Amicus Curiae Brief — Amchem Products, Inc. v. Windsor

No. 96-270

In The

Supreme Court of the United States

October Term, 1996

.

AMCHEM PRODUCTS, INC., et al.,

Petitioners,

vs.

GEORGE WINDSOR, et al.,

Respondents.

+

On Writ Of Certiorari To The

United States Court Of Appeals

For The Third Circuit

¢

BRIEF OF AMICUS CURIAE NATIONAL

ASSOCIATION OF SECURITIES AND

COMMERCIAL LAWYERS (NASCAT)

IN SUPPORT OF PETITIONERS

¢

CunNTON A. KrisLov Kevin P. Roppy

Rosert J. Stem, IIl Counsel of Record

Kristov & Associates Ltp. MivserGc Weiss BersHAD

222 North LaSalle Street Hynes & Leracw LLP

Suite 810 355 South Grand Avenue

Chicago, IL 60601-1086 Suite 4170

— Los Angeles, CA 90071

Scnainen a iia Telephone: 213/617-9007

NASCAT

317 Massachusetts Ave., N.E.

Suite 200

Washington, DC 20002

Counsel for Amicus Curiae

December 16, 1996

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

QUESTION PRESENTED

When the parties to a putative class action enter into

a settlement, must the district court nevertheless pretend

that every legal and factual issue will be contested, and

ignore the existence of the settlement, in determining

whether class certification is appropriate under Rule 23 of

the Federal Rules of Civil Procedure.

Il.

Ill.

TABLE OF CONTENTS

Page

INTEREST OF AMICUS CURIAE.............. 1

ARGUMENT. ....cccsccscecssteusesneaunenenee 7

A. Settlement Class Actions And Settlement

Classes Are Properly Used To Facilitate Set-

tlement Of Complex Litigation............ 7

B. Rule 23 Permits Settlement Class Actions To

Be Brought By Claimants And Permits Set-

tlement Classes To Be Certified By The Trial

COmste. ..cccvcccccvcccsese ceuuunennannnnan 13

C. The Trial Courts May ly Use The Fact

Of Settlement To Determine That The Require-

ments Of Rule 23 Have Been Met.......... 16

D. Settlement Classes Are go ad Used a.

Resolve Complex Cases

Subject To The Trial Courts’ Review The

Fairness, Adequacy And Reasonableness Of

The Settlement ... vccscsvcsccevectsemebuns 19

CONCLUSION, 2. cccccdcscccccsueveccssueunean 25

iii

TABLE OF AUTHORITIES

Cases

Air Lines Stewards & Stewardesses Ass'n v. Trans

World Airlines, 630 F.2d 1164 (7th Cir. 1980),

aff'd, 455 U.S. 385 (1982)........ 0.0. .ccc cece.

Alvarado Partners, L.P. v. Mehta, 723 F. Supp. 540

GE IE

BMW of N. Am. v. Gore, 116 S. Ct. 1589 (1996) ...

Balsam v. Eastchester Fin. Corp., {1992 Transfer

Binder] Fed. Sec. L. Rep. (CCH) 496,900

i a i ia a al a

Behrens v. Wometco Enters., Inc., 118 F.R.D. 534

(S.D. Fla. 1988), aff'd, 899 F.2d 21 (11th Cir. 1990) ....

Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723

PPC EPEERSGRSSSGRCCCceccececcccesiccccees

Boca Grande Club v. Florida Power & Light, 114 S.

SA TR, ee

Bush v. Rewald, [1986-1987 Transfer Binder] Fed.

Sec. L. Rep. (CCH) 992,999 (D. Haw. 1986) ....

Cagan v. Anchor Sav. Bank FSB, [1990 Transfer

inder] Fed. Sec. L. Rep. (CCH) 995,324

MT a beebesccecendccescccccccsccscs:

Central Bank of Denver v. First Interstate Bank of

Denver, 511 U.S. 164 (1994) .... 6... 6 ccc cece

Chatelain v. Prudential-Bache Sec., 805 F. Supp. 209

Nee ee ccclkccccs

Class Plaintiffs v. Seattle, 955 F.2d 1268 (9th Cir. ),

cert. denied, 506 U.S. 953 (1992) ............64..

Page

iv

TABLE OF AUTHORITIES — Continued

Page

Curtiss-Wright Corp. v. Schoonejongen, 115 S. Ct.

SERS CORR co ccc ncecesccsncqeddadecchscawdestbacide: 2

DeBoer v. Mellon Mortg. Co., 64 F.3d 1171 (8th Cir.

1995), cert. denied, 116 S. Ct. 1544 (1996)....... 19, 21

Detroit v. Grinnell Corp., 495 F.2d 448 (2d Cir. 1974) .... 23

Georgine v. Amchem Prods., Inc., 83 F.3d 610 (3d

Cir.), cert. granted, 117 S. Ct. 379 (1996)....... passim

Girsh v. Jepson, 521 F.2d 153 (3d Cir. 1975) .......... 22

Grimmett v. Brown, No. 95-1722 ...... 6.2.0 e eee eenees 2

Gustafson v. Alloyd Co., 115 S. Ct. 1061 (1995) ........ 2

Harden v. Raffensperger, Hughes & Co., 933 F. Supp.

FED GBB. EnG, BED ccc cccccesscsccccchsccsceseses 10

Holmes v. Securities Investor Protection Corp., 503

CLG, FED CRGGD 0 ccc cccccccccccunveteusstececcesvess 2

In re A.H. Robins Co., Inc., 880 F.2d 709 (4th Cir.

Bs 0. 004c60cebelecsdeansdbedensesenenactuaee 17, 21

In re Asbestos Litig., 90 F.3d 963 (Sth Cir. 1996).. passim

In re Baldwin-United Corp., 106 F.R.D. 475 (S.D.N.Y.

BODE... ccccocccvedscvcctcccsscdestbscteccossecuss 13

In re Beef Indus. Antitrust Litig., 607 F.2d 167 (5th

Che, BIGEe cccccctccctctoductetuscdeddudmeuesets 14, 22

In re Businessland Sec. Litig., [1991 Transfer Binder]

Fed. Sec. L. Rep. (CCH) 796,059 (N.D. Cal. 1991) .... 10

v

TABLE OF AUTHORITIES - Continued

Page

In re California Micro Devices Sec. Litig., 168 F.R.D.

By Gee GE Bees veccccscccceccesccsccscecece 21

In re Chambers Dev. Sec. Litig., 912 F. Supp. 822

Geen DO BIRR ccscwccccsdvnvctccesesccvéveces 15, 22

In re Corrugated Container Antitrust Litig., 643 F.2d

195 (Sth Cir.), aff'd., 659 F.2d 1322 (5th Cir.

1981), cert. denied, 456 U.S. 998 and cert. denied,

GS GB. TE Gee she cc cccdccdsvccessccveces 17, 18

In re Del-Val Fin. Corp. Sec. Litig., 162 F.R.D. 271

GEAR BEGED o cccccccevvcesecveccdeces 9, 10, 13, 14

In re Dennis Greenman Sec. Litis , 825 F.2d 1539

GRRE Ge Fae ec ccccccdccvectecsecodccsconcvcecse 18

In re Drexel Burnham Lambert Group, 130 B.R. 910

(S.D.N.Y. 1991), aff'd, 960 F.2d 285 (2d Cir. 1992),

cert. dismissed, 506 U.S. 1088 (1993) ..... 5, 15, 20, 23

In re Farmers Group Stock Options Litig., [1991-1992

Transfer Binder] Fed. Sec. L. Rep. (CCH)

ES Ee WE BOOED Sede veduccencceecéodvceses 10

In re First Commodity Corp. Customer Accounts

Litig., 119 F.R.D. 301 (D. Mass. 1987).............. 11

In re General Motors Corp. Pick-Up Truck Fuel Tank

Prods. Liability Litig., 55 F.3d 768 (3d Cir.), cert.

denied, 116 S. Ct. 88 (1995)... 2... 2... cece euns passim

In re Kendall Square Research Corp. Sec. Litig., 869 F.

Supp. SB GO. Roses. TPE)... cccccccccccccvcsccece 10

In re Michael Milken & Assocs. Sec. Litig., 150 F.R.D.

GD Gee TIED cc cv evecccccscvccesces 8, 20, 23, 24

vi

TABLE OF AUTHORITIES — Continued

Page

In re Pacific Enters. Sec. Litig., 47 F.3d 373 (9th Cir.

We cdasccccccccccccctcevcochbadddsdsatehant 6, 8, 20

In re Prudential Sec., Inc. Ltd. Partnerships Litig., 163

F.R.D. 200 (S.D.N.Y. 1995) ..... 2.6.00 eee eeeee passim

In re School Asbestos Litig., 921 F.2d 1330 (3d Cir.

wn dc cccccacsdedascocdsdccdeiincndésecéigscbise 8

In re Wicat Sec. Litig., 671 F. Supp. 726 (D. Utah

Rowe ccccccveconccscncnscsscctaacconssessotencs 11

Klein v. McDonnell Douglas Corp., Case No. 4:95-

CV-02225 TCM (E.D. Mo. Feb. 9, 1996)............. 5

Lake v. First Nationwide Bank, 900 F. Supp. 726

CRED FO. GEG < cccccccccccassescscsvesetcvcesces 24

Malchman v. Davis, 761 F.2d 893 (2d Cir. 1985) ...... 17

Mars Steel Corp. v. Continental Illinois Nat'l Bank &

Trust Co., 834 F.2d 677 (7th Cir. 1987)............. 21

Mashburn v. National Healthcare, Inc., 684 F. Supp.

Jf | FG error re 10

McDermott, Inc. v. AmClyde, 511 U.S. 202 (1994) ...... 7

Montgomery Ward & Co. v. Langer, 168 F.2d 182 (8th

GOR GIGED cnc ncbvc cesccdenedicsceuscctseeuncceesese 2

Moorhead v. Merrill Lynch, Pierce, Fenner & Smith,

Inc., [1989 Transfer Binder] Fed. Sec. L. Rep.

(CCH) 994-448 (D. Minn. 1989)............-.6545. 10

Musick, Peeler & Garrett v. Employers Inc., 508 U.S.

BD Bes ov cc cccccsccccstoscestbutdesbadcecsicens 2

vii

TABLE OF AUTHORITIES — Continued

Page

Officers for Justice v. Civil Serv. Comm'n, 688 F.2d

BP GD GED EI Sc vk bcc chacdiacsdedddnedbescucs 19

Plaut v. Spendthrift Farm, 115 S. Ct. 1447 (1994)....... 2

Protective Committee for Indep. Stockholders of TMT

Trailer Ferry v. Anderson, 390 U.S. 414 (1968) ...... 20

Reves v. Ernst & Young, 507 U.S. 170 (1993)........... 2

Sanders v. Robinson Humphrey/American Express,

Inc., {1990 Transfer Binder] Fed. Sec. L. Rep.

(CCH) $95,315 (N.D. Ga. 1990) ...............25.. 10

Smith v. Swormstedt, 57 U.S. (16 How.) 288 (1854) ..... 2

South Carolina Nat'l Bank v. Stone, 749 F. Supp.

Ey es in 044 ocnnn se nt dubacecedesoeebeses 14

Supreme Tribe of Ben-Hur v. Cauble, 255 U.S. 346

SL Siiteaseelabsetedausteeevesednncetenssedeses 2

TXO Prod. Corp. v. Alliance Resources Corp., 509

SY CS ocnncectddcdndesnccedessdcbaes éeade 2

Valentino v. Carter-Wallace, Inc., 97 F.3d 1227 (9th

uh SE Sho cecbidnnchsddeeseuteciedeenenceoceces 15

Varity Corp. v. Howe, 116 S. Ct. 1065 (1996)........... 2

Walsh v. Great Atlantic & Pacific Tea Co., 726 F.2d

EE SE, DT acinceneusandebndecdean<eservees 20

Weinberger v. Kendrick, 698 F.2d 61 (2d Cir. 1982)

bddNbbs buweedsbbns covesededeosec cvicbesseoes 19, 21, 22

viii

TABLE OF AUTHORITIES - Continued

Page

Weiss v. Mercedes-Benz of N. Am., 899 F. Supp. 1297

(D.N.J.), aff'd without opinion, 66 F.3d 314 (3d

- > PRO re eo 19

Wells v. Dartmouth Bancorp, Inc., 813 F. Supp. 126

(NEE. BGG ccccvccccccesovcccvestvecccescoesnces 10

White v. National Football League, 41 F.3d 402 (9th

Cir. 1994), cert. denied, 115 S. Ct. 2569 (1995)...18, 21

Sratutes, RULES AND REGULATIONS

Federal Rules of Civil Procedure

Rabe BB... cccccccccccccseccvoscccesccssscecees passim

eR TR svn vncecececccvecesccectacestooncesact 6, 17

§ Kt PRPPPrreTTITTriTeT i irii Tee 16

fs PPPOE PerIyeTiTiirii Tritt oe 17

Be TRIED occvccccccccccccccccesescovvccscess 6, 16

b _ Ferrers er tt ie 15, 16

ie CNN S85, cas cece te 14

ets BI io o.c cv ccvcpecccedecedsatcecconconeses 13, 14

2 BPPPPYTYTTTTTIT TTT TTT Tee 6, 20, 21, 23, 24

Supreme Court Rule

PRD Tc ccscvcrtcccccceccessctonansbochercccscoes 1

ls Se os ere eer rt ., 1

ix

TABLE OF AUTHORITIES - Continued

SECONDARY AUTHORITIES

Note, Back to the Drawing Board: The Settlement

Class Action and the Limits of Rule 23, (1996) 109

Se Ne es chee Sener

Notes — the Cave: Some Problems of Judges in

Dealing with Class Action Settlements, 163 F.R.D.

cee.

John C. Coffee, Jr, Understanding the Plaintiff's

Attorney: The Implications of Economic Theory for

Private Enforcement of Law Through Class and

Derivative Actions, (1986) 86 Colum. L. Rev. 669 ..

Edward H. Cooper, Rule 23: Challenges to the

Rulemaking Process, (1996) 71 N.Y.U. L. Rev. 13

DM cascades odiacdedadilaebaceebacedesds:

Roger C. Cramton, Symposium: Individualized Jus-

tice, Mass Torts, and “Settlement Class Actions”:

An Introduction, (1995) 80 Cornell L. Rev. 811 ..

Comment, Developments in the Law — Class Actions,

CROV ED GP GEOU Ce BE Bee cect cccccnccccscces

Samuel Estreicher, Foreword, Federal Class Actions

After 30 Years, (1996) 71 N.Y.U. L. Rev. 1.......

Marc S. Galanter, The Federal Rules and the Quality

of Settlements, (1989) 137 U. Pa. L. Rev. 2231...

Geo C. Hazard, Jr., The Settlement Black Box,

(R90G) 7S DUD. ROV. BAG... rrcvccccvccccevees

Jonathan R. Macey & Geoffrey P. Miller, The Plain-

tiffs’ Attorney's Role in Class Action and Deriva-

tive Litigation: Economic Analysis and

Recom tions for Reform, (1991) 58 U. Chi. L.

Page

4,9

soo OO

TABLE OF AUTHORITIES - Continued

Page

Manual for Complex Litigation (3d ed. 1995)

TY RPE PTE Ys: Peet Tey rei tirir tr 23

APT ret frre ee 24

errr ree rrr rte er rer T 10, 21

Stephen E. Morrissey, Note, State Settlement Class

Actions That Release Exclusive Federal Claims:

Developing a Framework for Multijurisdictional

Manag ment of Shareholder Litigation, (1995) 95

CED... SNL fo bs binn h6ntWbewetEeReeubaeds 3,9

Bruce H. Neilson, Was the 1966 Advisory Committee

Right?: Suggested Revisions of Rule 23 to Allow

More Frequent Use of Class Actions in Mass Tort

Litigation, (1988) 25 Harv. J. Legis. 461............ 12

2 Herbert B. Newberg & Alba Conte,

Newberg on Class Actions (3d ed. 1992)

Peter H. Schuck, Mass Torts: An Institutional Evolu-

tionist Perspective, (1995) 80 Cornell L. Rev. 941 .... 10

Lorna G. Schofield, Proposed Amendments Offer an

Efficient Next Step in Class Action Management 22

Litigation News 1 (ABA Section of Litigation

SER, Tee ens civu cWehind wenn cute chwbeetecasitecias 15

William W. Schwarzer, Symposium: Settlement of

Mass Tort Class Actions: Order out of Chaos,

(1995) 80 Cornell L. Rev. 837 ...............045. 9, 16

Roger H. Transgrud, Joinder Alternatives in Mass

Tort Litigation, (1985) 70 Cornell L. Rev. 779....12, 14

ee ee

xi

TABLE OF AUTHORITIES - Continued

Jack B. Weinstein, Ethical Dilemmas in Mass Tort

Litigation, (1994) 88 Nw. U.L. Rev. 469............. S)

7A Charles Alan Wright, Arthur R. Miller & Mary Kay

Kane, Federal Practice and Procedure: Civil 2d (1986)

7B Charles Alan Wright, Arthur R. Miller & Mary Kay

Kane, Federal Practice and Procedure: Civil 2d (1986)

(MELE fis Fin Re a a 4

REST ye GR BT ie RIAL Da ge 14

| REE RI ECR RR ae oD 20

BRIEF OF AMICUS CURIAE

NATIONAL ASSOCIATION OF SECURITIES

AND COMMERCIAL LAWYERS (NASCAT)

IN SUPPORT OF PETITIONERS

The National Association of Securities and Commer-

cial Law Attorneys (NASCAT), by its Counsel of Record

and pursuant to Supreme Court Rule 37.3, hereby files its

amicus curiae brief in support of Petitioners.' For the

reasons stated herein, the decision of the court below

should be reversed.?

I. INTEREST OF AMICUS CURIAE

NASCAT is an association of law firms and attorneys

who litigate class action cases involving antitrust, com-

mercial, consumer, employee (and retiree) benefit, envi-

ronmental and securities fraud claims in federal and state

courts. NASCAT’s members frequently represent victims

of corporate abuse, schemes to defraud and so-called

“white collar” criminal activity. In class actions challeng-

ing such wrongdoing, NASCAT’s members not only seek

compensation for victims, but also attempt to deter

wrongdoers, modify corporate behavior and improve the

access of victims to justice. As part of these efforts,

NASCAT advocates the enactment and enforcement of

effective state and federal laws to prevent wrongful,

1 Pursuant to Rule 37.3(a), NASCAT has lodged with this

amicus curiae briefs consent letters signed by Counsel of Record

for Petitioners and Respondents.

2 The Third Circuit’s decision is reported as Georgine v.

Amchem Prods., Inc., 83 F.3d 610 (3d Cir.), cert. granted, 117 S. Ct.

379 (1996).

fraudulent, deceptive and manipulative business prac-

tices. NASCAT and its members also support the practical

and utilitarian construction and application of Rule 23 of

the Federal Rules of Civil Procedure (and its state law

equivalents) in class action litigation.®

Over the past thirty years, NASCAT’s members have

litigated and settled literally hundreds of class action law-

suits* filed in federal and state courts under Rule 23 (or its

3 NASCAT has previously filed amicus curiae briefs in this

Court in a variety of contexts. See, e.g., Grimmett v. Brown, No.

95-1722 (RICO); Varity Corp. v. Howe, 116 S. Ct. 1065 (1996)

(ERISA); BMW of N. Am. v. Gore, 116 S. Ct. 1589 (1996) (punitive

damages); Curtiss-Wright Corp. v. Schoonejongen, 115 S. Ct. 1223

(1995) (ERISA); Plaut v. Spendthrift Farm, 115 S. Ct. 1447 (1994)

(securities fraud); Gustafson v. Alloyd Co., 115 S. Ct. 1061 (1995)

(securities fraud); Boca Grande Club v. Florida Power & Light, 114

S. Ct. 2703 (1994) (settlement - contribution); Central Bank of

Denver v. First Interstate Bank of Denver, 511 U.S. 164 (1994)

(securities fraud); TXO Prod. Corp. v. Alliance Resources Corp.,

509 U.S. 443 (1993); Musick, Peeler & Garrett v. Employers Ins., 508

U.S. 286 (1993) (securities fraud); Reves v. Ernst & Young, 507

U.S. 170 (1993) (RICO); Holmes v. Securities Investor Protection

Corp., 503 U.S. 258 (1992) (RICO).

4 “The class action was an invention of equity . .. mothered

by the practical necessity ef providing a procedural device so

that mere numbers would not disable large groups of

individuals, united in interest, from enforcing their equitable

rights nor grant them immunity from their equitable wrongs.”

Montgomery Ward & Co. v. Langer, 168 F.2d 182, 187 (8th Cir.

1948). Class actions long have been part of American

jurisprudence and for more than a century this Court has held

that they were authorized by the equity rules in suits involving

members of a class so numerous that it was impracticable to join

them all as parties. See, e.g., Supreme Tribe of Ben-Hur v. Cauble,

255 U.S. 356 (1921). In Smith v. Swormstedt, 57 U.S. (16 How.) 288

(1854), this Court allowed a representative suit to be brought on

TT. . -

state court equivalents)® in virtually every substantive area

of the law. NASCAT’s members frequently bring securities

fraud class actions under the Securities Act of 1933 and/or

the Securities Exchange Act of 1934 and our collective

experience has demonstrated that the class action “is the

primary vehicle through which shareholders seek to vindi-

cate their rights against allegedly fraudulent corporate

conduct.” Courts and commentators have uniformly

behalf of all the preachers in the Methodist Episcopal Church

South seeking a declaration of the respective rights of each

sectional group of the Methodist Episcopal Church of the

United States to funds originally belonging to the entire church.

This Court found that both groups of litigants had a “common

interest” or “common right” to the assets in question, and

equated that common interest, and the adequacy of

representation signified by it, with the binding effect of the

decree. Id. at 303. Despite the lack of notice and opportunity to

be heard for many class members, this Court found the basic

procedural conditions to bringing a class action to have been

satisfied, thereby placing its imprimatur on the binding class

action. Id. at 302-03.

5 As originally adopted in 1938, Rule 23 represented “a

bold and well-intentioned attempt to encourage more frequent

use of class actions.” 7A Charles Alan Wright, Arthur R. Miller

& Mary Kay Kane, Federal Practice and Procedure: Civil 2d § 1752,

at 15 (1986). Its provisions were completely rewritten and

augmented in 1966. Id., § 1753 at 41.

© Stephen E. Morrissey, Note, State Settlement Class Actions

That Release Exclusive Federal Claims: Developing a Framework for

Multijurisdictional Management of Shareholder Litigation, 95

Colum. L. Rev. 1765, 1765 (1995) (“Morrissey, State Settlement

Class Actions”). In the securities fraud context, the class action

mechanism is seen as particularly appropriate for two reasons:

“first, the alleged misconduct on the part of the defendant

company’s officers and directors is often the same from the

standpoint of each individual shareholder; second, with small

lauded the class action as an important and effective tool

in enforcing the federal securities laws.”

In order to resolve complex securities fraud (and

other types of) class actions involving multi-million dol-

lar claims being litigated on behalf of thousands of geo-

graphically diverse class members, NASCAT’s members

have filed so-called “settlement class actions” (similar to

the litigation and settlement at issue in this case) or, to

effectuate a settlement agreement with defendants, have

agreed to seek certification of a “settlement class.”® As a

losses spread among large numbers of shareholders, the class

mechanism is perhaps the only means through which

shareholder litigation is economically viable.” Id. at 1765 n.1

(citing Jonathan R. Macey & Geoffrey P. Miller, The Plaintiffs’

Attorney's Role in Class Action and Derivative Litigation: Economic

Analysis and Recommendations for Reform, 58 U. Chi. L. Rev. 1

(1991)).

7 See, e.g., Blue Chip Stamps v. Manor Drug Stores, 421 U.S.

723, 764-68 (1975) (Blackmun, J., dissenting); John C. Coffee, Jr.,

Understanding the Plaintiff's Attorney: The Implications of

Economic Theory for Private Enforcement of Law Through Class and

Derivative Actions, 86 Colum. L. Rev. 669, 678-83 (1986) (noting

“obvious” advantages of the class action mechanism); 7B

Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal

Practice and Procedure: Civil 2d § 1781, at 28 (1986) (“Because

most securities cases involve hundreds or thousands of class

members who typically possess only small individual claims,

the class action provides a useful mechanism for enforcing the

policies underlying the securities laws and should be liberally

allowed.”) (footnote omitted).

8 See, e.g., In re General Motors Corp. Pick-Up Truck Fuel Tank

Prods. Liability Litig., 55 F.3d 768 (3d Cir.) (“GM Trucks”)

(holding that settlement class actions are cognizable under Rule

23 but setting aside settlement in question due to the district

court’s failure to make requisite Rule 23 findings), cert. denied,

result of their collective experience, NASCAT’s members

believe that (1) settlement classes may be properly used

to facilitate settlement of complex litigation; (2) Rule 23

permits settlement class actions to be brought by claim-

ants and permits settlement classes to be certified by the

district courts; (3) the district courts may properly use the

fact of settlement to determine that the requirements of

Rule 23 have been met in a particular case; and (4)

settlement classes are properly used to resolve complex

cases where they are subject to the district court’s review

of the fairness and adequacy of the settlement. See Part

Ill.A-D, infra.

In this case, which involves the settlement of a

nationwide class action encompassing hundreds of thou-

sands of individual asbestos claims and settlement pay-

ments worth more than $1 billion, the Third Circuit

invalidated the settlement agreement, holding that where

the parties to a putative class action enter into a settle-

ment, the district court must act as if the settlement does

not exist and apply Rule 23’s class certification criteria

116 S. Ct. 88 (1995); In re Drexel Burnham Lambert Group, 960 F.2d

285 (2d Cir. 1992) (affirming district court's certification of

settlement class and subclasses and approving settlement

agreement), cert. dismissed, 506 U.S. 1088 (1993); In re Prudential

Sec., Inc. Ltd. Partnerships Litig., 163 F.R.D. 200 (S.D.N.Y. 1995)

(certifying settlement class and approving settlement providing

$100 million recovery in RICO class action involving 700 limited

and 100,000 investors); Klein v. McDonnell Douglas

Corp., Case No. 4:95-CV-02225 TCM (E.D. Mo. Feb. 9, 1996)

we settlement class and approving settlement providing

tal pension benefits worth $450+ million in

ry health care benefits class action involving 24,000

retirees).

“as if the case were going to be litigated.” Georgine, 83

F.3d at 624 (citing GM Trucks, 55 F.3d at 799-800).° In its

opinion, the court below acknowledged that “the better

policy may be to alter the class certification inquiry to

take settlement into account,” but asserted that “the cur-

rent Rule 23 does not permut such an exception.” 83 F.3d

at 618.'° In so holding, the court below refused to follow

reported decisions from the Second, Fifth, Eighth, Ninth

and Eleventh Circuits, all of which have relied on the fact

of settlement in applying Rule 23’s requirements and

certifying settlement classes in numerous cases.

NASCAT and its members respectfully submit that

the decision of the court below ignores the letter and

well-recognized practical construction of Rule 23, the col-

lective experience of the federal courts in reviewing pro-

posed settlements under Rule 23(e), as well as the

“ ‘strong judicial policy that favors settlements.’ ” In re

Pacific Enters. Sec. Litig., 47 F.3d 373, 378 (9th Cir. 1995)

% See also Georgine, 83 F.3d at 626 (holding that “the rule in

this circuit is that settlement class certification is not permissible

unless the case would have been ‘triable in class form’ ” and that “the

Rule 23(a) requirements of commonality, typicality, and

adequacy of representation, and the Rule 23(b)(3) requirements

of predominance and superiority . . . must be satisfied without

taking into account the settlement, and as if the action were going to

be litigated”) (emphasis added) (quoting and citing GM Trucks,

55 F.3d at 799).

1 In GM Trucks, 55 F.3d at 798, the Third Circuit

acknowledged that other courts of appeals uniformly take the

existence of settlement into account in finding that Rule 23's

requirements had been satisfied and upholding class

certification, but it stated that it “disagree[d] with this

approach.” Id. at 799. See also Part IILC, infra.

(citatio’ mitted). As a practical matter, the Third Cir-

cuit’s decision in this case means that complex class

action cases arising in that circuit cannot be easily settled

but, rather, must be litigated for years at a cost of millions

of dollars, to the collective detriment of claimants, defen-

dants and the courts.

Given the frequency of its use in a wide variety of

class actions, this case presents an appropriate occasion

for this Court to hold that “settlement classes” and “set-

tlement class actions” are authorized by Rule 23. This

Court should endorse the approach utilized by a majority

of the courts of appeals (and the greater number of dis-

trict courts) and hold that the fact of settlement should be

taken into account by trial and appellate courts in apply-

ing Rule 23’s requirements. Because the Third Circuit

refused to do so in this case, NASCAT and its members

agree with Petitioners that the decision of the court below

should be reversed.

Il. ARGUMENT

A. Settlement Class Actions And Settlement

Classes Are Properly Used To Facilitate Settle-

ment Of Complex Litigation

As this Court has recognized, settlement is the princi-

pal means of resolving civil litigation in the federal

courts. See McDermott, Inc. v. AmClyde, 511 U.S. 202, 1145S.

Ct. 1461, 1469 n.22 (1994) (observing that “[lJess than five

percent of cases filed in federal court end in trial” and

that “the bulk of nontrial terminations reflect settle-

ments”). Given this reality, the federal courts have

adhered to “the strong judicial policy that favors settle-

ments, particularly where complex class action litigation

is concerned.” Class Plaintiffs v. Seattle, 955 F.2d 1268, 1276

(9th Cir.), cert. denied, 506 U.S. 953 (1992)."! In the words

of the court below, a “settlement class” is a procedural

device

whereby the court postpones formal class certi-

fication until the parties have successfully con-

cluded a settlement. If settlement negotiations

succeed, the court certifies the class for settle-

ment purposes only and sends a combined

notice of the commencement of the class action

and the settlement to the class members. By

1! Accord GM Trucks, 55 F.3d at 805 (noting “the growing

frequency of the settlement of increasingly large claims through

the class action device” and the fact that “[c]ourts undertaking

the special role of supervising class action settlements are

apparently heeding the public policy in favor of settlement, and

acknowledging the urgency of this policy in complex actions

that consume substantial judicial resources and present

unusually large risks for the litigants”); Pacific Enters., 47 F.3d at

378 (“When reviewing complex class action settlements, we

have a ‘strong judicial policy that favors settlements.’ ”)

(quoting Class Plaintiffs, 955 F.2d at 1276); In re School Asbestos

Litig., 921 F.2d 1330, 1333 (3d Cir. 1990) (referring to “our policy

of encouraging settlement of complex litigation that otherwise

could linger for years”) (citations omitted); Air Line Stewards &

Stewardesses Ass'n v. Trans World Airlines, 630 F.2d 1164, 1166-67

(7th Cir. 1980) (“Federal courts look with great favor upon

voluntary resolution of litigation through settlement. . . . This

rule has particular force regarding class action lawsuits.”), aff'd,

455 U.S. 385 (1982); Prudential, 163 F.R.D. at 209 (“It is well

established that there is an overriding public interest in settling

and quieting litigation, and this is particularly true in class

actions.”) (citing, inter alia, In re Michael Milken & Assocs. Sec.

Litig., 150 F.R.D. 46, 53 (S.D.N.Y. 1993)).

_—

9

conditionally certifying the class for settlement

purposes only, the court allows the defendant to

challenge class certification in the event that the

settlement falls apart.

Georgine, 83 F.3d at 625 n.9.!2 The “settlement class” (or

“settlement class action”), which has been successfully

employed by class action claimants and defendants for

more than two decades,” “now has become common-

place in the federal courts” as a means of resolving com-

plex cases.'* As a result, the Manual for Complex Litigation

12 See also GM Trucks, 55 F.3d at 786; In re Del-Val Fin. Corp.

Sec. Litig., 162 F.R.D. 271, 273 n.3 (S.D.N.Y. 1995); Roger C.

Cramton, Symposium: Individualized Justice, Mass Torts, and

“Settlement Class Actions”: An Introduction, 80 Cornell L. Rev.

811, 823 (1995) (“settlement class action” refers to a class action

“that is designed to be settled rather than litigated, with the

defendant not objecting to certification of the class providing

the settlement is ”); Morrissey, State Settlement Class

Actions, 95 Colum. L. Rev. at 1766 (in settlement class actions, “a

class is certified ‘for settlement purposes only’ at the instance of

the litigants’ counsel, who often have prearranged the terms of

settlement”); William W. Schwarzer, Symposium: Settlement of

Mass Tort Class Actions: Order out of Chaos, 80 Cornell L. Rev. 837,

840-41 (1995) (same).

13 See Comment, Deve ts in the Law — Class Actions,

89 Harv. L. Rev. 1318, 1555 n.105 (1976) (“Developments”) (listing

settlement class cases from as early as 1971).

4 Note, Back to the Drawing Board: The Settlement Class

Action and the Limits of Rule 23, 109 Harv. L. Rev. 828, 831 n.27

(1996) (“Note, Back to the Drawing Board”) (citing John C. Coffee,

Jr., Class Action Wars: The Dilemma of the Mass Tort Class Action,

95 Colum. L. Rev. 1343, 1378 n.123 (1995) (“Settlement class

actions are not only common, but in some district courts appear

to constitute the majority of certified class actions.”)). For

additional commentary on settlement class actions, see Jack B.

Weinstein, Ethical Dilemmas in Mass Tort Litigation, 88 Nw. U. L.

19

§ 30.45 (3d ed. 1995) (“MCL 3d”) recognizes that “courts

permit the use of settlement classes” involving the certi-

fication of the class “for settlement purposes only,” and

“permit defendants to settle while preserving the right to

contest the propriety and scope of the class allegations if

the settlement is not approved.” Id. at 243. “The costs of

litigating class certification are saved and litigation

expense is generally reduced by an early settlement.”

Id.*5

Rev. 469, 472 (1994), and Peter H. Schuck, Mass Torts: An

Institutional Evolutionist Perspective, 80 Cornell L. Rev. 941,

961-62 (1995).

15 There are numerous reported cases in which district

courts have certified settlement classes in securities fraud class

actions. See, e.g., Harden v. Raffensperger, Hughes & Co., 933 F.

Supp. 763, 768 (S.D. Ind. 1996) (approving settlement of

securities fraud class action and certifying settlement class);

Del-Val, 162 F.R.D. at 273 n.3 (numerous courts have used their

discretion to issue orders conditionally certifying classes for

purposes of facilitating settlements). See also In re Kendall Square

Research Corp. Sec. Litig., 869 F. Supp. 53, 54 (D. Mass. 1994);

Wells v. Dartmouth Bancorp, Inc., 813 F. Supp. 126, 130 (D.N.H.

1993); Balsam v. Eastchester Fin. Corp., [1992 Transfer Binder]

Fed. Sec. L. Rep. (CCH) 96,900 (E.D.N.Y. 1992); In re Farmers

Group Stock Options Litig., [1991-1992 Transfer Binder] Fed. Sec.

L. Rep. (CCH) 96,522 (E.D. Pa. 1991); In re Businessland Sec.

Litig., [1991 Transfer Binder] Fed. Sec. L. Rep. (CCH) 96,059

(N.D. Cal. 1991); Cagan v. Anchor Sav. Bank FSB, [1990 Transfer

Binder] Fed. Sec. L. Rep. (CCH) 95,324 (E.D.N.Y. 1990); Sanders

v. Robinson Humphrey/American Express, Inc., [1990 Transfer

Binder] Fed. Sec. L. Rep. (CCH) 95,315 (N.D. Ga. 1990);

Moorhead v. Merrill Lynch, Pierce, Fenner & Smith, Inc., [1989

Transfer Binder] Fed. Sec. L. Rep. (CCH) 94,448 (D. Minn. 1989);

Alvarado Partners, L.P. v. Mehta, 723 F. Supp. 540, 545-46 (D. Colo.

1989); Behrens v. Wometco Enters., Inc., 118 F.R.D. 534, 537 (S.D.

Fla. 1988), aff'd, 899 F.2d 21 (11th Cir. 1990); Mashburn v. National

11

As the Third Circuit acknowledged in GM Trucks, 55

F.3d at 793, “resistance to more flexible applications of

Rule 23 has diminished over time,” id., as the federal

courts (and many commentators) have recognized the

benefits of settlement classes and settlement class actions.

As the court elaborated in that case:

The evolution of the reception accorded settle-

ment classes has manifested itself in the succes-

sive versions of the Manual for Complex

Litigation. The first edition of the Manual crit-

icized the initiation of settlement negotiations

before certification, and discouraged all such

negotiations. See MCL Ist § 1.46. The second

edition recognizes the potential benefits of set-

tlement classes but still cautioned that “the

court should be wary of presenting the settle-

ment to the class.” MCL 2d § 30.45 at 243. The

(draft) third version acknowledges that “settle-

ment classes offer a commonly used vehicle for

the settlement of complex litigation” and aims

only to supervise rather than discourage their

use.

Id. at 793-94.

In complex cases - whether the action involves a

mass tort or an alleged scheme to violate the federal

securities laws — the settlement class action permits liti-

gants to use the courts to overcome collective action

Healthcare, Inc., 684 F. Supp. 660, 665 & n.4, 675 (M.D. Ala. 1988);

In re Wicat Sec. Litig., 671 F. Supp. 726, 730 (D. Utah 1987); In re

First Commodity Corp. Customer Accounts Litig., 119 F.R.D. 301,

308 (D. Mass. 1987); Bush v. Rewald, [1986-1987 Transfer Binder]

Fed. Sec. L. Rep. (CCH) 92,999 (D. Haw. 1986).

12

problems that often preclude settlement.’© In GM Trucks,

the Third Circuit expressly recognized the utility of the

settlement class action in complex cases:

The use of settlement classes can thus enabie

both parties to realize substantial savings in liti-

gation expenses by compromising the action

before formal certification. Through settlement

class certification, courts have fostered settle-

ment of some very large, complex cases that

might otherwise never have yielded deserving

plaintiffs any substantial remuneration.

55 F.3d at 790 (citing 2 Herbert B. Newberg & Alba Conte,

Newberg on Class Actions § 11.09, at 11-13 (3d ed. 1992)).

Thus, as the Third Circuit made clear in that opinion, the

federal courts’ recognition and utilization of settlement

classes have dramatically increased the number of actions

that are amenable to settlement by increasing the rewards

of a negotiated settlement by (1) increasing a defendant's

incentive to settle because the settlement would bind the

members of the class and prevent further lawsuits against

the defendant; (2) reducing litigation costs by permitting

16 See Roger H. Transgrud, Joinder Alternatives in Mass Tort

Litigation, 70 Cornell L. Rev. 779, 835 (1985) (“Transgrud, Joinder

Alternatives”) (im complex cases, use of a settlement class can

help overcome certain elements of these actions that otherwise

can considerably complicate efforts to settle, including “the

large number of individual plaintiffs and lawyers; . . . the

existence of unfiled claims by putative plaintiffs; and . . . the

inability of any single plaintiff to offer the settling defendant

reliable indemnity protection”); Bruce H. Neilson, Was the 1966

Advisory Committee Right?: Suggested Revisions of Rule 23 to Allow

More Frequent Use of Class Actions in Mass Tort Litigation, 25

Harv. J. Legis. 461, 480 (1988) (same).

gg eee

13

defendants to stipulate to class certification without for-

feiting any legal arguments against certification if settle-

ment negotiations fail; (3) reducing differences among

class members, thereby making class certification more

likely and increasing the value of the settlement to the

defendant; and (4) reducing the likelihood of a successful

challenge to the class-wide settlement. GM Trucks, 55 F.3d

at 790-91.

“In sum, settlement classes clearly offer substantial

benefits.” Id. at 792. As set forth below, their long-stand-

ing use in the federal courts represents a well-justified

practical construction and application of Rule 23 and

their validity should be recognized by this Court.

B. Rule 23 Permits Settlement Class Actions To Be

Brought By Claimants And Permits Settlement

Classes To Be Certified By The Trial Courts

Although settlement classes are not specifically

authorized by Rule 23, they are not specifically precluded

by it either. See 2 Newberg on Class Actions § 11.27, at

11-44; Del-Val, 162 F.R.D. at 273 n.3. After surveying

numerous lower court decisions and commentary, in Gen-

eral Motors the Third Circuit expressly held that settle-

ment classes are cognizable under Rule 23. 55 F.3d at

792-94. As that court recognized, the judicial authority to

establish settlement classes springs, at least in part, from

Rule 23(d), which provides that the trial court may make

“appropriate orders” determining the course of proceed-

ings. See In re Baldwin-United Corp., 105 F.R.D. 475, 478-79

14

(S.D.N.Y. 1984) (Rule 23(d) authorizes the creation of

“tentative,” “provisional,” or “conditional” classes).!7

Alternatively, Rule 23(c)(1), which authorizes the trial

courts to enter “conditional” orders, provides additional

authority for the settlement class. See GM Trucks, 55 F.3d

at 792-93.18 As the Third Circuit has observed, “no court

of appeals that has had the opportunity to comment on

the propriety of settlement classes has held that they

constitute a per se violation of Rule 23.” Id. at 794 (citing

17 See also GM Trucks, 55 F.3d at 792 (discussing Rule 23(d)

and concluding that “[w]e believe that the ‘provisional’ or

‘conditional’ conception of the settlement class device finds at

least a colorable textual basis in the Rule”) (footnotes omitted);

South Carolina Nat'l Bank v. Stone, 749 F. Supp. 1419, 1428 (D.S.C.

1990) (“It is clear that the Court may provisionally certify the

Class for settlement purposes.”); 7B Charles A. Wright, et al.,

§ 1791, at 286-88 (analyzing Rule 23(d)); Note, Back to the

Drawing Board, 109 Harv. L. Rev. at 834-36 (same).

18 See also In re Beef Indus. Antitrust Litig., 607 F.2d 167, 177

(5th Cir. 1979) (“Rule 23 does not deal specifically with a

tentative settlement class. ‘However, a tentative class would

appear to be a form of conditional certification, sanctioned by

Rule 23(c)(1).’ ”) (quoting Developments, 89 Harv. L. Rev. at 1357

n.111); Del-Val, 162 F.R.D. at 273 n.3 (“Although Rule 23 does

not expressly authorize the ‘settlement class’ device, a number

of courts have used their discretion to issue an order

conditionally certifying a class for purposes of facilitating

settlement.”); 2 Newberg on Class Actions § 11.27, at 11-55 (Rule

23(c)(1) “authorizes a class ruling to be altered or amended by

the court at any time before a judgment on the merits” and such

“procedure has been used in the context of a class redefinition

for settlement purposes”); Transgrud, Joinder Alternatives, 70

Cornell L. Rev. at 835 (“[I]f conditional certification of the case

as a common question class action for settlement purposes

would enhance the prospects for a group settlement, then Rule

23 authorizes certification.” ).

15

Second, Third, Fifth, Seventh and Ninth Circuit deci-

sions).?9

Therefore, in accordance with the unanimous weight

of authority, this Court should recognize that settlement

classes are authorized by Rule 23 because “[s]uch con-

struction affords considerable economies to both the liti-

gants and the judiciary and is also fully consistent with

the flexibility integral to Rule 23.” Id.; see also In re Cham-

bers Dev. Sec. Litig., 912 F. Supp. 822, 832-33 (W.D. Pa.

1995).20

19 In addition, numerous district courts have certified

settlement classes in securities fraud class actions. See, ¢.g.,

Prudential, 163 F.R.D. at 205 (certifying settlement class and

approving $100 million settlement in RICO class action

involving 700 limited partnerships and 100,000 investors; “The

settlement class device has been recognized throughout the

country as the best, most practical way to effectuate settlements

involving large numbers of claims by relatively small

claimants.”); Chatelain v. Prudential-Bache Sec., 805 F. Supp. 209,

214 (S.D.N.Y. 1992) (certifying settlement class); In re Drexel

Burnham Lambert Group, 130 B.R. 910, 912, 918-24 (S.D.N.Y. 1991)

(court “certified temporarily, and for settlement purposes only,

a mandatory non-opt-out class of all securities litigation

claimants . .. and two mandatory, non-opt-out subclasses” and

subsequently certified the classes in conjunction with approval

of the settlement, analyzing the pertinent requirements of Rule

23), aff'd, 960 F.2d 285, 290-92 (2d Cir. 1992), cert. dismissed, 506

U.S. 1088 (1993).

20 The Advisory Committee is in the process of considering

modifications to Rule 23 and has proposed authorizing

certification of settlement classes that need not meet the

requirements of Rule 23(b)(3). See Valentino v. Carter-Wallace,

inc., 97 F.3d 1227 (9th Cir. 1996); Fed. R. Civ. P. 23(b)(4) (Draft

Aug. 15, 1996); Lorna G. Schofield, Proposed Amendments Offer an

Efficient Next Step in Class Action Management 22 Litigation News

16

C. The Trial Courts May Properly Use The Fact Of

Settlement To Determine That The Require-

ments Of Rule 23 Have Been Met

This case presents an unreconcilable conflict between

the court below and every other circuit court to address

the Question Presented: Whether the trial court must

ignore the existence of the settlement in determining

whether Rule 23’s requirements have been satisfied. As

noted above, the Third Circuit held in this case that the

requirements of Rule 23(a)(1)-(4) and (b)(3) “must be

satisfied without taking into account the settlement, and as if

the action were going to be litigated.” Georgine, 83 F.3d at

626 (emphasis added) (citing GM Trucks, 55 F.3d at 799).

This holding is in stark contrast to the rule followed in

every other circuit court to consider this question.

Thus, in In re Asbestos Litig., 90 F.3d 963 (5th Cir.

1996), which affirmed approval of a “global settlement”

1, 5 (ABA Section of Litigation Nov. 1996) (proposed Rule

23(b)(4) provides that a class action may be maintained if the

requirements of Rule 23(a) are met and the parties to a

settlement request certification under Rule 23(b)(3) for purposes

of settlement, even though the requirements of subdivision

(b)(3) might not be met for purposes of trial); Samuel Estreicher,

Foreword, Federal Class Actions After 30 Years, 71 N.Y.U. L. Rev. 1,

6 & n.26 (1996) (same); Edward H. Cooper, Rule 23: Challenges to

the Rulemaking Process, 71 N.Y.U. L. Rev. 13 (1996) (discussing

proposed changes to Rule 23); William W. Schwarzer,

Structuring Multiclaim Litigation: Should Rule 23 Be Revised?, 94

Mich. L. Rev. 1250 (1996) (same); Note, Back to the Drawing Board,

109 Harv. L. Rev. at 842, 844-45 (observing that “either the

Supreme Court must address the issue directly, or the advisory

committee must alter Rule 23,” and offering proposed Rule

23(f)).

17

of asbestos-related personal injury and death claims

worth $1.535 billion, intervenors who were opposed to

the settlement argued in the appellate court that the trial

court had erred by “considering the circumstances sur-

rounding the settlement and the evidence adduced at the

fairness hearing in making findings under Rule 23(a).” Id.

at 975. Stating that “[t]his argument is contrary to Fifth

Circuit precedent and would require a court to ignore impor-

tant and relevant information that sits squarely in front of it

when deciding whether to certify a settlement class,” id.

(emphasis added),?! and observing that “[mlJost circuits

to decide the issue have held that courts should consider

the settlement in determining whether Rule 23 prerequi-

sites are satisfied,” id., the Fifth Circuit flatly

21 In In re Corrugated Container Antitrust Litig., 643 F.2d 195

(5th Cir.), aff'd, 659 F.2d 1322 (5th Cir. 1981), cert. denied, 456 U.S.

998, and cert. denied, 456 U.S. 1012 (1982) (“Container I”), the

Fifth Circuit held that the district court should consider the

settlement in deciding whether the settlement class satisfied the

prerequisites of Rule 23. 643 F.2d at 211. The court rejected a

challenge to the district court’s finding that the class was

adequately represented (as required by Rule 23(a)(4)) and found

that the terms of the settlement were virtually important to the

determination that certification was appropriate. Id. The Fifth

Circuit followed this precedent in Asbestos Litig., 90 F.3d at 975.

22 In its opinion, see Asbestos Litig., 90 F.3d at 975, the Fifth

Circuit cited cases from the Second, Fourth, Eighth and

Eleventh Circuits. See Malchman v. Davis, 761 F.2d 893, 900 (2d

Cir. 1985) (certification appropriate in settlement of class action

antitrust suit because “the interest of the members of the

broadened class in the settlement agreement were commonly

held, and there is therefore no basis for disturbing the district

court’s finding on adequacy of representation”) (emphasis

added); In re A.H. Robins Co., Inc., 880 F.2d 709, 740 (4th Cir.

1989) (affirming settlement approval and class certification in

18

rejected the approach followed by the Third Circuit in

this case:

Only the Third Circuit has refused to look at

settlements before it when deciding class certi-

fication issues and even that court admits that

taking the settlement into account may be “the

better policy.” Georgine v. Amchem Products, Inc.,

[83 F.3d 610, 617-18 (3d Cir. 1996)]. The rule that a

court should consider a proposed settlement, if one is

before it, when deciding certification issues makes

good sense. Settlements and the events leading up to

them add a great deal of information to the court's

inquiry and will often expose diverging interests or

common issues that were not evident or clear from

the complaint. See Herbert Newberg & Alba

Conte, 2 Newberg on Class Actions § 11.28 at 11-58

(3d ed. 1992) (in settlement class context, com-

mon issues arise from the settlement itself).

We are bound to follow Container I's hold-

ing that the district court can and should look at

the terms of a settlement in front of it as part of its

certification inquiry. We would adopt this rule even

if we were not bound by precedent because it

products liability class action; “If not a ground for certification

per se, certainly settlement should be a factor, and an important

factor, to be considered when determining certification. That is

all the District Court did in this case. Its action in considering

the circumstance would appear to have been appropriate.”);

White v. National Football League, 41 F.3d 402, 408 (8th Cir. 1994)

(“The adequacy of class representation . . . is ultimately

determined by the settlement itself.”) (citing Container I, 643

F.2d at 212), cert. denied, 115 S. Ct. 2569 (1995); In re Dennis

Greenman Sec. Litig., 829 F.2d 1539, 1543 (11th Cir. 1987) (“[I]n

assessing the propriety of class certification, the courts evaluate

the negotiation process and the settlement itself.”).

er —_

19

enhances the ability of district courts to make

informed certification decisions.

Asbestos Litig., 90 F.3d at 975 (emphasis added; citation

omitted). As noted above (see note 22, supra), the Fifth

Circuit’s approach has been followed in every other cir-

cuit to consider the issue, save the Third Circuit. See, e.g.,

Weinberger v. Kendrick, 698 F.2d 61, 73 (2d Cir. 1982); Beef

Indus., 607 F.2d at 173-78; DeBoer v. Mellon Mortg. Co., 64

F.3d 1171, 1174-75 (8th Cir. 1995), cert. denied, 116 S. Ct.

1544 (1996); Officers for Justice v. Civil Serv. Comm'n, 688

F.2d 615, 633 (9th Cir. 1982).

D. Settlement Classes Are Properly Used To

Resolve Complex Cases Where They Are Sub-

ject To The Trial Courts’ Review Of The Fair-

ness, Adequacy And Reasonableness Of The

Settlement

As noted above, in GM Trucks the Third Circuit

expressly held that settlement classes are valid under

Rule 23. 55 F.3d at 792-94. In that specific case, however,

the appellate court determined that the settlement was

not fair and adequate. The Third Circuit’s opinion stated

that the district court abused its discretion when it relied

upon class counsel’s representation as to the value of the

settlement, overestimated the risk of bringing a class

action and establishing the liabilities, and misinterpreted

the reaction of the class. Id. at 800-01, 804-19. See Weiss v.

Mercedes-Benz of N. Am., 899 F. Supp. 1297, 1303 (D.N.]J.)

(discussing GM Trucks decision), aff'd without opinion, 66

F.3d 314 (3d Cir. 1995).

20

It is well-settled that the approval of a proposed class

action settlement is committed to the sound discretion of

the district court. See, e.g., Walsh v. Great Atlantic & Pacific

Tea Co., 726 F.2d 956, 965 (3d Cir. 1983); 7B Charles A.

Wright, et al., § 1797.1, at 393-94. Under Rule 23(e), the

district court determines whether a proposed settlement

is “fundamentally fair, adequate, and reasonable.” Pacific

Enters., 47 F.3d at 377 (quoting Class Plaintiffs, 955 F.2d at

1276).23 In the words of Senior Judge Pollack, “[t}he ulti-

mate test for the exercise of the Court's discretion in

approving a settlement of a class action pursuant to Rule

23 is whether the settlement, taken as a whole, is fair,

adequate, and reasonable.” Michael Milken, 150 F.R.D. at

53 (citing, inter alia, Protective Committee for Indep. Stock-

holders of TMT Trailer Ferry v. Anderson, 390 U.S. 414,

424-25 (1968)).?4

Where (as here) the district court simultaneously certi-

fies a class and approves a settlement of the action, “we

will more rigorously scrutinize the district court’s analysis

23 See 7B Charles A. Wright, et al., § 1797.1, at 378 (“In

general, the standard used by the courts in evaluating a

compromise is that the proposal must be fair and reasonable

and in the best interests of all those who will be affected by it.”);

Marc S. Galanter, The Federal Rules and the Quality of Settlements,

137 U. Pa. L. Rev. 2231 (1989).

24 See also Jack B. Weinstein & Karin S. Schwartz, Notes from

the Cave: Some Problems of Judges in Dealing with Class Action

Settlements, 163 F.R.D. 369, 375 (1996) (discussing role of

“fairness hearings” in determining whether proposed

settlement is fair, reasonable and adequate); Geoffrey C.

Hazard, Jr., The Settlement Black Box, 75 B.U.L. Rev. 1257, 1260

(1995) (explicating Rule 23(e) standards for approving

settlements).

ane. ee a -

21

of the fairness, reasonableness and adequacy of both the

negotiation process and the proposed settlement.” Drexel

Burnham, 960 F.2d at 292 (emphasis added). Accord GM

Trucks, 55 F.3d at 805 (“[M]any courts have required the

parties to make a higher showing of fairness to sustain these

settlements.”) (emphasis added); Mars Steel Corp. v. Conti-

nental Illinois Nat'l Bank & Trust Co., 834 F.2d 677, 681-82

(7th Cir. 1987) (“[W]hen class certification is deferred, a

more careful scrutiny of the fairness of the settlement is

required . . . [T]he district judge [must] conduct a careful

inquiry into the fairness of the settlement to the class

members. . . . ”) (emphasis added).

Reference to reported cases indicates that the circuit

courts of appeals and the district courts have unstintingly

carried out their duties to carefully review class action

settlements, and have applied the heightened scrutiny

required for evaluating the propriety of certifying a class

that has been preliminarily approved as a settlement

class. See, e.g., Asbestos Litig., 90 F.3d at 974-93 (affirming

settlement of asbestos class actions); DeBoer, 64 F.3d at

1176-78 (class action lawsuit against bank for overescrow-

ing accounts); White, 41 F.3d at 408-09 (professional foot-

ball players’ antitrust class action); A.H. Robins, 880 F.2d

25 See also Weinberger, 698 F.2d at 73; In re California Micro

Devices Sec. Litig., 168 F.R.D. 257, 261 (N.D. Cal. 1996)

(“Particular scrutiny is required under [Rule] 23(e) when the

proposed settlement has been negotiated prior to class

certification. . . . ”) (emphasis added); MCL 3d, § 30.45, at 243

(“Approval under Rule 23(e) of settlements involving

settlement classes . . . requires closer judicial scrutiny than

approval of settlements where class certification has been

litigated.”) (emphasis added).

22

at 748-52 (Dalkon Shield products liability class action);

Weinberger, 698 F.2d at 73-80 (securities fraud class

action); Beef Indus., 607 F.2d at 179-80 (cattlemen’s anti-

trust suit against beef packer).?°

In Chambers Dev., Judge Lee recently stated that

“(t]he Rand-McNally of class action settlement review,”

912 F. Supp. at 836, remains the nine-factor test enunci-

ated by the Third Circuit in Girsh v. Jepson, 521 F.2d 153,

157 (3d Cir. 1975):

(1) the complexity, expense and likely duration of

the litigation;

(2) the reaction of the class to the settlement;

(3) the stage of the proceedings and the amount of

discovery completed;

(4) the risks to both sides of establishing liability;

(5) the risks to both sides to establishing damages;

(6) the risks of maintaining the class action through-

out trial;

(7) the ability of defendants to withstand a greater

judgment;

(8) the range of reasonableness of the settlement

fund in light of the best possible recovery; and

26 In Prudential, Senior Judge Pollack recently stated that

the Third Circuit’s conclusion that the district court must

“assure that settlement classes meet all the requirements of

[Rule] 23(a) and (b),” GM Trucks, 55 F.3d at 797 n.19 (emphasis in

original), “merely reflects the practice already employed by this

Court.” 163 F.R.D. at 205 n.6.

23

(9) the range of reasonableness of the settlement

fund to a possible recovery in light of all the

attendant risks of litigation.

A similar nine-factor test had previously been adopted by

the Second Circuit in Detroit v. Grinnell Corp., 495 F.2d

448, 463 (2d Cir. 1974), and has been rigorously applied

by trial (and appellate) courts in that circuit, particularly

in reviewing settlements of complex class actions arising

under the federal securities laws.?”

In reviewing the fairness, adequacy and reasonable-

ness of proposed class action settlements, trial courts

should be permitted to take the fact of settlement into

account in applying Rule 23’s requirements, as the major-

ity of circuit courts have held in numerous cases. The rule

adopted by the court below in GM Trucks and Georgine is

misguided because it “require[s] a court to ignore impor-

tant and relevant information that sits squarely in front of

it when deciding whether to certify a settlement class.”

Asbestos Litig., 90 F.3d at 975. For example, trial courts

should be allowed to consider the fact that settlement

negotiations occurred at arm’s length between experi-

enced counsel who are well aware of the risks inherent in

27 See, e.g., Drexel Burnham, 960 F.2d at 292-93; Prudential

Sec., 163 F.R.D. at 209-10; Michael Milken, 150 F.R.D. at 52-54, 64;

Chatelain, 805 F. Supp. at 213. See also MCL 3d, § 30.42, at 238-40

(elucidating role of district court in approving class action

settlement under Rule 23(e); 7B Charles A. Wright, et al.,

§ 1797.1, at 395-416 (analyzing factors to be considered by

district courts in reviewing class action settlements); id. at

386-90 & n.7 (collecting cases in which securities fraud class

action settlements were or were not approved by trial and

appellate courts).

24

litigation and are knowledgeable about the facts of the

particular case and the applicable law.2* However, the

alternative procedure adopted by the court below

requires the district courts to address a hypothetical con-

tested case that does not exist, rather than the actual case

before the court.?9

Moreover, the rule adopted by the Third Circuit in

GM Trucks and Georgine is not based upon any sort of

factual showing that the rule followed in other circuits

(where the fact of settlement is taken into account in

determining if Rule 23’s requirements have been met)

means that district courts are failing to discharge their

duties under Rule 23(e) or that unfair, inadequate, or

unreasonable settlements are being approved in the fed-

eral courts. If anything, the circuit and district court

28 In reviewing class action settlements pursuant to Rule

23(e), trial courts have often employed a presumption that a

settlement is fair, adequate and reasonable because it is the

product of arm’s-length negotiations conducted by experienced

counsel who are fully familiar with all aspects of class action

litigation. See, e.g., Prudential, 163 F.R.D. at 205 (“[A] settlement

class is appropriate because there is no likelihood of abuse, and

the settlement is fair, reasonable and has been arrived at

pursuant to informed arm’s-length negotiations under the

supervision of the Court.”). Accord Lake v. First Nationwide Bank,

900 F. Supp. 726, 732 (E.D. Pa. 1995) (“Significant weight should

be attributed ‘to the belief of experienced counsel that

settlement is in the best interest of the class.’ ”) (citation

omitted); MCL 3d, § 30.43, at 241-42 (same).

29 Cf. Michael Milken, 150 F.R.D. at 53 (“ ‘In evaluating the

proposed settlement, the Court is not to compare its terms with

a hypothetical or speculative measure of a recovery that might

be achieved by prosecution of the litigation to a successful

conclusion.’ ”) (citation omitted).

oe

25

opinions cited in this brief demonstrate that the opposite

is true.

If affirmed by this Court, the decision of the Third

Circuit in this case may effectively preclude settlement of

complex cases, a result which cannot be squared with the

language of Rule 23, much less the philosophy of practi-

cal application underlying its adoption, or the strong

public policy encouraging settlement of complex cases in

general and class actions in particular.

Ill. CONCLUSION

For the reasons stated herein, the decision of the

court below should be reversed.

DATED: December 16, 1996

Respectfully submitted,

MiiserG Weiss BersHAD

Hynes & Leracw LLP

Kevin P. Roppy

Counsel of Record

355 South Grand Avenue

Suite 4170

Los Angeles, CA 90071

Telephone: 213/617-9007

CunTon A. Kristov

Rosert J. Stein, Il

Kristov & Associates Lrp.

222 North LaSalle Street

Suite 810

Chicago, IL 60601-1086

26

MerRN Horan

Executive Director

NASCAT

317 Massachusetts Ave., N.E.

Suite 200

Washington, DC 20002

Counsel for Amicus Curiae

National Association of Securities

and Commercial Law Attorneys

(NASCAT)