cohen v. Beneficial Industrial Loan Corp., 337 US. 541, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949), that this case falls within “that small class which finally determine claims of right sepa- rable from and collateral to, rights asserted in the action, too important to be denied review and too independent of the cause itself to require that appellate consideration be deferred until the whole case is adjudicated.” Jd. at 546, 69 S.Ct. at 1226. '2 Because we find that even if Rule 54(b) encompasses the present litigation that an independent basis for jurisdiction exists, we need not attempt to reconcile Rule 23 with Rule 54(b). Collateral orders are appealable without the express entry of judgment under Rule 54(b). See Swanson v. Ameri- can Consumer Industries, Inc., 517 F.2d 555, 560-61 (7th Cir. 1975). 35a The first requirement of the collateral order doctrine is that the matter appealed from must have been finally determined by the district court.13 This does not require that the trial court be without power to reverse its ruling; it only requires that no further consideration be likely. 15 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure § 3911 at 470 (1976). The record amply indicates the trial judge’s resolve not to reconsider the fairness of the subclass settlement. After the long fairness hearing, the trial court approved the settlement in an order with fairly extensive findings of fact. The order purported to immediately dismiss the claims of all subclass members. Afterward, the trial court on two occasions declined to reconsider its decision. Moreover, although the trial court retained jurisdiction over the settlement subclass action to supervise the implementation of the settlement, this left the trial court with only the ministerial task of executing its judgment. The trial court’s order, therefore, is not tentative and it finally determines the matter appealed to this court. The second requirement of the collateral order doctrine is that the matter appealed must be “separable from, and collate- ral to, rights asserted in the action” and neither affect nor be affected by decision on the merits. 337 US. at 546, 69 S.Ct. at 1225-1226. Application of this requirement to appeals from decisions on the fairness of a settlement presents some diffi- culties. Ordinarily settlements of civil litigation are not re- viewed by federal courts. Thus, the issue is raised almost 13“‘There are two aspects of the final judgment rule. One is that the order be the final disposition of the entire case. The other is that the order be the final disposition of the issue. The Cohen rule permits a limited exception with respect to the first aspect but not with respect to the second.” Rodgers v. United States Steel Corp., 508 F.2d 152, 159 (3d Cir.), cert. denied, 423 U.S. 832, 96 S.Ct. 54, 46 L.Ed.2d 50 (1975). 36a exclusively in class or derivative actions. '4 One court of appeals, however, has held that a refusal of a trial court to approve a class action settlement to be “collateral,” Norman v. McKee, 431 F.2d 769 (9th Cir. 1970), cert. denied, 401 U.S. 912, 91 S.Ct. 879, 27 L.Ed.2d 811 (1971), and another has reviewed such a refusal without expressly considering the appealability issue, In re International House of Pancakes Franchise Litiga- tion, 487 F.2d 303 (8th Ciz. 1973).15 Although in Norman the court maintained that appellate review of the initial determination of the settlement’s fairness was completely divorced from the merits of the claim, adequate 14 Court approval of settlements is also necessary in bank- ruptcy reorganization proceedings. See, e. g., Protective Com- mittee for Independent Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414, 88 S.Ct. 1157, 20 L.Ed.2d 1 (1968). ‘5 The Second Circuit has recently rejected the position taken by the Eighth and Ninth Circuits and refused to review a trial court’s refusal to approve a settlement of a shareholders derivative action. Seigal v. Merrick, 590 F.2d 35 (2d Cir. 1978). Because this appeal challenges the trial court’s approval of a settlement, we need not align this court on one side of this conflict between the Circuits. This appeal because of the subclassing of Oldsmobile purchasers for the purposes of settlement presents a situation unlike those which ordinarily confront class members or shareholders after the trial court’s approval or disapproval of a proposed settlement of a repre- sentative action. In Seiga/ the court stated that “[an approved ] settlement... is not a deviation from the main path of the litigating process. It is a step on that path directly leading to final judgment. An approval of a compromise, after appropri- ate notice, becomes a final judgment.” 590 F.2d at 38. In the case at bar, the trial court’s approval of the subclass settlement does not lead directly to final judgment. But unlike a dis- approval of a settlement, the trial court’s order looks toward neither a renewal of settlement negotiations nor a trial on the merits. Thus, the danger of appellate court interference with proceedings before the trial court is small in comparison with the danger of denying justice by delay. 37a review of the fairness of a settlement necessarily requires some examination of the underlying cause of action. 15 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure § 3911 at 385 (1976); see Manual for Complex Litigation § 1.46 at 56. See also Coopers & Lybrand v. Livesay, 437 U.S. at 469, 98 S.Ct. at 2458 (“the class determination generally involves consid- erations that are ‘enmeshed in the factual and legal issues comprising the plaintiff's cause of action’ ”). Nevertheless, several factors bring this appeal within the separateness requirement. First, the Supreme Court has not applied the requirement that the issue be “separate” from the merits to require the precise division of the issues presented on appeal and the elements of the underlying cause of action that a semanticist might expect. See National Socialist Party v. Village of Skokie, 432 U.S. 43, 97 S.Ct. 2205, 53 L.Ed.2d 96 (1977). Moreover, to the extent that this appeal raises issues about the regularity of the conduct of the settlement negotia- tions or the fairness hearing, consideration of the merits of the plaintiffs’ cause of action is unnecessary. Similarly, because appellate courts will reverse a trial court’s determination on the fairness of a settlement only if there is a clear abuse of discretion, consideration of the merits is necessarily something less than penetrating. Finally, the order approving the settlement is, in one sense, completely separate from the merits of the action. The trial court’s approval of the settlement precludes any decision on the merits of the settlement subclass’ claim because the claim will never go to trial. The third requirement of the collateral order doctrine is that the rights asserted would be lost, probably irreparably, if review were delayed until the conclusion of proceedings in the district court. It is unlikely that the claims of the post-April 10, 1977, Oldsmobile purchasers will be decided any time soon. GM has made clear its intention not to settle with that subclass. Therefore years of litigation before the entire class action is 38a concluded is possible. In the meantime, the settlement, if executed, contemplates the release of state and federal claims by those class members who accept the settlement package and dismissal of the Magnuson-Moss claims for those who do not. If the settlement is later undone on appeal, ordering reimburse- ment by those who accepted the $200 and received benefits under the mechanical insurance policy would be practically impossible.'® Those signing releases might also lose their state claims against GM because of the running of the statutes of limitation. Conversely, those who decline to sign the release, may file and pursue state claims. Any judgment in the state courts may possibly bar subsequent action on their Magnuson- Moss claims. We conclude that “delay of perhaps a number of years in having [their] rights determined might work a great injustice” to the subclass members. Gillespie v. United States Steel Corp., 379 U.S. 148, 153, 85 S.Ct. 308, 311, 13 L.Ed.2d 199 (1964). 16 These characteristics of the settlement approved by the trial court distinguish this appeal from the appeal which was dismissed for lack of an appealable order in Rodgers v. United States Steel Corp., 541 F.2d 365 (3d Cir. 1976). In Rodgers the trial court permitted the defendant to communicate to individ- ual members of the class an offer to enter into individual settlements. See Rodgers v. United States Steel Corp., 70 F.R.D. 639 (W.D.Pa. 1976). See also Part VI of this opinion infra. The trial court merely approved the communication of the offer; it did not finally determine the rights of any member of the class. See 541 F.2d at 370. In the present case, the trial court dismissed the federal claims of all settlement subclass members and effectively terminated their participation in the class action whether they released their claims or not. More- over, the settlement offer in Rodgers merely promised payment of back pay in return for signed releases. The Court of Appeals, dismissing the appeal, noted that the parties could be returned to their original positions if the release was subsequently invalidated. Jd. at 371. Here, we cannot say with any degree of certainty that we could later return to GM the benefits that class _members received under the mechanical insurance policy. 39a They “cannot make important decisions about ... further Participation in this suit without having [their] rights deter- mined now.” Diaz v. Southern Drilling Corp., 427 F.2d 1118, 1123 (Sth Cir.), cert. denied, 400 U.S. 878, 91 S.Ct. 118, 27 L.Ed.2d 115 (1970).17 The Possibility that later appellate review would be effective is simply too slight. A final requirement of the collateral order doctrine is that the order must present “important and unresolved legal ques- tions.” Weit v. Continental Illinois National Bank & Trust Co., 535 F.2d 1010, 1015 (7th Cir. 1976); Weight Watchers, Inc. v. Weight Watchers International, Inc., 455 F.2d 770, 773 (2d 17 Cf. Pettway v. American Cast Iron Pipe Co., 576 F.2d 1157, 1221 (Sth Cir. 1978), cert. denied, ____ US. ra S.Ct. 1020, 59 L.Ed.2d 74 (1979): The court’s November 20 order required awardees wishing to opt into the settlement to do so by December 15, 1975 or be deemed to have opted out of the subclass. This created a dilemma for dissatisfied subclass members, who were faced with the equally unpalatable alternatives of opting into a possibly invalid settlement or being relegated to individual lawsuits. A decision to opt into the settlement by endorsing the back pay check and thereby releasing the company of all liability for past discrimination might preclude entitlement to a share in a new agreement or award if the settlement were invalidated on appeal. On the other hand, a decision to opt-out of the subclass by failing to cash the tendered check would create the possibility of receiving no back pay award if the appeal were unsuccess- ful and an individual lawsuit proved unrealistic. .. . The procedure adopted by the district court, by requiring claimants to choose whether or not to opt into the settlement before they could exercise their right to appel- late review, unfairly burdened the rights of awardees to appeal the settlement and thereby significantly under- mined one of the most important procedural protections associated with the approval of a settlement. We hoid that the ability of subclass members to opt into a back pay settlement may not be terminated before a final determina- tion of the propriety of that settlement is made. 40a Cir. 1972). We think this appeal raises at least two important questions concerning the proper balance between the general policy of encouraging settlements and a court’s specific duty to insure the fairness of class action settlements. The first question involves the scope of discovery which should be afforded to objectors to proposed class settlements which were negotiated under questionable circumstances. Because adequate repre- sentation is the foundation of all representative actions, see Fed.R.Civ.P. 23(a)(4), Hansberry v. Lee, 311 U.S. 32, 61 S.Ct. 115, 85 L.Ed. 22 (1940), we think this question is appropriately reviewed at this time. The second question concerns the nature of the “settlement” that Rule 23(e) authorizes the trial court to approve. Because this question goes to the power of the district court in the settlement of representative actions, we believe it is sufficiently important to receive appellate consideration now. In conclusion, the trial court’s order is not tentative; it is capable of review without extensive examination of the merits; it raises issues which could not be effectively reviewed later; and it presents important, unresolved legal questions for consid- eration by this court. We hold that the trial court’s order approving the subclass settlement is an appealable collateral order. III. Motion to Limit the Appeal Before oral argument, the attorney representing the State of Alabama in this litigation presented to this court a “motion to limit appeal to certain named appellants.” The motion seeks to have the effect of this court’s decision limited to (1) only the named plaintiffs, Oswald and Miller, the plaintiff-objectors prosecuting this appeal or, alternatively, (2) only those class members who filed objections to the proposed settlement in the district court. We consider the arguments in support of the second alternative first. 4la It is argued that this court’s decision in Research Corp. v. Asgrow Seed Co., 425 F.2d 1059 (7th Cir. 1970), compels this court to restrict the representative standing of the named plaintiffs who prosecute this appeal to those class members who objected to the settlement in the trial court. In Research, the appellants were members of a defendant class represented in the district court by numerous named defendants. Despite adequate notice, the appellants failed either to request exclusion from the defendant class or to object to a proposed settlement negotiated by the named defendants; the appellants attacked the fairness of the settlement for the first time on appeal. This court held that the failure of the appellants to intervene in the action foreclosed their right to appeal. Here it is argued by analogy that each individual subclass member who failed to object to the settlement before the trial court has waived the right to appeal and the right to be represented by others on appeal. We think the argument is without merit. There is no doubt that the named plaintiffs, Oswald and Miller, preserved the right to appeal. They are Parties to the lawsuit; intervention was obviously unnecessary. Moreover, through their attorneys they vigorously objected to the settle- ment in the district court and created a record adequate for appellate review. Thus, the issue raised by the motion may be refined to whether Oswald and Miller through their counsel may represent the interests of absent subclass members on this appeal. We would be reluctant to hold that absentee class mem- bers waive appellate review merely because they failed to take affirmative action when their interests were already being adequately represented by participants in the lawsuit. Cf. Ace Heating & Plumbing Co. v. Crane Co., 453 F.2d 30, 32-33 (3d Cir. 1971) (objectors’ failure to opt-out of a class action does not preclude appellate review). To do so would unnecessarily restrict the representational character of all class actions. We need not reach the issue here, however, because the notice of 42a the proposed subclass settlement informed subclass members that if they neither opted out of the subclass nor intervened in the lawsuit that “attorneys for the named plaintiffs will repre- sent your interest in these suits.” We think subclass members who received the notice could reasonably rely on class counsel to protect their interests by prosecuting an appeal from the judgment of the district court if necessary. See Gonzales v. Cassidy, 474 F.2d 67 (Sth Cir. 1973) (failure to appeal approval of an unfair settlement constitutes inadequate repre- sentation). We therefore decline to hold that absentee subclass members waived their right to have the settlement reviewed by this court. The second argument advanced in favor of limiting the representative capacity of the plaintiff-objectors on this appeal is that the pretrial order of the trial court vested the power to conduct all pretrial actions on behalf of the class in the attorneys’ executive committee. Because the executive com- mittee did not authorize the prosecution of the appeal, it is argued, the authority of counsel for the plaintiff-objectors must be confined to representing the individual named plaintiffs before this court. We question initially the premise that it is the attorney, not the named plaintiff, who possesses the power to appeal the approval of a settlement. “[T]he decision to appeal a class action judgment must rest with the class plaintiffs,” not class counsel. Pettway v. American Cast Iron Pipe Co., 576 F.2d 1177-78 (Sth Cir. 1978), cert. denied, ___. U.S. ___., 99 S.Ct. 1020, 59 L.Ed.2d 74 (1979). Since the pretrial order did not purport to restrict the representative capacity of the named plaintiffs prosecuting this appeal, it would seem that the argument misses the mark. The court in Pettway, however, acknowledged that “no clear concept of the allocation of decision-making responsibility between the attorney and the class members has yet emerged.” Jd. at 1176. Consequently, assuming arguendo the premise that the class attorney is the dominus litus, we consider and reject the argument that the 43a pretrial order prohibits counsel for Oswald and Miller from representing the interests of the class before this court. The pretrial order does not on its face vest the power to appeal in the executive committee. The order itself only lists the committee’s various duties and powers relating to pretrial proceedings. We would be extremely reluctant to imply a provision that restricts the right to appeal decisions of the trial court. Furthermore, even if the pretrial order contemplated giving the executive committee the power to prohibit individual attorneys from appealing, whether the executive committee has done so is unclear. The minutes of the committee meeting show that the committee did pass a motion that no appeal be taken from the trial court’s approval of the settlement. Nevertheless, those minutes also indicate that before passage of the motion “[t}he chair ruled that the motion does not proclude [sic] anyone from appealing but states the position of the majority of plaintiffs’ counsel.” We believe that the question of whether an appeal should be made and the scope of that appeal should be answered by determining the best interests of the class. The plaintiff- Proponents maintain that the settlement is fair, that the appro- val of the trial court is correct, and that the matter is best left unreviewed by this court. Plaintiff-objectors, of course, dis- agree. The purpose of Fed.R.Civ.P. 23(e) is to protect the interests of absentee class members; the danger of abuse is high and the protection of their interests cannot be left to class counsel alone. Rule 23 imposes on the trial court in the first instance, and on this court eventually, the duty to examine the fairness of proposed settlements. Limiting the representative capacity of the appellants on this appeal would effectively negate this court’s obligation to act as the guardian of the class. We do not believe that the interests of class members are best served by leaving the settlement unreviewed. Cf. McDonald v. Chicago Milwaukee Corp., 565 F.2d 416, 417 n. 1 (7th Cir. 1977) (permitting briefs and oral arguments by parties who Se ore, ST ee z = 44a failed to file a separate notice of appeal because the case involved “issues inextricably bound up with” those properly before the court). Restricting the appeal would only leave the door open to additional individual appeals by those who decline to accept the settlement offer. A series of individual and possibly conflicting appellate decisions on the propriety of the settlement would undermine the representative nature of class actions significantly and sacrifice the public’s interest in judicial economy unnecessarily. We hold that plaintiff-objectors Os- wald and Miller are parties who through their counsel will fairly and adequately protect the interests of the class in this appeal. See Fed.R.Civ.P. 23(a)(4) (requirement for class certification ). We do not hold “that each individual plaintiff and lawyer must be permitted to do what he pleases in litigation as complex as this, and can behave in total disregard of the interest of other litigants and of the class. . .” Farber v. Riker- Maxson Corp., 442 F.2d 457, 459 (2d Cir. 1971). We note the following factors which convince us that the interests of the class will be well represented on this appeal. Cf. Pettway v. American Cast Iron Pipe Co., 576 F.2d 1157, 1178-80 (5th Cir. 1978), cert. denied, ___. U.S. ___, 99 S.Ct. 1020, 59 L.Ed.2d 74 (1979) (discussing factors relevant to determining whether the named plaintiff may appoint new counsel to appeal the approval of a settlement negotiated by former class counsel). First, the named plaintiffs and their counsel were among the first to file engine switch suits against GM. Second, counsel for the appellants was a member of the class executive committee and is well acquainted with the litigation. Despite suggestions and innuendoes of ulterior motives in some of the briefs which we can only regard as symptoms of “the ‘brief writer’s hyper- bole’ syndrome,” United States ex rel. Sims v. Sielaff, 563 F.2d 821, 824 n. 6 (7th Cir. 1977), nothing in the record indicates that appellants’ counsel has acted with other than the best interests of the class in mind. Third, although vocal objection to the settlement among class members was not widespread, BS AI Te Ne om a ee 45a “the sentiment of the class is but one factor ii our analysis of the appealability question.” Pettway, 576 F.2d at 1178. In Patterson v. Stovall, 528 F.2d 108 (7th Cir. 1976), this court heard the appeal of objectors to a class action settlement even though the objectors constituted only .0018% of all class members and their claims constituted only .0022% of all claims. Id. at 109 n. 1. See also Mandujano v. Basic Vegetable Products, Inc., 541 F.2d 832 (9th Cir. 1976) (reversing settlement even though only 4% of the class was in active Opposition to it). Fourth and finally, we find that the issues raised on appeal are far from meritless. 18 We conclude that the best interests of the class warrant that this court review the fairness of the settlement as it affects the entire class. Consequently, we consider the merits of the objections to the trial court’s approval of the proposed settle- ment. IV. Conduct of the Settlement Negotiations The plaintiff-objectors challenge the refusal of the trial court to permit them to conduct discovery into the settlement negotiations. They contend that the trial court’s order prohibit- ing discovery and the court’s limitation of examination of the Assistant Illinois Attorney General during the fairness hearing prevented them from being able to determine whether the proposed settlement was fair, reasonable and adequate. The trial court’s order limiting discovery evidences its belief that how the settlement was reached was irrelevant to the issue of '8In Patterson v. Stovall, 528 F.2d at 109 n. 1, we noted: “Although in terms of the class and settlement [ appel- lants’] number and size might be considered miniscule, the serious issues raised before this Court are not reduced in their magnitude.” 46a the fairness of the settlement.'9 The court’s findings of fact, although finding the irreguiar method of negotiating the settle- ment did not prejudice subclass members, reaffirmed the court’s belief that the objection was irrelevant to the adequacy of the settlement ‘and would not constitute sufficient grounds to withhold an otherwise fair settlement from consideration by the subclass members.” We think that the conduct of the negotiations was relevant to the fairness of the settlement and that the trial court’s refusal to permit discovery or examination of the negotiations con- stituted an abuse of cliscretion.2° In addition, we do not think 19 The plaintiffs’ second set of interrogatories requested that GM identify all documents that it relied upon during the course of the negotiations. The interrogatories also asked GM to state “the highest demand made by the various State Attorneys General in the course of the negotiations with defendant and identify all factual support for such demand, as well as any documents which relate to such demand or factual support.” The trial court entered an order ruling that the process of the negotiations was not open to discovery. During the fairness hearing, although the court permitted some ques- tioning ,of the Assistant Illinois Attorney General about the time, place and other aspects of the negotiations, it refused to permit inquiry into what transpired during the negotiations. GM maintains that the plaintiff-objectors waived this issue by failing to recall the Assistant Illinois Attorney General after being given the opportunity to do so. The record, however, clearly indicates that, given the trial court’s limitation on the scope of examination, any further questioning by the objectors would have been futile. The objectors brought the issue to the attention of the trial court and cannot be deemed to have waived it. 20 Neither GM nor the Illinois Attorney General has argued that the conduct of the settlement negotiations is protected from examination by some form of privilege, and we find no convincing basis for such an objection here. Although particular documents or discussions conceivably could be im- mune from discovery as attorney work product or as privileged attorney-client communications, the existence of such privileges is best determined in the context of particular demands for (footnote continued on next page) a A Seer an SES ne Dee ee Oe 3 ees ateetan’ 47a that the record adequately supports the court’s conclusion that the seemingly irregular conduct of the negotiations did not Prejudice the interests of the class. We must, therefore, reverse the trial court’s order approving the settlement. This court has several times commented on the trial court’s continuing duty to undertake a stringent examination of the adequacy of representation by the named class representatives and their counsel at all Stages of the litigation. McDonald v. Chicago Milwaukee Corp., 565 F.2d 416, 419 (7th Cir. 1977); Susman v. Lincoln American Corp., 561 F.2d 86, 89-90 (7th Cir. 1977). The trial court’s duty to undertake such an inquiry arises from the requirement that it find that “the representative parties will fairly and adequately protect the interests of the class.” Fed.R.Civ.P. 23( a)(4). The trial court’s duty is height- ened by its responsibility to review the fairness of any com- promise of the class action. Jd. 23(e).21 (footnote continued from preceding page) discovery. Inquiry into the conduct of the negotiations is also consistent with the letter and the spirit of Rule 408 of the Federal Rules of Evidence. That rule only governs admissibi- lity. It simply bars admission of evidence of compromise negotiations to prove liability or damages and expressly pro- vides that it “does not require exclusion when evidence is Offered for another Purpose. ...” The rule is grounded on the policy of encouraging the settlement of disputed claims without litigation. That policy is not undermined by our decision here. Participants in negotiations to settle class actions are aware that Rule 23(e) requires the trial court’s approval of any settlement reached. Moreover, they are or should be aware that the court will inquire into the conduct of the negotiations. See Manual for Complex Litigation § 1.46 at 53-54. To the extent such inquiry discourages settlements, it Should only discourage those negotiated in circumstances so irregular as to cast substantial doubt on their fairness. 21““Before approving a settlement, therefore, the judge must assure himself that the class has been adequately repre- sented during the settlement talks, a conclusion which will not (footnote continued on next Page) _ a 48a The Manual for Complex Litigation provides that inquiry into the conduct of settlement negotiations is pertinent to the court’s examination of the settlement. Manual for Complex Litigation § 1.46 at 53-54.22 It recommends that before sending a notice to class members of a proposed settlement and before considering the substantive fairness of the settlement, the trial - court should conduct a preliminary hearing to determine whether the proposed settlement is “within the range of possible approval.” Jd. Among the questions which merit judicial examination at the “probable cause hearing,” the Manual lists: Who were the negotiating parties and to what extent were they authorized to proceed with the settlement of their class’ claims and possibly those of other classes?25 Among the reasons for examining whether settlement negotia- tions were authorized is the danger of defendant “attorney- shopping.” [A] person who unofficially represents the class during settlement negotiations must be under strong pressure to conform to the defendants’ wishes... (footnote continued from preceding page) follow automatically from a finding of adequacy for litigation purposes.” Developments in the Law—Class Actions, 89 Harv.L.Rev. 1318, 1537-38 (1976). See also Wolfram, The Antibiotics Class Actions, 1976 A.B. Foundation Research J. 251, 361. 22 We recognize that the Manual does not provide “an inflexible formula or mold into which all . . . pre-trial procedure must be cast.” Manual for Complex Litigation at xix; see McDonald y. Chicago Milwaukee Corp., 565 F.2d 416, 420 (1977). In appropriate cases, however, the Manual does provide a rough guide by which to measure whether the trial — acted within his discretion. We rely on it in that manner ere. 23 Manual for Complex Litigation § 1.46 at 53 (Consid- eration 4). 49a [A]n individual, lacking official status, knows that a negotiating defendant may not like his “attitude” and may try to reach a settlement with another member of the class. Id. at 59 quoting Act Heating & Plumbing Co. v. Crane Co., 453 F.2d 30, 33 (3d Cir. 1971). Thus, unauthorized settlement negotiations create the possibility of negotiation from a position of weakness by the attorney who purports to represent the class.24 In addition, the prestige attendant upon negotiating a large settlement against a corporate defendant and thereby acquiring reputations as consumer advocates may place public attorneys in a situation analogous to private counsel who hope to win large fee awards.25 The possibility of such a conflict of interest as a general rule warrants judicial scrutiny of unautho- rized settlement negotiations. Furthermore, settlement negotia- tions with less than all class counsel weaken the class’ tactical position even if the attorney who enters into the negotiations attempts to represent the tlass’ interests vigorously.26 24 The court, to be sure, will not approve a settlement if it is unfair, but “fairness” may be found anywhere within a broad range of lower and upper limits. No one can tell whether a compromise found to be “fair” might not have been “fairer” had the negotiating [attorney] possessed better information or been animated by undivided loyalty to the cause of the class. The court can reject a settlement that is inadequate; it cannot undertake the partisan task of bargaining for better terms. The integrity of the negotiating process is, therefore, important. Haudek, The Settlement and Approval of Stockholders’ Actions—Part II: The Settlement, 23 Sw.L.J. 765, 771-72 (1969). 25 Cf. Developments in the Law—Class Actions, 89 Harv.L.Rev. 1318, 1552 (1976) (noting the conflict of interest created not only by counsel seeking large fees after settlement, but also by counsel pursuing “his own ideological goals without regard to the desires of class members’”’). 26 A time-honored litigating tactic for a defendant en- circled by multiple claimants is to weaken the total force of the attack little by little. The defendant first enters into settlements (footnote continued on next page) 50a Finally, unauthorized settlement negotiations deny other class counsel access to information about the negotiations which is helpful in evaluating the fairness of the settlement. “[T]he options considered and rejected, the topics discussed, the defendant’s reaction to various proposals, and the amount of compromise necessary to obtain a settlement”27 were all mat- ters which class counsel excluded from the negotiations needed to consider before exercising their fiduciary duties to the class by accepting the settlement.28 The record before this court contains facts which cast some doubt on the adequacy of the representation of the class during the settlement negotiations and the fairness of the resulting settlement. These facts warranted in this instance more probing into the conduct of the settlement negotiations than the trial court permitted. (footnote continued from preceding page) attack little by little. The defendant first enters into settlements with the strongest of the plaintiffs. Then it faces the remaining plaintiffs, now isolated and abandoned, with the threat of long and lonely litigation to force a final round of settlements at terms favorable to the defendant. Wolfram, The Antibiotics Class Actions, 1976 A.B. Foundation Research J. 251, 264. 27 Developments in the Law—Class_ Actions, 89 Harv.L.Rev. 1318, 1562 (1976). 28 Cf. Girsh v. Jepson, 521 F.2d 153, 157 (3d Cir. 1975): It is little comfort to objector Frackman that plaintiffs’ counsel may have examined the documents sought by objector during the course of ... discovery. As an objector, Frackman was in an adversary relationship with both plaintiffs and defendants and was entitled to at least a reasonable opportunity to discovery against both. See also National Conference of Commissioners on Uniform State Laws, Proposed Uniform Class Action Act § 12(c)(4) reprinted in 32 Bus. Law. 83, 94 (1976) (notice of proposed settlement to class members shall include “ta description and evaluation of alternatives considered by representative parties”). Sla The record establishes that the settlement presented to the court by the Illinois Attorney General was either (1) negotiated without the permission of the other class counsel in the federal action as required by the court’s first pretrial order or (2) negotiated by the Attorney General’s office in a capacity other than class counsel in this action. The pretrial order prohibited the class counsel executive committee from entering into settle- ment negotiations without the consent of all plaintiffs’ at- torneys. The Attorney General’s Assistant was a member of the committee and therefore subject to the pretrial order’s restric- tions. Nevertheless, he participated in negotiations with GM without the consent of other counsel. If the negotiations did proceed in violation of the trial court’s pretrial order,29 we think that the plaintiff-objectors 29 The trial court found that at least some private counsel knew of the negotiations between GM and the Attorneys General in advance of the settlement. The knowledge of some counsel, however, falls short of the authorization contemplated by the trial court’s pretrial order. That order authorized the class counsel executive committee to conduct negotiations, but only with the consent of all counsel for the named plaintiffs. The trial court made no finding that all class counsel were aware of the negotiations between GM and the Attorneys General. Moreover, knowledge of the existence of the negotia- tions does not necessarily indicate consent to the negotiations for the purpose of settling the federal action. We do not question the right of the state Attorneys General to settle their parallel state lawsuits against GM without the approval of private counsel in the federal class action. Their authority to do so is unquestioned even though the settlement of state actions may have some collateral impact on the federal action, e. g., reducing the size of the class by affording relief to some class members. Here, however, the negotiations were conducted not only to settle the state actions, but also to settle the federal class action. We find no indication in the record that private counsel were aware that the negotiations would have such a broad effect until immediately before the announcement of the GM- Attorneys General agreement. (footnote continued on next page) 52a were entitled to discovery to determine whether the negotia- tions may have prejudiced the interests of the class. Moreover, even if discovery failed to reveal identifiable prejudice, the exclusion of the private counsel from the settlement negotia- tions should weigh heavily against approval of the settlement. “(T]he excluded plaintiff might well have improved the settle- ment terms, and while this may be hard to demonstrate, the proponents of the compromise should not be helped by a difficulty of proof created by their improper conduct.” Haudek, The Settlement and Approval of Stockholders’ Actions— Part II: The Settlement, 23 Sw.L.J. 765, 770 (1969).9° (footnote continued from preceding page) After the submission of the proposed settlement agree- ment, six of the private counsel in the federal action did agree to support the settlement. The district court relied on the plaintiff-proponents’ support as a factor indicating both the absence of prejudice from the circumstances of the settlement’s negotiation and the seitlement’s fairness. See Manual for Complex Litigation § 1.46 at 53 (Consideration 5). The support of some private counsel after being presented with the agreement as a fait accompli does not amount to a ratification of the conduct of the negotiations. As noted supra, class counsel should know the options considered and the topics discussed during the negotiations before supporting a settle- ment as fair. In the absence of such familiarity of counsel with the conduct of the settlement negotiations, the inference of fairness to be drawn from their support is weak. Cf. id. at 64 (“‘a plan should not be approved simply because counsel on both sides recommend it’’). 30 Thus, although the proponents of any class settlement always bear the burden of proof on the issue of fairness, Manual for Complex Litigation § 1.46 at 56, proponents who improperly negotiate a settlement should bear the heavier burden of establishing fairness by clear and convincing evi- dence. This does not unduly hamper settlements since the disapproval of the settlement always permits the renewal of negotiations between all of the proper participants in the class action. The question of prejudice aside, it is clear that the trial (footnote continued on next page) 53a The Assistant. Illinois Attorney General maintains, how- ever, that his participation in negotiations between the state Attorneys General and GM did not violate the pretrial order because he was not negotiating as a class representative in the action in the federal court but rather was negotiating as a representative of the State of Illinois in the parallel state proceedings in the Circuit Court of Cook County.31 The motion (footnote continued from preceding pc court did not require the p. ponents of the settlement proposed here to meet such a heavy burden. In fact, the trial court accepted the proposed settlement as prima facie fair and shifted to the objectors at least the burden of producing evidence disproving the fairness of the settlement. Whether the trial court shifted the burden of persuasion to the objectors as well is unclear. The objectors complain that it did and the Illinois Attorney General’s brief seems to concede the point. The trial court’s conclusions of law, however, recite that it placed the burden of persuasion on the proponents. Our comparison of the record with the findings of fact leads us to believe that as to some of the court’s findings that it may indeed have misplaced the burden. 31 During the fairness hearing, Mr. Mulack, the Assistant Illinois Attorney General, described his position as one in which he wore “two hats.” [T]he Attorney General filed a State Court action ... in the Circuit Court of Cook County, on March 7th of 1977. — ... [T]wo weeks later we filed the Federal Action. So as I told the Court, on several occasions, as we had appeared here during the motions on behalf of the class certification, I was wearing two hats—and the Attorney General of Illinois was, likewise, wearing two hats; one as a plaintiff, under the State Court action, under the Consumer Fraud Act, in the Circuit Court of Cook County, and the other as a punitive class representative in the Federal Court Ac- Gon... I was perfectly aware of the limitations in Pre-Trial Order No. 1, that prohibited either myself or any repre- sentative of the Attorney General’s office from taking part in nationwide negotiations on this particular class action. (footnote continued on next page) 54a of the Illinois Attorney General for leave to file the settlement took this position also, although the motion’s first paragraph based the Attorney General’s capacity to present the motion on his status as counsel for the State of Illinois, one of the designated class representatives in the federal action. Also consistent with his position that he did not participate in the settlement negotiations as a federal class representative, the (footnote continued from preceding page) With that particular concern and that understanding, I had approached the posture of the overall negotiations. Now. attendant at those meetings were Assistant Attorneys General literally from every state that had a major action going against General Motors. Each of those Attorneys General were there in their state capacity only—they were only concerned about their state lawsuits, as I was concerned, only, about my state lawsuit. At the opening salvo—the opening introductions of the settlement negotiations—as people were being in- troduced, and from which state they attended, and as General Motors’ attorneys were being introduced, as I was being introduced, I made this caveat on the record, that “I’m here only as an Assistant Attorney General on behalf of the State of Illinois case; I am not here, at all, as any class representative, or on behalf of the nationwide action; and if any discussions are brought up about the nationwide class action, I cannot participate, because that is not my function.”’ With that caveat, we proceeded to discuss those particular matters attendant to the settlement. We note that the written settlement agreement between GM and the Attorneys General devoted much space and went into considerable detail reciting the rights and obligations of the parties to the negotiations with respect to the settlement of the federal action. For example, the agreement, mentioning the Magnuson-Moss class action by name, required the Attorneys General, inter alia, to seek amendment of the class certification to conform with that group of consumers to whom GM would extend its offer, to represent to the trial court that the proposed settlement was fair and reasonable, and to recommend that the court approve the settlement of the entire action in accordance with the terms of the agreement. a 5Sa Assistant Attorney General admitted during the fairness hear- ing that the Illinois Attorney General’s office did not obtain consent to the settlement from the over 100 named private plaintiffs that the Illinois Attorney General represented in the federal action. The State of Illinois is a representative party in this suit solely because it purchased a 1977 Oldsmobile with a Chevrolet engine. The Illinois Attorney General’s ability to maintain the suit on Illinois’ behalf as a class action is governed solely by Rule 23.32 In the absence of statutory authorization, Illinois cannot maintain this action in federal court as a parens patriae action.33 Assuming arguendo that the Attorney General’s office did not violate the pretrial order and thus participated in the 32 See State of Iowa v. Union Asphalt & Roadoils, Inc., 281 F.Supp. 401-02 (S.D.lowa 1968); State of Minnesota v. United States Steel Corp., 44 F."..D. 559, 576 (D. Minn. 1968). 33 Cf. Hawaii v. Standard Oil Co., 405 U.S. 251, 266, 92 S.Ct. 885, 893, 31 L.Ed.2d 184 (1972) (“Parens patriae actions may, in theory, be related to class actions, but the latter are definitely preferable in the antitrust area. Rule 23 provides specific rules for delineating the appropriate plaintiff-class, establishes who is bound by the action, and effectively prevents duplicative recoveries” ). The class action, although it also provides a vehicle for furthering the substantive policies behind legislation, is prima- rily a device to vindicate the rights of individual class members. We also note that the Magnuson-Moss Act does provide that the United States Attorney General and the Federal Trade Commission may go to federal court to enjoin violations of the Act. 15 U.S.C. §2310(c). Thus the Act provides its own mechanism for protecting the general public’s interest in enforcement of its provisions. It does not leave protection of the public interest up to the Attorneys General of the fifty states. Compare 15 U.S.C. §§ 15a-15h (explicitly vesting power in state Attorneys General to maintain actions against persons engaged in anti-competitive practices which harm state con- sumers ). 56a negotiations solely as a representative in the parallel state court action, we believe, nevertheless, that the trial judge should have opened up the negotiations to scrutiny, if only to dispe! the questions which naturally arise from the unusual posture of the case. If the settlement was not negotiated by authorized class counsel in the capacity of class counsel in this action, then it was negotiated in the name of, at best, only one of the named plaintiffs in the federal action, the State of Illinois. This stretches the theory of representation of absentee interests by the named plaintiff to its limit34 and warrants searching judicial examination of the circumstances surrounding and the matters discussed during the settlement negotiations before acceptance of the proposed settlement for possible approval. Several additional facts suggest that the representation of the class during the negotiations was less than vigorous. The class settlement was reached relatively early in the course of the action.35 The federal action had been filed about nine months before; the class had been certified only two months before; and notice to class members of the pendency of the action had not even been mailed. Although discovery had commenced, GM’s answers to many of the requests were less than completely 34In their briefs and during oral argument the parties devoted a good deal of time to a discussion of whether a settlement could be approved over the objections of some of the named plaintiffs. We agree witn General Motors that the unanimous approval of all named plaintiffs is not a prerequisite to judicial approval of a settlement approved by some of the named plaintiffs. See McDonald v. Chicago Milwaukee Corp., 565 F.2d 416 (7th Cir. 1977). This case does not present, and we need not here decide, GM’s admittedly extreme position taken during ora! argument that the trial court can approve a settlement offered unilaterally by a class action defendant with the approval of neither a class representative nor class counsel. Here, at least the State of Illinois, a named plaintiff, agreed to settle. 35 See Manual for Complex Litigation § 1.46 at 53 (Con- sideration | ). 57a responsive. Moreover, because the proposed settlement con- templated the release of all claims relating to component substitutions, not just the engine interchanges, the range of possible damages to class members was unclear. It is not possible to tell from the record how fully informed the At- torneys General may have been about the value of the claims they were surrendering.36 Not only was the settlement arguably hasty, but also the settlement agreement contemplated the abandonment of the prosecution of the claims of post-April 10 class members.37. The settlement agreement entered into by the Attorneys General obligated them to seek settlement of the entire class action even though the agreement obligated GM to offer payments to only part of the certified class. The agreement contemplated narrowing the class certified to those who purchased Oldsmo- biles before April 11, 1977, despite the original certification of the class to include those who purchased before October 13. GM subsequently formally moved the court for such a revised class definition to conform to the settlement agreement. The court denied GM’s motion, but did decide to create a subclass for settlement purposes. Although the abandonment by the Attorneys General of the claims of post-April 10 purchasers does not by itself warrant the reversal of the settlement of the claims of the pre-April 11 purchasers, it does indicate that the representation during the negotiations may have been in- 36 Jd. (Considerations 2 & 3). The record does not reveal and the brie $ of the parties do not detail the extent to which the Attorneys General had proceeded with discovery in their parallel state actions or whether they examined the value of the claim for the entire power train. The trial court’s order precluding discovery of the conduct of the settlement negotia- tions, of course, prevented the objectors from making such a record. To this day, we have no idea how the participants in the negotiations arrived at the settlement package of $200 plus the extended power train warranty. 37 See id. at 54 (Consideration 6). 58a adequate as to all Oldsmobile purchasers who constituted the original class.%® 38 We must note that the means by which the trial court attempted to create a subclass also may have seriously jeopard- ized the rights of the post-April 10 purchasers. Aside from the tactical disadvantage of having their claims separated from the claims of the other class members, the subclassing technique chosen by the court raises doubts about whether those outside the ambit of the settlement could maintain a class action after the settlement with *he pre-April 11 subclass. The trial court has broad discretion in determining wheth- er to allow a class action to be maintained, Jimenez v. Weinberger, 523 F.2d 689 (7th Cir. 1975), cert. denied, 427 U.S. 912, 96 S.Ct. 3200, 49 L.Ed.2d 1204 (1976), King v. Kansas City Southern Industries, Inc., 519 F.2d 20 (7th Cir. 1975), and must necessarily have an equally broad range of discretion in determining whether to create subclasses pursuant to Fed.R.Civ.P. 23(c)(4)(B). Division of a class or potential class into subclasses to account for differences in proof that may be required at trial is clearly permissible. See, e. g., Dorfman v. First Boston Corp., 62 F.R.D. 466, 476 (E.D. Pa.1973) (creat- ing subclasses to account for differences between class members who purchased before and after relevant information received wide public circulation). The trial court’s discretion, however, is bounded by the requirements of the applicable law and in - this case we believe that the trial court overstepped the bounds of the Federal Rules of Civil Procedure. The trial court’s order creating the settlement subclass did not conform to the requirements of Rule 23 which provides in pertinent part that when appropriate “‘a class may be divided into subclasses and each subclass treated as a class, and the provisions of this rule shall then be construed and applied accordingly.” Fed.R. Civ.P. 23(c)(4)(B). The rule con- templates that at least two subclasses will be formed and requires that each independently meet the requirements of Rule 23 for the maintenance of the class action. See Monarch Asphalt Sales Co. v. Wilshire Oil Co., 511 F.2d 1073, 1077 (footnote continued on next page) 59a pensate the Attorneys General $150,000 “for all the expenses they have incurred in connection with the subject matter of this Agreement.” Allocation of the proceeds is left solely to the Attorneys General. The agreement also commits GM to pay (footnote continued from preceding page) (10th Cir. 1975). The trial court made no finding that the post- April 10 subclass could be maintained as a class action. The record shows instead that the trial court attempted to create a single subclass for the settlement, leaving the post-April 10 purchasers in the original class. No attempt was made to test whether the nonsettlement subclass action met the requirements of Fed.R.Civ.P. 23(a) & (b). Furthermore, the record does not indicate whether any named plaintiff in the current action is even in the nonsettlement subclass. The subclass could be “headless,” thus raising serious questions about whether the trial court could proceed to consider the post-April 10 claims. See generally Winokur v. Bell Federal Savings & Loan Associ- ation, 560 F.2d 271 (7th Cir. 1977), cert. denied, 435 U.S. 932, 98 S.Ct. 1507, 55 L.Ed.2d 530 (1978); Susman vy. Lincoln American Corp., 587 F.2d 866 (7th Cir. 1978); Satterwhite v. City of Greenville, 578 F.2d 987 (Sth Cir. 1978) (en banc); Goodman v. Schlesinger, 584 F.2d 1325 (4th Cir. 1978). Even if a named plaintiff is before the trial court, no showing has been made that he desires to or will adequately represent the subclass. The uncertainty about the viability of the subclass action on behalf of class members who purchased their cars after April 10, 1977, is significant. The notice to these subclass members informing them of the pendency of the action has been sent out. The subclass members, therefore, may rely on the federal class action to vindicate their interests. If it is later determined that the action cannot be maintained, the statutes of limitation may preclude individual lawsuits in the state courts. The questions raised about the viability of the subclass action if the settlement of the other subclass action is executed illustrate the inadvisability of creating tentative subclasses for settlement purposes without careful examination of the ade- quacy of the representation of each subclass. Cf. Manual for Complex Litigation § 1.46 at 59-61 (condemning tentative classes for settlement purposes ). 60a private attorneys’ fees in the federal action “in an amount no greater than the amount of documented time actually ex- pended... multiplied by the hourly fee prevailing... in the community.” These amounts were in addition to the amounts promised class members accepting the settlement. The notice to subclass members informed them of even less than was provided by the agreement,39 and the record does not provide any reliable estimate of the aggregate amount of attorneys’ fees and expenses that GM will eventually pay.40 We think the proposed settlement’s estimate of attorneys’ fees and expenses is so vague that subclass members could not determine the 39 The notice to subclass members merely stated: As part of the Agreement with the Attorneys General, General Motors agreed to pay an aggregate amount of $150,000, to be divided among those Attorneys General, including the Attorney General of Illinois, accepting the Agreement, in payment for expenses claimed to have been incurred in connection with the subject matter of their litigation. The amount of any attorneys’ fees, costs or expenses to be paid to the attorneys for the private plaintiff purchasers in the class litigation will be subject to the review and approval by the Court. Any award of costs, expenses and/or fees to the private plaintiff purchasers and their counsel in the class litigation will be in addition to, and not deducted from, the $200.00 offered by General Motors per automobile purchased as part of the proposed settlement. 40 The record does indicate that GM and six of the nine teams of private attorneys have reached an understanding, if not agreement, about attorneys’ fees. The understanding is that GM will not object to a request by those counsel for fees up to $360,000, but that private counsel are free to request that the court award a larger amount. Like the provision for expenses of the Attorneys General, this understanding leaves the alloca- tion of the payment a matter for determination by the recipients of the payment. The agreement apparently contemplates that no requests for fees will be made until the end of all of the litigation, including that concerning the rights of post-April 10 purchasers. 6la possible influence of attorneys’ fees on the settlement in consid- ering whether to object to it.41 Aside from some doubt about whether Attorneys General who, of course, are compensated by the public may ever recover attorneys’ fees and expenses,42 we believe that [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385006_0670%3A2. Public record. Not legal advice.