Today’s classic opinion comes from a time that may seem foreign to most modern class-action practitioners. Not only is it pre-Dukes, it is pre-Amchem. And yet it’s likely one of the most influential class-action opinions of the last twenty years. In re GM Pick-Up Truck Fuel Tank Products Liability Litigation (3d Cir. 1995) involved an alleged design defect in GM pick-up trucks over a fifteen-year period. The plaintiffs had alleged that GM’s side-mounted fuel tanks were likely to catch fire during side-impact accidents.
So far, this sounds like many other hard-fought products-liabilty class actions. But, in this case, GM chose not to fight. Instead, after only four months of consolidated litigation, GM settled with the plaintiffs’ lawyers, and agreed to a certified class for settlement purposes only.
The settlement drew out a number of objections, but the trial court approved the classwide settlement anyway. Notably, once it had found the settlement to be fair, reasonable, and adequate, it did not bother to actually conduct a Rule 23 inquiry. Instead, it just certified the class.
So the objectors appealed. And the Third Circuit agreed with them. Its largest central holding (one accepted enough that it is not often debated today) was that a settlement class must still meet the requirements of Rule 23. But, more importantly for today’s litigators, it also concluded
that the settlement is not fair and adequate; more precisely, we hold that the district court abused its discretion in determining that it was, primarily because the district court erred in accepting plaintiffs’ unreasonably high estimate of the settlement’s worth, in over-estimating the risk of maintaining class status and of establishing liability and damages, and in misinterpreting the reaction of the class
The court also identified a particular danger of settlement-only classes, that does not exist (or at least not to the same extent) for litigation classes.
Despite the potential benefits of class actions, there remains an overarching concern-that absentees’ interests are being resolved and quite possibly bound by the operation of res judicata even though most of the plaintiffs are not the real parties to the suit. The protection of the absentees’ due process rights depends in part on the extent the named plaintiffs are adequately interested to monitor the attorneys (who are, of course, presumed motivated to achieve maximum results by the prospect of substantial fees), and also on the extent that the class representatives have interests that are sufficiently aligned with the absentees to assure that the monitoring serves the interests of the class as a whole. In addition, the court plays the important role of protector of the absentees’ interests, in a sort of fiduciary capacity, by approving appropriate representative plaintiffs and class counsel.
And this, the court held, was why adequacy was so important in settlement-only classes.
Without determining that the class actually was adequately represented, the district judge has no real basis for assuming that the negotiations satisfactorily vindicated the interests of all the absentees. The focus on the negotiation process also cannot address the part of the adequacy of representation inquiry intended to detect situations where the named plaintiffs are unsuitable representatives of the absentees’ claims. To state that class members were united in the interest of maximizing over-all recovery begs the question. Although that observation might allay some concern about a conflict between the attorney and the class, a judge must focus on the settlement’s distribution terms (or those sought) to detect situations where some class members’ interests diverge from those of others in the class. For example, a settlement that offers considerably more value to one class of plaintiffs than to another may be trading the claims of the latter group away in order to enrich the former group.
(Emphasis added.) The court in this case found that the class had not been adequately represented, and that the settlement was not fair, reasonable, or adequate. In deciding that the settlement was not appropriate, the court specifically found that :
- The parties had overstated the likelihood the plaintiffs would lose at a contested certification hearing.
- The parties had overstated the value of the settlement to the class.
- The silence of absent class members did not mean consent.
- The difference in treatment between fleet owners and individual truck owners suggested that the settlement was not fair.
- The court had not made an adequate finding that counsel’s fees were appropriate.
There are three reasons In re GM Pickup is a classic case. One, it’s one of the first cases to deal with the problem of the settlement-only class, and as a result, it has been heavily cited since. Two, it’s a comprehensive look at the issues involved in class-action settlements. (And it was recognized so at the time. How often do you see a concurrence that calls the main opinion "a truly masterful opinion" and a "a most thorough and scholarly analysis"?) Three, take another look at that list of findings. Each of those is a problem that recurs in class actions, frequently. In re GM Pick-Ups was a historic opinion. And those who do not learn from history are doomed to repeat it.