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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 1997
- **Citation:** 521 U.S. 591

## Text

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 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)

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0013%3A26. Public record. Not legal advice.